1983 (12) TMI 11 - HC - Income Tax

Summary

Issues involved: Determination of whether the applicant could be treated as an industrial company u/s 2(8)(c) of the Finance Act, 1975 based on the nature of activities carried out in the restaurant section.

Summary:
The case involved a reference u/s 256(1) of the I.T. Act, 1961 regarding the classification of the applicant as an industrial company. The applicant, a private limited company, claimed to be considered as an industrial company to avail of the concessional tax rate. The dispute centered around whether the restaurant section could be deemed a manufacturing or processing unit, as required by section 2(8)(c) of the Finance Act, 1975.

The Tribunal, relying on precedent, held that the restaurant section did not qualify as a manufacturing or processing unit, thus denying the applicant's claim. The primary issue revolved around whether the preparations made in the restaurant constituted manufacturing or processing of goods. The applicant argued that the variety of dishes prepared involved processing of raw materials, while the Department contended that not all preparations in a hotel could be considered manufacturing or processing.

The court examined the definitions of "manufacture" and "processing" from various legal sources and highlighted the distinction between the two terms. It was emphasized that for an operation to be considered processing or manufacturing, the commodity must undergo a substantial change, losing its original character and emerging as a new product. In the absence of evidence showing income attributable to processed preparations, the claim of the entire restaurant income being from manufacturing or processing activities was dismissed.

Additionally, the court noted that a restaurant is primarily a trading concern, not engaged in manufacturing or processing goods for sale. Legislative provisions further indicated that hotels, including restaurants, are not typically classified as industrial companies. Consequently, the applicant failed to demonstrate that over 51% of its income was from manufacturing or processing activities, leading to the rejection of the claim.

In conclusion, the court ruled in favor of the Department, affirming that the applicant could not be treated as an industrial company u/s 2(8)(c) of the Finance Act, 1975 due to the lack of sufficient evidence supporting the classification of the restaurant section as a manufacturing or processing unit.