Industrial company test turns on direct nexus: remote trading receipts and export-linked premiums cannot satisfy the 51% manufacturing threshold.

Income is attributable to manufacturing activity under section 2(6)(c) of the Finance Act, 1970 only if it has a sufficiently proximate and direct nexus with the relevant unit. Profit on sale of chemicals was treated as trading income, and the nomination premium from transfer of export incentive licence was held to arise from export activity rather than manufacture or processing of leather. Interest allocation to the tannery division was accepted as apportionable against manufacturing profits, but the disputed receipts were not. The assessee therefore failed the 51% test and was not an industrial company; the reference was answered against it.

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Issues: Whether the assessee was an industrial company within section 2(6)(c) of the Finance Act, 1970, and whether the disputed receipts and interest apportionment were attributable to the manufacturing activity so as to satisfy the 51% test.

Analysis: The Explanation to section 2(6)(c) requires that income attributable to the relevant manufacturing activity must form not less than 51% of the total income. The Court held that the profit on sale of chemicals was part of trading activity and had no sufficiently proximate connection with the tannery's manufacturing process. The nomination premium received on transfer of export incentive licence was likewise held to arise from export activity, not from manufacture or processing of leather. The interest allocation to the tannery division was also treated as properly apportionable against manufacturing activity while computing the industrial profits. The wider meaning of "attributable to" was held inapplicable on the facts, since the disputed items were not shown to be directly linked to the manufacturing unit.

Conclusion: The assessee did not satisfy the statutory requirement that at least 51% of its total income be attributable to manufacturing activity, and it was not an industrial company.

Final Conclusion: The reference was answered against the assessee, and the Revenue's classification of the assessee as a non-industrial company was upheld.

Ratio Decidendi: For the purpose of the industrial company test under the Finance Act, only income having a sufficiently proximate and direct nexus with the specified manufacturing activity can be treated as income attributable to that activity; remote or trading receipts cannot be counted.

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