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TMI Blog1972 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to be a manufacturing unit in the sense in which the term is ordinarily understood. He dismissed the appeal. The assessee filed a further appeal before the Income-tax Appellate Tribunal. The Tribunal considered the meaning to be given to the term "manufacture" and also considered the judicial interpretation of the term in certain decisions of courts and found that the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 manufacture or processing of goods. The meaning of the term "mainly engaged" is indicated in the Explanation but with that we are not concerned at present. There is no dispute that the assessee does not fall within the first of the three categories mentioned just now. The controversy is whether the nature of the activity carried on by the assessee in running its hotel could be said to be a busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 exception and to illustrate our point, reference may be made to the case in Varkey v. Agricultural Income-tax and Rural Sales Tax Officer Though green leaves plucked from tea bushes may not, in the commercial or popular sense, fall within the term "tea", the Supreme Court held in that case that in the scheme of section 3 of the Travancore General Sales Tax Act, 1124, seeking to tax the turnover of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinary 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 restaurant by manufacturing or processing them. This necessarily takes us to the question of the scope of the term "manufacture and processing" as understood in the technical sense as well as in the popular sense. It is necessary to see whether there is any departure from the technical sense in the use of this term in the popular sense. There is a fairly large volume of case law concerning the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 learned judge took the view that the finished product was different from the medicines which was employed for its making and therefore the case was one of manufacture. The learned judge concluded that it was a case where the company was a dealer as it manufactured or produced goods. In Dr. Sukh Deo v. Commissioner of Sales Tax, where a similar question arose, the court took the view that the preparat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. State of Punjab. The question whether dealers engaged in the business of making gold ornaments were running a manufactory arose for decision in the Orissa High Court in Jammula Srirangam Bros v. Sales Tax Officer. A manufactory was understood as a place where a manufacture was being carried on. The question as to what was "manufacture" had, therefore, to be considered in that case. The court took the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m "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 the context in which the word "processing" is used that it is complementary to the term "manufacture" and, therefore, would not be such as to cover manufacture also. In other words, activities of a nature in regard to goods which may not amount to manufacture but which would result in the doing of something to the goods to change or alter their form may be taken in by the term "processing". We need not go in to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 the assessee manufactures or processes goods in its hotel. We have already referred to the definition of "industrial company". It is possible to read in the context of the definition that the reference is to the manufacturing activity. We can easily draw a distinction between manufacturing concerns and trading concerns. It is true that any manufacturing concern must also normally engage in trading activity in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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