TMI Blog2003 (5) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmation from ANZ Grindlays Bank. In the absence of any evidence the claim of legal and professional expenses were disallowed. 4. In first appeal ld.CIT(A) has again reiterated the same facts as mentioned by Assessing Officer and mentioned that the appellant has again failed to produce any documentary evidence in support of claim of expenses. The addition was confirmed. 5. On behalf of the assessee ld.A.R. Shri H.P. Manajani submitted that the assessee is an investment company holding shares of various companies. M/s. Gabriel India Ltd. offered partly convertible debenture, however, the company had insufficient funds to avail this attractive offer, therefore, sought help for arrangement of finances so that the debentures could be purchased. Through goods offices of Anand Pvt. Ltd. the Bridge Loan of Rs. 10 lakhs was arranged. Subsequently for buying back of the said debentures the good offices of Anand Pvt. Ltd. were utilized. Since the assessee had no direct dealing with ANZ Grindlays Bank, therefore, for arrangement of Bridge Loan and for buying back of non convertible portion of debentures the contacts of Anand Pvt. Ltd. were exploited. For this services Anand Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the generation of scrap was only incidental to the manufacturing activity which could not be considered as income "derived from industrial undertaking". According to the ld. CIT(A) generation of scrap was independent to manufacturing activity, therefore, not entitled for claim of deduction under section 80HH and the action of the Assessing Officer was confirmed. 11. Before us ld. A.R. has submitted the facts of the case as mentioned in above paras and in support of the claim cited a decision of Hon'ble Madras High Court in the case of Fenner (India) Ltd. v. CIT (No. 2) [2000] 241 ITR 803 (Mad.). 12. On behalf of the Revenue ld. D.R. has supported the orders of the authorities below and argued that the sale of scrap cannot be said to be income derived from manufacturing activity as held by ld. CIT(A), therefore, the claim deserves to be dismissed. 13. We have carefully considered the submissions of both the parties in the light of the orders of the authorities below as well as the case law cited. In view of the facts referred above we have carefully considered the precedent of Hon'ble Madras High Court in the case of Fenner (India) Ltd. wherein it is expressed that, "the scra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The claim of the appellant is that the Income Tax rate at 45% plus surcharge should have been applied against which the Assessing Officer has applied income tax rate at 50% plus surcharge thereon. The ground also refers that the appellant company is neither a trading company nor an investment company, therefore, not liable to income tax at higher rate but falls under the category of lower rate of tax. 17. As per the order passed under section 143(3) r.w.s. 148 dated 21-11-1994 the Assessing Officer has observed that the rate of tax was wrongly charged by treating as a manufacturing company instead of charging the rate leviable on an investment and trading company. Originally the Assessing Officer has levied the tax @45% plus surcharge however, on scrutiny of the income from various sources it was found that the income from manufacturing activity did hot constitute more than 50%. The Assessing Officer has recorded that the gross total income of Rs. 8,58,759 comprised of the following : (1) Investment income (Dividend) Rs. 4,19,942 (2) Trading income Rs. 18,596 (3) Manufacturing Operation income balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently opposed the charge of tax at 50% on the assessed. The first limb of argument of ld. A.R. was that the assessee has always been treated as manufacturing concern. In support he has drawn our attention on the original order for the same assessment year i.e., assessment year 1991-92 dated 8-3-1993 wherein as per the body of assessment] order the Assessing Officer has mentioned that the assessee's business was of manufacturing of Center Tubes used in automobile industries. ld. A.R. has also mentioned that while passing the order under section 143(3) r.w.s. 148, the order in appeal, the nature of business in the assessment order was mentioned by Assessing Officer as manufacturing of Center Tubes and investment in shares. He has thus submitted that revenue authorities have actually admitted this fact that the assessee was in fact a manufacturing company during the year under consideration. There was a slight shortfall in the income from manufacturing activity due to which it was absolutely wrong on the part of the revenue authorities to change the character of the company from manufacturing to investment or trading company. His next argument was in respect of rate of income tax appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50% of the total income an investment company (ii) Any other case 45% of the total income". In view of above, in the case of a company in which public are not substantially interested, then in case of a trading or investment company 50% rate of tax is to be applied and in any other case the rate of tax is to be applied at 45%. The Finance (No. 2) Act also defines "Investment Company" as follows : "Investment Company" mean a company whose gross total income (as defined in section 80B of the Income-tax Act) consists of mainly of income which is chargeable under the heads "Income from house property". "Capital gains" and "Income from other sources" or of income by way of interest on security". The definition of trading company is as follows : "trading company" means a company whose business consists mainly in dealing in good merchandise manufactured, produced or processed by a person other than that company and whose income attributable to such business included in its gross total income (as defined in section 80B of the Income-tax Act) is not less than fifty one per cent of the amount of such gross total income". As far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added together. The legislature must have taken into account the difference of the two conjunctions on the basis of their common usage as commonly acceptable, therefore, used a selective terminology. Thus for the purpose of determining the total income of a company the income arising from trading activity or income arising from investment company has to be taken into account independently as well as separately while comparing the income that a company falls in residual category as mentioned in column (ii). In our opinion the intention of the legislature is not to club and to add together the income of trading company and the income of investment company for determination of rate of tax. In our opinion the intention of the Legislature was that where the company is either a trading company or an investment company then the tax at the rate of 50% is to be charged. For that purpose a separate category as Column I(2)(i) of paragraph-E is made and for any other company being not a trading company or a investment company a separate category in column (ii) is made for which rate of tax prescribed at 45%. Since in the instant case admittedly the assessee was held as manufacturing company an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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