Commissioner Of Income Tax vs Jamnalal Sons Ltd.
2007 Latest Caselaw 434 Bom

JUDGMENT

J.P. Devadhar, J.

1. Heard the learned Counsel for the respective parties.

2. All these applications filed by the Revenue under Section 256(2) of the IT Act, 1961 were admitted on the following questions of law:

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the order of the CIT(A) ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee is an industrial company ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there has been no violation of the mandate of Section 104 of the IT Act, 1961 either in letter or spirit ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the capital gains realised by the company is not includible in the gross total income for the purpose of working out distributable income within the meaning of Section 104 of the IT Act, 1961 ?

3. The assessment years involved in these applications are 1983-84 to 1987-88.

4. At the outset the learned Counsel for the applicant fairly stated that question No. 4 raised in the reference applications does not arise out of the order of the Tribunal. Accordingly, the learned Counsel for the Revenue does not press question No. 4.

5. As regards question Nos. 1 to 3 are concerned, the AO in the assessment order has held that the assessee is not an industrial company and as the assessee company has not declared and distributed dividend, the assessee was liable to pay additional income-tax under Section 104(1)(a) of the Act.

6. On an appeal filed by the assessee, the CIT(A) has held that the assessee is an industrial company and therefore, additional income-tax is not payable. On further appeal filed by the Revenue, the Tribunal upheld the order of the CIT(A) and further held that even if the assessee is treated as not an industrial company, it did not have sufficient funds to declare dividends in view of the future liabilities of the company. As the reference applications filed by the Revenue under Section 256(1) of the Act have been dismissed, the Revenue has filed these applications under Section 256(2) of the Act.

7. The only question to be considered in all these applications is whether the respondent assessee is an industrial company.

8. The activities of the assessee-company were carried out at Wardha, Bombay and Aadilabad. It is not in dispute that the assessee at its Aadilabad unit was running a ginning and pressing factory which constitutes a manufacturing activity. Since the income of the assessee from the manufacturing activity did not exceed 51 per cent of the total income, the AO held that the assessee is not an Industrial company. In the Board's Circular No. 103 dt. 17th Feb., 1973 reported in [(1973) 88 ITR (St) 80] while interpreting the term 'industrial company' it is clarified that; even if the income attributable to the manufacturing activities is less than 51 per cent, in status the assessee would still be an industrial company, if it is mainly engaged in the business of manufacturing or processing of goods. Thus, as per the Board's circular, determination of the question whether a company is an industrial company is not to be judged by the sole yardstick of percentage attributable to the manufacturing activities. In other words, while the limit of 51 per cent is an index to consider whether a company is an industrial company or not, it cannot be the sole deciding factor.

9. In the present case, the CIT(A) as well as the Tribunal have noticed that in the asst. yr. 1983-84, the total income generated from the activities at all the three places was Rs. 6,15,41,875 out of which Rs. 5,93,75,040 was from Adilabad unit where the manufacturing activity was carried on by the assessee. It is further held that the total expenditure at Aadilabad was far greater than the expenditure under the various heads either at Wardha or at Bombay. Thus, the finding given by the Tribunal that the assessee is an industrial company is based on the findings of fact. No question of law arises out of the order passed by the Tribunal. Accordingly, all these applications are dismissed.

10. Rule discharged. No order as to costs.