TaxTMI 
TaxTMI 
TaxTMI 
1997 (12) TMI 71
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....t the investment in the business constitutes an "industrial undertaking" and, therefore, the investment in the said business is to be exempted from wealth-tax for the assessment year 1976-77. The 7th Wealth-tax Officer, Madurai-2, rejected the claim of the assessee so made. On appeal, the Appellate Assistant Commissioner, Madurai, upheld the said decision. The assessee agitated the matter by filing Wealth-tax Appeal No. 4 (Mds) of 1978-79 before the Income-tax Appellate Tribunal, "C" Bench, Madras (for short "the Tribunal"). The Tribunal, in turn, while disposing of the appeal, recorded a finding that the assessee was engaged in "manufacture or processing of" sweetmeats and biscuits and so holding, the Tribunal ultimately held that the assessee was entitled to the exemption under section 5(1) (xxxii) of the Wealth-tax Act. It is on the basis of the finding, as stated above, the Tribunal allowed the appeal, by its order dated February 23, 1979. This reference has arisen out of the said order of the Tribunal. Section 5 of the Wealth-tax Act deals with exemptions in respect of certain assets. Section 5(1)(xxxi) and (xxxii), relevant for our present purpose, read as under : "5....
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.... of goods", however, is not defined in the Wealth-tax Act. Therefore, it is implicitly necessary for us to understand the concept or meaning of the expression, "manufacture or processing of goods", before ever, we could adjudicate upon the question as to whether the activity of the assessee in the preparation of sweetmeats and biscuits and sale of the items so prepared can ever be construed, as an "industrial undertaking" falling within the definition, appended to section 5(1)(xxxi). If the assessee's activity falls within the definition of "industrial undertaking", then definitely, the assessee is entitled to the exemption under section 5(1)(xxxii) or otherwise, he may not be entitled to any exemption therefor. The expression, "manufacture or processing of goods" had been-the subject of construction and interpretation in many a decision of superior courts of jurisdiction-apex and High Courts. Precedents on the subject relied upon by Mrs. Chitra Venkataraman, learned counsel representing the Revenue, and Mr. R. Janakiraman, learned counsel appearing for the assessee, may, we feel, be referred to here, in rather a bid to draw inspiration from them and solve the tangle posed in th....
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....8, and that the assessee is an 'industrial company', within the meaning of the definition contained in that section ?" (h) Their Lordships of a Division Bench of the Kerala High Court took into consideration various precedents emerging from superior courts of jurisdiction in understanding the expression, "manufacture or processing" ; and ultimately summed up the position (pages 298-299), which reads as under : "The result of our discussion can be summed up in these terms : Manufacture is a process which results in an alteration or change in the goods which are subjected to such manufacture. A commercially new different article is produced. May be that is produced by manual labour or mechanical force or even by nature's own process such as drying by heat of the sun as in a salt pan (Ardeshir H. Bhiwandiwala v. State of Bombay [1961] 11 LLJ 77 ; 20 FJR 113 (SC)), or fermentation of toddy (Thomas v. District Judge, Alleppey [1965] KLJ 487 (Ker)). The essential question is whether a commodity which, in a commercial sense, is different from the raw materials has resulted. Notwithstanding what we have said above every case where the court is called upon to consider the meaning of the ....
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....her persons concerned, the customers of the hotel and the employees, would employ the term in the sense, in which it is sought to be construed. The particular provision of the Finance Act with which we are concerned here prescribes specific rates of tax and the assessee seeks to be included within the definition of the term 'industrial company', so as to get the benefit of the lesser rate of taxation. This benefit is given only to industrial companies which satisfy certain requirements. The four categories of companies which are included in the scope of the term are those mainly engaged in the business of generation or distribution of electricity or any other form of power or mainly engaged in the construction of ships or similarly engaged in mining or in the manufacture or processing of the goods. The context is apparent from this definition. The question ultimately would be whether in common parlance the activity of the assessee could be said to be one of manufacture or processing of the goods, whatever may be the technical meaning of the term. The assessee is dealing every day with his customers. Could it be said that the customers visiting the assessee's hotel would ask for the....
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....is to manufacturing concerns and not to trading concerns. That is more the reason why in the popular sense we cannot consider the assessee as manufacturing goods. Counsel for the Revenue points out to us that in the scheme of the Income-tax Act the business of a hotel and that of an industrial undertaking are treated differently as could be seen from a reference to these terms in section 80J of the Act. We do not think that reference to this is necessary. The result is that we are unable to agree with the view taken by the Appellate Tribunal that the assessee is an 'industrial company' within the meaning of the definition contained in section 2(6)(d) of the Finance Act, 1968. We do not think that the activity carried on by the assessee in preparing articles of food from raw materials constitutes 'manufacture or processing of goods'. Therefore, we answer the question referred to us in the negative, that is, in favour of the Revenue and against the assessee." (ii) (a) In CIT v. Buhari Sons Pvt. Ltd. [1983] 144 ITR 12 (Mad), the question that came up before a Division Bench of this court was as to whether preparation of eatables in a hotel does amount to "manufacture of goods" as pe....
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.... blending, heating, etc., and processing as contemplated by the definition was involved in the activity of the assessee. (e) The following question was referred under section 256(1) of the Income-tax Act, 1961, at the behest of the Commissioner of Income-tax, Bombay (at page 616): Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee is an "industrial company" as defined in section 2(7)(c) of the Finance Act, 1973 ? (f) Their Lordships of the Division Bench of the Bombay High Court, in answering the question, held that the object of section 2(7)(c) of the Finance Act, 1973 was to give concession in the rate of income-tax to manufacturing concerns. The concession was not intended to be given to trading concerns. The activity carried on by the assessee was I trading activity and hence the assessee was not an industrial company entitled to the concessional rate of tax. (g) While so holding, the said Bench concurred with the basic approach adopted in Casino (Pvt.) Ltd.'s case [1973] 91 ITR 289 (Ker) and Buhari Sons Pvt. Ltd.'s case [1983] 144 ITR 12 (Mad). (h) The Bench ultimately answered the question in the neg....