The Commissioner Of Income Tax (Central) Ludhiana v. M/S Bhagyoday Investment (P) Limited, Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. ITR No.187 of 1996Date of decision: 7.8.2009 The Commissioner of Income Tax (Central) Ludhiana Vs. M/s Bhagyoday Investment (P) Limited, Ludhiana -----Applicant -----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:- Mr. Krishan Mehta, Sr.Standing Counsel for the revenue. Mr. Akshay Bhan, Advocate for the assessee. Adarsh Kumar Goel,J. 1.This reference has arisen from the order of the IncomeTax Appellate Tribunal, Chandigarh Bench, Chandigarh dated9.3.1995 in ITA No.411 of 1990 relating to assessment year 1985-86. The question referred is as under:- “Whether, on the facts and in the circumstances of thecase, the ITAT was right in law in holding that theassessee be treated as industrial company and that thetax be charged at low rate applicable to an industrialcompany?” 2.The assessee company derives income from dealing inshares, inter-alia, of M/s Munjal Castings, which is engaged in manufacture and processing of goods. The assessee took the pleathat its income from shares exceeding 51% being from the sharesof a company which was engaged in the manufacture, the assesseeshould be treated as an ‘industrial company’ for which rate of taxwas lower than non industrial company. The Assessing officer didnot accept this plea. On appeal of the assessee, it was argued thatthe Assessing Officer had wrongly charged tax at rate applicable tonon industrial company. The revenue contested this plea bysubmitting that the assessee could not be considered to beindustrial company as per definition in the Finance Act, as it wasnot engaged in the business of generation or distribution ofelectricity or any other form of power or in the carriage ofpassengers or goods by roads or inland waterways or any otheractivity specified therein. The assessee was merely a dealer in theshares of M/s Munjal Castings on which basis it could not betreated to be an industrial company. The CIT(A) upheld the plea ofthe assessee only on the basis of its earlier order for the assessmentyear 1984-85. The Tribunal also upheld the same for the samereason. 3.Learned counsel for the assessee points out that in theorder of assessment, there was no discussion and the order of theCIT(A) was based on its earlier order for the assessment year1984-85. Similarly, order of the Tribunal was also based on theorder for the earlier year from which a reference was made to this Court and was answered against the revenue being ITR No.287 of 1995(Commissioner of Income Tax (Central) Ludhiana v. M/sBhagyoday Investment Pvt. Limited, Ludhiana) decided on21.5.2008. 4. Learned counsel for the revenue points out that the earlier decision of this Court is based on an erroneous concessionmade by him with regard to the matter being covered by judgmentof Delhi High Court inCIT Delhi I v. Bharat Ram Charat Ram P Limited, (1986) 157 ITR 199, as he was not having record withhim and he stands by the statement made by the departmentalrepresentative before the CIT(A) that the assessee was notengaged in business of generation or otherwise so as to fall in thedefinition under Section 2(8)(c) of the Finance Act, 1984 orExplanation appended thereto. 5.The definition of ‘industrial company’ in the above provision is as under:- “Industrial company” means a company which ismainly engaged in the business of generation ordistribution of electricity or any other form of power orin the carriage by road or inland waterways, ofpassengers or goods or in the construction of ships orin the execution of projects or in the manufacture orprocessing of goods or in mining”. “Explanation: for the purpose of this clause provision is as under:- “Industrial company” means a company which ismainly engaged in the business of generation ordistribution of electricity or any other form of power orin the carriage by road or inland waterways, ofpassengers or goods or in the construction of ships orin the execution of projects or in the manufacture orprocessing of goods or in mining”. “Explanation: for the purpose of this clause i) a company shall be deemed to be mainly engagedin the business of generation or distribution ofelectricity or any other form of power or in thecarriage by road or inland waterways, of passengersor goods or in the construction of share or in theexecution of projects or in the manufacture orprocessing of goods or in mining, if the incomeattributable to any one or more of the aforesaidactivities included in its total income of the previousyear (as computed before making deduction underChapter VIA of the Income Tax Act) is not less thanfifty one percent of such total income.” 6.It is settled law that order on a question of law based onerroneous concession of counsel cannot be accepted as a precedent(see:P.Nallamalli v. State, 1999(6) SCC 554, para 7,Union ofIndia and others v. Mohanlal Likumal Punjabi and others,(2004) 3 SCC 628, paras 8, 9). 7. A perusal of the above definition shows that to qualifyas industrial company, the assessee itself must be engaged in thenature of business specified in the definition i.e. generation ordistribution of electricity or carriage of passengers or goods orconstruction of ships or in mining. It has nowhere been stated thatthe assessee is engaged in any such type of activity. The statementmade before the CIT(A) as noted in para 3.1 was not factuallydisputed by the assessee. The same is extracted below:- “I have no objection to the entertainment of theadditional ground of appeal in case the assessee isable to convince your honour as to why thisground of appeal could not be taken up in theoriginal memo of appeal. However, on merits theassessee has no case since the present companycannot be considered to be an industrial companyin view of the definition of the industrial companygiven in the Finance Act for the year underconsideration. The assessee Co., is not engaged inthe business of generation or distribution ofelectricity or any other form of power or in thecarriage of passengers or goods or in themanufacture or processing of goods or in mining.Simply because the assessee company happens tobe a partner in M/s Munjal Castings, Ludhiana, itdoes not follow that by this process the companyitself becomes an industrial company. The onlyprovision in the Income Tax Act is that the shareincome from the firm would be treated as thebusiness income of the assessee and would beassessed as such and nothing further follows fromthis.” 8. Only plea taken by the assessee was that it was havingincome from shares of a company which may qualify to be anindustrial company. 9. Thus, the question is whether merely because anassessee derives income from shares of a manufacturing company,it will become industrial company on that ground. 10.In view of clear language of the statute, we are unableto hold that merely by having share income from an industrialcompany, the assessee receiving such income will becomeindustrial company.11.We may now refer to judgment of the Delhi High Courtrelied upon on behalf of the assessee. In that case, a finding wasrecorded that the assessee was a partner with a manufacturingcompany and on that ground, it was industrial company. Relevantobservations are as under:- 8. Only plea taken by the assessee was that it was havingincome from shares of a company which may qualify to be anindustrial company. 9. Thus, the question is whether merely because anassessee derives income from shares of a manufacturing company,it will become industrial company on that ground. 10.In view of clear language of the statute, we are unableto hold that merely by having share income from an industrialcompany, the assessee receiving such income will becomeindustrial company.11.We may now refer to judgment of the Delhi High Courtrelied upon on behalf of the assessee. In that case, a finding wasrecorded that the assessee was a partner with a manufacturingcompany and on that ground, it was industrial company. Relevantobservations are as under:- “4. The Tribunal in the course of its decision stated thatthis question was common for assessment years 1967-68and 1970-71 and had depended on whether incomederived by the assessee from a partnership with M/sElectrical Industries Corporation was to be used as aqualification. We have examined the definition and findthat a company is deemed to be an ‘industrial company’if its income from manufacture is more than 50 percent.As the finding is that at least 51 percent of the incomewas from the partnership which was concerned with themanufacture of super-enamelled cooper wire, we findthat there is no error in the conclusion of the Tribunaland we accordingly answer question No.3 referred to usin the affirmative on the ground that the company was an‘Industrial Company’ even if the said 51 percent or moreof the income came from a manufacture in partnership.Whether that income came from partnership or notmakes no difference.” 12.In the present case, share income cannot be treated asequal to income of a partner or a manufacturer. The assesseecannot, thus, be held to be an industrial company. 13.Accordingly, the question referred is answered infavour of the revenue and against the assessee. 14.The reference is disposed of accordingly. (Adarsh Kumar Goel)Judge August 7, 2009‘gs’ (Daya Chaudhary)Judge