Singh Enterprises (Exports) (P.) ... vs Income-Tax Officer.
1989 Latest Caselaw 247 Del

ORDER

Per Grover, Judicial Member - In this appeal the contention is that, the order of the learned Commissioner of Income-tax Central-III, New Delhi, dated 21-11-1985 in respect of assessment year 1980-81 passed under section 263 of the Income-tax Act, 1961 be quashed and the appellant- assessed company be treated as an industrial company for the purposes of determining the tax rate applicable to it.

2. The contention raised above and the related question is interesting because of peculiar features, facts and circumstance of the case.

3. The assessed company filed its return on 27th of June, 1980 declaring income at Rs. 6,40,724 claiming the status as industrial company. The business was that of manufacture and exported of readymade garments.

4. While processing the return since the Income-tax Officer proposed assessment on income which exceeded the returned figure by more than Rs. 1,00,000 draft assessment order was communicated in the assessed on 23rd of March, 1983 and after receiving its objections it came to be forwarded to the Inspecting Assistant Commissioner for directions under section 144B (4) of the Income-tax Act, 1961. The IAC passed orders giving solicited directions on 23rd of July, 1983 and the Income-tax Officer framed assessment under section 143(3) on 26th of July, 1983 in conformity with the directions of the Inspecting Asstt. Commissioner.

5. It must be stated and clarified that neither in the proposed draft assessment not in the directions given under section 144-B, the question of denying the assesseds claim of being assessed as an industrial company figured. In the assessment order, therefore, there was no discussion at all to why such aspect had come to be omitted from adjudication. We are not concerned with the final figure of assessment because the dispute before us is a limited and narrow one and which is whether the Income- tax Officer wrongly accepted the assesseds claim of being treated as an industrial company after raising and computing the assessment.

6. We have already given the date of assessment under section 143(3) read with section 144-B of the Act which was 26th of July, 1983.

7. The assessment after receiving the said order of 26-7-1983 moved on 2-8-1983 an application which we like to notice in the order in its entirety because of its nature and tenor and also to emphasise that it was moved immediately and not that the limitation of filing the first appeal had lapsed :

"August 2, 1983

The Income-tax Officer, Central Circle XXI, New Delhi-110001.

Re : Assessment Year 1980-81

Dear Sir,

Who have received Order under section 143(3) /144B dated 26-7-1983. The order raises a demand of Rs. 1,29,076 treating the company as Non-Industrial Company and charging interest under section 215.

In this context we respectfully submit that the ITATs (Delhi Bench D New Delhi) order for the assessment year 1975-76 and 1976-77 vide ITA Nos. 480 and 481 (Delhi) /1980 confirms us as Industrial Company and the same is reconfirmed by the ITATs Delhi Bench B New Delhi, ITA No. 3501 (Delhi) /1980 order for the assessment year 1977-78 (photocopies enclosed).

We request you to consider the above ITATs Orders and determine the tax liability considering us an Industrial Company.

Thanking you,

Yours faithfully,

for SINGH ENTERPRISES (EXPORT) PVT, LTD."

8. From the above we notice that the demand was raised treating the company as non-industrial one without any discussion and adjudication on the question of status and the application was not even captioned as under section 15A of the Act.

9. The Income-tax Officer, however, after receiving the application passed an order on 8th of August, 1983 which he captioned as under section 154 accepting the assesseds claim on the basis of the Income- tax Appellate Tribunal order that it was an Industrial Company.

10. Certainly the assessed could have no cause of action in filing any appeal against the Income-tax Officers order in response to its application of August 2nd, 1983, which would have been there if the ITO had not accepted the claim and had followed the earlier pattern of assessments in which the assesseds claim was being denied.

11. As mentioned in the application of August 2, 1983 (supra), for the assessment years 1975-76, 1976-77 and 1977-78 the Tribunal had allowed the assesseds claim of being an Industrial Company. It may also be stated that for the assessment years 1979-80 and 1981-82 also the Tribunal vide order dated 15th of February, 1988 in which one of us (Judicial Member) has been a party, accepted the assesseds claim of it being an industrial company following the earlier Tribunals orders of 24th of March, 1981 in respect of assessment years 1975-76 and 1976-77 and 1977-78 (supra).

12. the learned Commissioner of Income-tax, however, issued a notice on 6th of August, 1985 in which it was stated that the Income-tax Officer had passed the order on 18th of August, 1983 captioned as under section 154/155 in a callous manner on the basis of an order of the Income-tax Appellate Tribunal for other assessment years without examining the facts for the assessment year under consideration. According to the Commissioner each year had to be examined separately and it was income from manufacturing activity alone from which income should be have exceeded 51 per cent of the total income and which should have been considered as the basis for deciding the status. The learned Commissioner also obtained that the assessed had not filed details along with the return which could show that the profit from manufacturing activity exceeded 51 per cent of the total income. The learned CIT vide further notice dated 4-11-1985 stated, that since the Tribunal had allowed the Revenues reference requests for 1975-76 and 1976-77, assessment year, the Company could not be allowed benefits of an Industrial Company by invoking the provisions of section 154 of the Act.

13. The assessed resisting the CITs proposed action of canceling the ITOs order accepting its claim of being an Industrial Company had submitted vide communication dated 6-9-1985, a copy of which has been placed on our record. that the CITs allegation that statistics had not been furnished to the ITO to be entitled to the related benefits of being an Industrial Company was not correct as the assessed was engaged exclusively in manufacturing activity and no trading was involved. The contention was that the constitute "trading" the same product must be bought and sold.

14. The learned Commissioner, however, passed the impugned order and held that the benefits of Industrial Company wrongly come to be allowed by the ITO, which order be cancelled. In paragraph 6 of the his order the Commissioner quoted section 2(7) (c) of the Finance Act No. 2 of 1977 which states that an " Industrial Company" means a company which is mainly engaged........... or in the manufacture or processing of goods or in mining etc. " In the Explanation to the said sub-section it is provided :

"For the purposes of this clause, a company shall be deemed to the mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture of processing of goods or in mining. If the income attributable to any one of the aforesaid activities included in its total income of the previous year (as computed before making any deduction under Chapter VI-A of the Income-tax Act), is not less than fifty one per cent of such total income.

According to the CIT major part of the assesseds company income was from Duty Drawbacks and cash incentives which could be attributed to the trading activities namely, export of the goods that may have been manufactured by the assessed for sale.

15. We, however, found that the necessary exercise had been done by the Tribunal in respect of assessment years 1975-76 and 1976-77 and by closely analysing the provisions of section 2(8) (c) of the Finance Act, 1975 and 2(7) (c) of the Finance Act, 1977 had held that the assessed was engaged in manufacturing activity. Such being the position it cannot be said to be a case where the CIT can be said to have brought into lime light something new. If the assessed was held to be engaged in manufacturing activity there could be no question of duty drawback and/or cash incentive being linked up with any trading activity, because it would be assured to bifurcate the manufacture and export of manufactured goods as separate activities.

16. Independent of the above jurisdictional High Court of Delhi judgment in the case of Nu-Look (P.) Ltd. v. CIT [1986] 157 ITR 253 also comes to the rescue of assessed, inasmuch as it has been held therein that when the assessed made ready-made garments whether it used its own cloth to make the cloths or tailored garments for the customers out of customers clothe there was essentially no different in the two activities. If this view is to be held as correct and we at Delhi cannot even think of having a different opinion then to say that manufacturing of garments and their export constituted two activities would be wholly wrong.

17. We have already observed above that the question is an interesting one in the sense that the basis of Commissioners 263 order is that it was highly debatable whether the appellant company was an Industrial company or non-industrial one and such question could not be decided by way of rectification within the purview of section 154/155 of the Act.

18. According to us, however, the position is different. What the assessed did was to point out that an important aspect of the assessment was left out of consideration and that the status had been changed without passing an appropriate order and requested that the orders of the Income-tax Tribunal being there for the earlier years, the same should be made the basis of the assessment for this years also and the Income-tax Officer accepted such contention. Therefore, the Income-tax Officers order dated 8th of August, 1983 though captioned as under section 154 must be held to be a part of the regular assessment order under section 143(3) of the Act and nothing more or less.

19. In the above context, the question would arise whether, if an Income-tax Officer passes an order of assessment in conformity with the Tribunals order though such order is for the earlier assessment years, whether the Commissioner would be entitled to exercise his jurisdiction under section 263 and cancel assessment or change the status, as done in the present case, to which our answer is un-hesitatingly in the negative. Therefore, by holding that what the assessed required the Income-tax Officer was to pass orders in relation to its claim of being an industrial company and the Income-tax Officer accepted such request and passed supplementary assessment order in conformity with the Tribunals decision in the earlier years, we find no justification for the Commissioner of Income tax order canceling the ITOs order of 8-8- 1983.

20. While deciding this appeal, we are conscious that the revenue was granted reference in relation to the Tribunals orders in respect of assessment years 1975-76 and 1976-77, but that would make no difference as far as the year under appeal is concerned because we find no provision under the Income-tax Act by which an order of assessment passed in conformity with the Tribunals decision can come for review, change or cancellation under section 263 of the act adversely against the assessed.

21. Accordingly canceling the Commissioners impugned order, we allow this assesseds appeal.