Industrial company status and section 263 revision turned on proof of the statutory income-condition for concessional treatment.

Purchase of raw materials, manufacturing charges, excise duty payments, machinery possession, and the prior-year finding of manufacturing activity established that the assessee carried on manufacture of goods and was an industrial company under section 2(7)(c) of the Finance Act, 1981. However, the record did not permit a finding on whether income from manufacturing was at least 51 per cent of total income, a material statutory condition for the concessional status. On that basis, the Commissioner was justified in invoking section 263 of the Income-tax Act, 1961 and directing fresh assessment for further enquiry.

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Issues: (i) Whether the assessee was an industrial company within the meaning of section 2(7)(c) of the Finance Act, 1981. (ii) Whether the Commissioner was justified in invoking section 263 of the Income-tax Act, 1961 and setting aside the assessment for fresh enquiry.

Issue (i): Whether the assessee was an industrial company within the meaning of section 2(7)(c) of the Finance Act, 1981.

Analysis: The record showed purchase of raw materials, debit of manufacturing charges, payment of excise duty, possession of machinery, and a prior finding for the immediately preceding year that the assessee was engaged in manufacturing activities. These circumstances established that the assessee carried on manufacture of goods.

Conclusion: The assessee was an industrial company within the meaning of section 2(7)(c) of the Finance Act, 1981.

Issue (ii): Whether the Commissioner was justified in invoking section 263 of the Income-tax Act, 1961 and setting aside the assessment for fresh enquiry.

Analysis: Although the assessee was held to be an industrial company, the material on record did not enable a determination whether the income attributable to manufacturing activity was not less than 51 per cent of the total income. The assessment therefore required further enquiry on a material aspect bearing on the applicability of the concessional status.

Conclusion: The Commissioner was justified in setting aside the assessment and directing fresh assessment under section 263 of the Income-tax Act, 1961.

Final Conclusion: The assessee succeeded on the characterisation of its business as industrial, but the revisionary order was sustained because the assessment required fresh examination of the statutory income condition.

Ratio Decidendi: A finding that an assessee carries on manufacture of goods may establish industrial-company status, but an assessment may still be revised under section 263 where the record does not permit determination of a material statutory condition affecting that status.

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