TMI Blog1972 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... Industrial company' within the meaning of the definition contained in that section?" The assessee is a private limited company running a hotel business. In connection with the assessment of the company for the year 1968-69, the assessee claimed to be an "industrial company" as the term is defined in the Finance Act, 1968. The claim to be assessed at the rate of tax applicable to an industrial company, namely, at 55 per cent. of the net income, was not accepted by the Income-tax Officer. Before the Appellate Assistant Commissioner it was contended by the assessee that the activity of the assessee is one of converting the raw materials into finished products, namely, foodstuffs, and, therefore, the assessee was carrying on the activity of manufacturing. A company engaged in the process of manufacturing being included in the definition of an industrial company by the definition in section 2(6)(d) of the Finance Act, 1968, the assessee claimed that it should be taxed at the rate applicable to an industrial company. The Appellate Assistant Commissioner found that though manufacturing operations were carried on by the assessee in the conduct of its business, a hotel could not be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one in which the public are substantially interested, and if it be an industrial company, the tax is 55 per cent. on so much of the income as does not exceed Rs. 10,00,000 and on the balance, if any, at 60 per cent. If the domestic company is one where public are not substantially interested and is also not an industrial company, the rate of tax is 65 per cent. of the total income. The total income of the assessee does not exceed Rs. 10,00,000 and it is a domestic company in which the public are not substantially interested. Therefore, if it is an industrial company the tax it has to pay for the assessment year 1968-69 is 55 per cent. of its total income whereas if it is not an industrial company it has to pay tax at 65 per cent. An industrial company, as the definition points out, must belong to one or other of the categories mentioned in section 2(6)(d) of the Finance Act. That definition refers to four categories, namely: (1) a company mainly engaged in the business of generation or distribution of electricity or any other form of power. (2) a company mainly engaged in the business of construction of ships, (3) so engaged in mining, and (4) so engaged in the manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed to it in common parlance in preference to its scientific or technical meaning has normally to be accepted. The legislature is supposed to have employed a term in the concerned statute not in its dictionary sense but as is understood by the common man or, in other words, in the "popular sense", meaning the sense in which the people conversant with the subject-matter with which the statute is dealing will refer to it. The natural meaning, according to the accepted usages of English speech, must be given to the term. The context or the setting in which the term appears and the nature of the enactment is also of relevance in understanding the meaning of the term. It must be said here, by way of abundant caution, that though this is normally the rule, this need not be taken to be an absolute rule of construction. It is not difficult to visualise cases where a statute may employ a term to be read, in its peculiar context, according to its literal meaning and not in the popular or commercial sense. But, these exceptions are easy to find from the nature of the statute and the context in which the relevant term is employed in the statute. To cite an instance of the case of such except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be the relevant criterion. Summing up the question, the Supreme Court said thus: ".... the test that would be applied is what would be the meaning which persons dealing with coal and consumers purchasing it as fuel would give to that word. A sales tax statute being one levying a tax on goods must, in the absence of a technical term or a term of science or art, be presumed to have used an ordinary term as coal according to the meaning ascribed to it in common parlance. Viewed from that angle both a merchant dealing in coal and a consumer wanting to purchase it would regard coal not in its geological sense but in the sense as ordinarily understood and would include 'charcoal' in the term 'coal'. It is only when the question of the kind or variety of coal would arise that a distinction would be made between coal and charcoal; otherwise, both of them would in ordinary parlance as also in their commercial sense be spoken as coal." We do not think that we should speak any more on this point. We will approach the question of construction in this case bearing this rule of construction in mind. Could it be said that the assessee produces the goods for serving its customers in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or brought into existence which is different from that out of which it is made, in the sense that the thing produced is by itself commercial commodity which is capable as such of being sold or supplied. It does not mean that the materials with which the thing is manufactured must necessarily lose their identity or become transformed in their basic or essential properties. When a goldsmith takes up a lump of gold and fashions it into an ornament the gold remains gold but the ornament produced is, commercially, as well as, in common parlance, something different from a mere lump of gold. When a cobbler uses leather and makes a pair of boots, the leather does not lose its existence, it still remains leather, but the pair of boots is, commercially, as in ordinary speech, a thing different from the leather with which it is made. When a carpenter makes a box out of wood, the box, though it is still wood, is different from mere wood. When a tailor makes a suit of clothes, it does not cease to be cloth, but commercially it is a different thing. In each of these cases a thing is made which is capable of being sold or supplied as a particular commercial article." Applying the test the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that the definitions given by lexicographers are couched in general terms and "do not help in drawing a sharp line of demarcation between mere processing short of manufacture, and making finished articles after manufacturing them". It was further observed that: "........ every change is not manufacture, in spite of the fact that every change in an article may be the result of treatment, labour and manipulation. For purposes of manufacture something more is necessary and there must be a transformation; a new and different article must emerge having a distinctive name, character or use." The difference between the ambit of the terms "manufacture" and "processing" was incidentally considered by the learned judges and it was held thus: "At some point processing and manufacturing will merge. But were the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been 'manufactured' within the meaning of article 203(b)(6)." That no manufacturing process was involved in ginning cotton and the process of ginning did not create anything new or distinctive, was again held by the Punjab High Court in Patel Cotton Co. Private Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess such as drying by heat of the sun as in a salt pan (Ardeshir H. Bhiwandiwala v. State of Bombay ) or fermentation of toddy (Thomas v. District Judge, Alleppey). 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 term "manufacture" has to be considered with reference to the context of the enactment. The mere fact that the definition is satisfied does not necessarily mean that there is manufacture. That should ultimately depend upon the meaning of the term in the sense in which the legislature has apparently used it in the concerned statute. Processing has in one sense a wider meaning than the term "manufacture" as even manufacture may be a process. But, in the context of the Act with which we are now dealing, namely, the Finance Act, 1968, that does not appear to be the position. The definition of industrial company in section 2(6)(d) of that Act refers to various categories of companies and one of them is that mainly engaged in the manufacture or processing of goods. It is evident from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 items in the menu list to be manufactured and supplied to them. We do not think that it would be appropriate to refer, in the ordinary sense in which we understand in the English language, to the production of food materials in the assessee's hotel as manufacture. Any customer visiting a hotel would ask to be supplied with the food and beverages that is for sale in the hotel and if the waiter is to tell the customer that his order is being "manufactured", it is likely that the customer would feel something strange about it. It would not pass off, normally, unnoticed. Equally so the customer may not also appreciate if he is told that the wheat or the meat which are used as raw materials are being "processed" as we understand the term ordinarily. "Processing", in such context, would mean something less than the complete loss of identity of the goods which is the case when the food materials are prepared in the hotel. Hence, if construction of the term in the popular sense is the test to be applied, we do not think that it is possible to say that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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