Common parlance test for industrial company status excludes hotel food preparation from manufacture or processing

The Finance Act, 1968 definition of "industrial company" is to be understood in common parlance, not in a technical sense. Manufacture requires transformation into a commercially new and different article, while processing involves an operation that alters the form of goods. On that approach, food prepared in a hotel for customers is not ordinarily regarded as manufactured or processed goods. A hotel's essential character remains trading, and food preparation is only incidental to that activity. The activity therefore does not amount to manufacture or processing of goods, and a hotel does not qualify as an industrial company under section 2(6)(d).

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Issues: Whether the activity of preparing articles of food from raw materials in a hotel amounts to manufacture or processing of goods so as to make the assessee an industrial company under section 2(6)(d) of the Finance Act, 1968.

Analysis: The definition of industrial company in the Finance Act, 1968 is not a technical definition and must be understood in the ordinary or common parlance sense. Manufacture ordinarily requires a transformation that results in a commercially new and different article, while processing in this context is complementary to manufacture and refers to an operation on goods that alters their form. Applying that test, food prepared in a hotel for customers is not ordinarily described as manufactured or processed goods in common speech. The nature of a hotel business is essentially trading, and the preparation of food is only an incident of that trading activity rather than a manufacturing concern.

Conclusion: The activity does not amount to manufacture or processing of goods, and the assessee is not an industrial company within section 2(6)(d) of the Finance Act, 1968. The question was answered in the negative, in favour of the Revenue and against the assessee.

Ratio Decidendi: For the purpose of the industrial company definition in the Finance Act, 1968, manufacture or processing of goods must be understood in the common parlance sense, and a hotel preparing food for sale does not thereby engage in manufacture or processing of goods.

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