TMI Blog2006 (3) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... J.-In these two appeals, at the instance of the Revenue, the Income-tax Appellate Tribunal, Bangalore has referred the following question of law under section 256(1) of the Income-tax Act, 1961 (for short, hereinafter referred to as "the Act") for our opinion: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee should be treated as an industrial company because it was carrying on business mainly as a manufacturing concern, although a considerable amount of income arose out of rent received on leasing of its manufacturing unit to a sister concern and in that view in cancelling the order passed by the CIT under section 263 in which a direction had been given to the Assessing Officer to treat the assessee as a non-industrial company?" The facts leading to this reference are as under: The assessee-company was earlier engaged in the business of manufacture of liquor. It had leased out its plant and machinery to a sister company some time in the year 1976-77. However, the assessee still retained for itself a bottling unit at Pondicherry and also another unit engaged in the manufacture of stationery goods at Bangalore. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sits, lease rents, and compensation KB and DI are not directly attributable to manufacturing activity conducted by the assessee, and therefore, if the said income is excluded, the income from the manufacturing activity is less than 51 per cent, and, therefore, it does not fall within the definition of an industrial company and the assessee is not entitled to the benefit of the lower rate of tax at 60 per cent. Therefore, he submits that the order passed by the Tribunal calls for interference. Per contra, learned counsel, Smt. S. Nitya, appearing for the respondent, contends that in the first place, as is clear from the question referred for our consideration, the only income which has to be considered is lease rent as forming part of the income from manufacturing activity and, secondly, she contends that as is clear from the wording of the circular and the section itself, the decisive factor to decide the benefit is whether the assessee is mainly engaged in the business of manufacturing activity and if it is so, then, irrespective of the income derived from the said business, the assessee would be entitled to the concessional rate of tax at 60 per cent. In order to appreciate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for consideration and the Board are advised that an 'industrial company' would mean- (i) a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining, even if its income from such activities is less than 51 per cent, of its total income; and (ii) a company which, even though not mainly so engaged, derives in any year, 51 per cent, or more of its total income from such activities. 3. Necessary instructions may please be issued to all the officers working in your charge on the above lines." A conjoint reading of the aforesaid provision and the circular makes it clear that an "industrial company" means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. A company which is mainly engaged in the aforesaid businesses, irrespective of the income which it derives from the said activity, is entitled to the benefit conferred under the Act in so far as the payment of income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assesses and the fiscal laws may be correctly applied. Hard cases which can be properly categorised as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities. Therefore, it is clear that the aforesaid circular which is clarificatory in nature clarifies the legal position and confers the benefits on the assessee and the authorities are bound by the said circular in the administration of the Act. The learned counsel for the Revenue relied on two judgments of the Supreme Court in support of his contention viz., India Leather Corporation P. Ltd. v. CIT reported in [1997] 227 ITR 552 and Minocha Brothers P. Ltd. v. CIT reported in [1993] 204 ITR 628. In our view, the two judgments of the Supreme Court on which reliance was placed by the Revenue are of no assistance. In India Leather's case [1997] 227 ITR 552 (SC), the assessee was a private limited company carrying on business of tanning hides and skins by chemical process and selling the resultant leather as well as purchase and sale of leather on commission basis. By virtue of the Explanation to the aforesaid section, it claimed that income derived fr ..... 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