TMI Blog1983 (7) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant Finance Act, 1966 ('the Act'). 3. The assessee was incorporated on 20-12-1960 with the main object of manufacturing all kinds of machineries, implements, tools, etc. Hence, the assessee was treated as a company mainly engaged in the manufacture of goods within the meaning of the relevant Finance Act up to and including the assessment year 1977-78. However, the assessee closed its factory and stopped production with effect from 28-9-1976. It allowed its machineries to be used by another party in consideration of hire charges received by it. For the whole of the calendar year 1977, relevant for the assessment year 1978-79, as well as the subsequent two years which are under consideration, the assessee had leased out the plant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed to be treated as an industrial company. The ITO refused to accept the claim of the assessee on the ground that it was not mainly engaged in the manufacturing activities nor its income from manufacturing activities exceeded 51 per cent of the total income. In the second year under consideration, the assessee applied to the ITO to pass a rectification order under section 154 of the Income-tax Act, 1961 ('the 1961 Act') and treat the assessee as an industrial company. By an order under section 154 the ITO refused to do so. 5. The assessee appealed to the Commissioner (Appeals) against the orders under section 143(3) of the 1961 Act for the assessment years 1979-80 and 1980-81, and the order under section 154 for the assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainly engaged in the business of manufacture of goods or even if it is not so mainly engaged, it derives income in any year to the extent of 51 per cent or more of its total income from such activities. He pointed out that during the three years under consideration, the income from manufacturing activities derived by the company was not equal to 51 per cent or more of its total income. Hence, the assessee did not come under the second alternative of the said circular. The assessee was also not carrying on manufacturing activities itself as it had let out on hire almost the entire block of the plant and machineries formerly used by it for manufacture. Hence, the assessee could not be said to have been mainly engaged in the manufacture of goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the appeals before us. Shri V. H. Patil relied on the aforesaid circular dated 17-2-1973 of the CBDT, as well as the decisions in the cases of Griffon Laboratories (P.) Ltd. v. CIT [1979] 119 ITR 145 (Cal.) and CIT v. Neo Pharma (P.) Ltd. [1982] 137 ITR 879 (Bom.) in support of his contentions. 7. We have considered the contentions of both the parties, as well as the facts on record. The short question that is raised in these appeals is whether the assessee can be regarded as an industrial company within the meaning of the Finance Act. The definition of 'industrial company' as laid down in section 2(7)(d) of the Act, reads as follows : "(7) For the purposes of this section and the First Schedule, --- (d) 'industrial company' mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three years. At the same time, we find that the assessee was mainly deriving income from hire rent by letting out its machineries to another party. Hence, it cannot be said to be mainly engaged in manufacturing or other prescribed activities. It is true that the assessee sold some goods manufactured earlier by it out of the opening stock of the first year under consideration. But, there was no manufacturing activity in that year. It is also true that the assessee subsequently had operated a small amount of its own machineries but the income therefrom was negligible. Similarly, the assessee had also purchased a small amount of new machinery amounting to about Rs. 26,700 only. Considering the nature and extent of the manufacturing activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Griffon Laboratories (P.) Ltd., the High Court observed that --- "A manufacturer may hire a plant or machinery and employ hired labour and manufacture the goods. But to earn the benefit of the concessional rate of tax a company must mainly engage itself in the manufacture or processing of goods specified in the aforesaid provisions either personally or by someone under its supervisory control or direction." We thus find that in that case, the assessee was engaged in the manufacturing activities though with the help of the machineries not, belonging to it. In the case before us, the assessee was not engaged in any manufacturing activity. Similarly, in the case of Neo Pharma (P.) Ltd., the assessee itself was manufacturing goods, though w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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