Company cutting & polishing diamonds for export qualifies as "industrial company" under Finance Act, 1975.

The High Court determined that a company engaged in cutting and polishing raw diamonds for export qualifies as an "industrial company" under the Finance Act, 1975. The court held that these activities amount to processing of goods, meeting the Act's definition. However, the company must ensure that income from such processing activities is at least 51% of the total income to qualify fully. The case outcome favored the company, potentially categorizing it as an "industrial company" pending verification of the income criteria by the Tribunal, with no costs awarded.

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Issues Involved:
The judgment involves determining whether a company engaged in cutting and polishing raw diamonds for export qualifies as an "industrial company" under section 2(8)(c) of the Finance Act, 1975.

Details of the Judgment:
The case pertains to the assessment year 1975-76 where the assessee, a limited company dealing in diamonds, claimed to be an "industrial company" under the Finance Act, 1975. The Income-tax Officer initially rejected this claim, but the Commissioner of Income-tax (Appeals) accepted it. The Revenue's appeal against this decision was dismissed by the Income-tax Appellate Tribunal, leading to the reference to the High Court.

The main question in consideration was whether the company's activities of importing raw diamonds, cutting, and polishing them for export constituted being an "industrial company" as per the relevant section. The definition of an "industrial company" under section 2(8) includes companies mainly engaged in the manufacture or processing of goods.

The court analyzed the definitions of "manufacture" and "processing" in the context of the Act. While "manufacture" implies a transformation resulting in a new article, "processing" is broader and involves preparing goods for marketable form. The court emphasized that the expressions "manufacture" and "processing" are distinct and used intentionally to widen the scope of what constitutes an "industrial company."

Considering the nature of diamonds and the transformation they undergo through cutting and polishing, the court concluded that such activities amount to processing of goods, if not manufacturing. It held that the company was engaged in the business of processing goods within the Act's definition.

However, the court noted the requirement that income from such processing activities should be at least 51% of the total income for the company to qualify as an "industrial company." As this specific aspect was not determined in the case, the Tribunal was tasked with verifying this factual detail.

In conclusion, the court ruled that cutting and polishing raw diamonds for export constituted processing of goods, potentially qualifying the company as an "industrial company" if the income criteria were met. The question posed was answered accordingly, with no costs awarded.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.

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