Commissioner of Income Tax (Central) Madras vs Buhari Sons Pvt. Ltd.

Ramanujam, J.—The following two common questions have been referred to this court for its opinion by the Income Tax Appellate

Tribunal, Madras, in relation to the assessments for the assessment years 1965-66, 1966-67, 1967-68 and 1968-69 :

(1) Whether, on the facts and in the circumstances of the case, it has been rightly held by the Tribunal that the assessee is an ''industrial company''

within the meaning of section 2(7) (d) of the Finance Act, 1966?

(2) Whether the Tribunal''s view that the assessee-company which is running a group of hotels is engaged in ''the manufacturing or processing of

goods'' within the meaning of section 2(7) (d) of the Finance Act is sustainable in law and on the materials on record?

The assessee-company is running a group of hotels in the city of Madras. In the course of the assessment for the first three years, the assesse-

company claimed that it should be treated as an industrial company and assessed at 55% of its income and not at 65% applicable to a non-

industrial company. The ITO, however, brought 65% of the assessee''s income charge treating it as non-industrial company. The assessee filed

appeals to the AAC who had held that the assessee is not an industrial company. Aggrieved by the decision of the AAC, the assessee went up in

appeal before the Income Tax Appellate Tribunal. The Tribunal, by its order dated April 11, 1975. In I. T. A. Nos. 1559 to 1561 of 1973-74,

held that the assessee is an industrial company. In the subsequent year, 1968-69, also, the assessing authority proceeded on the basis that the

assessee is a non-industrial company. But when the matter was taken to the AAC, he allowed the appeal holding that the assessee is an industrial

company, following the decision of the Tribunal rendered in the assessee''s own case for the earlier years. Aggrieved by the said decision of the

Tribunal in relation to all the four years, the Revenue has sought and obtained a reference to this court on the questions set out above.

From the facts stated above, it will be clear that the main dispute between the parties is as to whether the assessee will come within the definition

of ""industrial company"" in s. 2(7) (d) of the Finance Act of 1966.

Section 2(7) (d) is as follows :

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.

Explanation - For the purposes of this clause, a company shall be deemed to be 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, if the income

attributable to any of the aforesaid activities included in its total income for the previous year is not less than fifty-one percent. of such total

income.

As per the said definition, a company whose main business is manufacture or processing of goods will be an industrial company. The

Explanation shows that a company can be taken to be mainly engaged in the business of manufacture or processing of goods if the income

attributable to any of the aforesaid activities is not less than fifty-one per cent of the total income in the previous year.

The Tribunal in this case has held that the assessee is an industrial company as it is engaged in the manufacture of articles of food so as to come

within the said decision, relying on the decisions in New Taj Mahal Cafe ltd. v. Inspector of Factories, AIR 1956 Mad 600 and P. Laxmanrao and

Sons Vs. The Addl. Inspector of Factories and Another, , where the manufacture of articles of food was held to be a manufacturing proves as

defined in the Factories Act.

According to the Revenue, for constuing the scope of the provisions of the Finance Act of 1966 one cannot take the aid of a definition given in

another Act such as the Factories Act, land the expression occurring in a particular Act has to be understood in the light of the purpose and object

of that Act and, therefore, the Tribunal is in error in construing the expression ""manufacture or processing of goods"" occuring in the definition of

industrial company"" in the Finance Act of 1966 in the light of the Factories Act. In support of the said submission the learned counsel refers to the

decision of the Kerala High COurt in Commissioner of Income Tax Vs. Casino (Pvt.) Ltd., , wherein it has been held that the term ""manufacturing

or processing of goods"" occurring in s. 2(6) (d) of the Finance Act, 1968, should be understood in the context in which the term appears land the

nature of the enactment and the meaning attributed to the said term under any other statue has no relevance. The court, after noting that the said

term has not been defined in the said Act stated that the absence of a definition necessarily means that Parliament has intended that the term should

be understood in ordinary or common parlance. The learned judges referred to the fact that the said term or almost similar terms have been subject

of discussion in a number of judicial decisions but those decisions gave only a limited assistance on the construction of the terms in the Finance Act,

1968, which would depend on the context of the enactment, the context or setting in which the term appears and that the nature of an enactment is

of considerable relevance in understanding the meaning of the term used thereon. The learned judges thereafter proceeded to construe the said

term with reference to the context of the Finance Act of 1968, which defined an ""industrial company"" as a company manufacturing or processing

goods and held that foodstuffs produced in a hotel using raw materials such as pulses, meat, wheat and the like will not make it an industrial

company. The court drew a distinction between manufacturing concerns and trading concerns. In a hotel the main object is not manufacture but it is

only incidental, as its main activity is a trading activity. According to the learned judges the various item of foodstuffs and beverages produced in a

hotel are intended for the trading and the conversion of the raw materials into foodstuffs is only a process in its trading activity. Therefore, a hotel is

more a trading concern than a manufacturing concern than a manufacturing concern.

The learned counsel for the assessee, however, points out that the decision of this court in New Taj Mahal Cafe Ltd. v. Inspector of Factories,

AIR 1956 Mad 600, and the decision of the Andhra Pradesh High Court in P. Laxmanrao and Sons Vs. The Addl. Inspector of Factories and

Another, , have held that the preparation of articles of food in a hotel was a manufacturing activity and the view taken by the Tribunal on the basis

of the said decisions should be taken as correct. It is no doubt true that in New Taj Mahal Cafe ltd. v. Inspector of Factories, AIR 1956 Mad

600, Rajagopalan J., dealing with the definition in s. 2(k) of the Factories Act, 1948, defining ""manufacturing process"", held that the preparation of

food and other eatables in the kitchen will fall within the definition of ""manufacturing process"", for, it satisfied the test of making or altering or

otherwise trading, adapting any article or substance with a view to its use, sale or disposal. Thus, it will be seen that it is by virtue of the said

definition of ""manufacturing process"" contained in s. 2(k) of the Factories Act, a hotel or restaurant where foodstuffs are prepared has been treated

as a factory within the precincts of which a manufacturing process is carried on. The same view has been taken by the Andhra Pradesh High Court

in P. Laxmanrao and Sons Vs. The Addl. Inspector of Factories and Another, . However, the question is whether those decisions which were

rendered with reference to the said definition of ""manufacturing process"" contained in s. 2(k) of the Factories Act, will help to determine the scope

and ambit of the expression ""manufacturing or processing of goods"" occuring in s. 2(7) (d) of the Finance Act, 1966.

It is well established that the words occurring in a statue have to be understood with reference to the objects of the Act and in the context in

which they occur, in the absence of any definition in that statue. The definitions given for the terms in one statute cannot automatically be imported

for the interpretation of the same words in another statue. In D.N. Banerji Vs. P.R. Mukherjee and Others, , it has been pointed out that in

constuing the words in a statue the state of things existing at the time of passing the statue and the background and the objects it the statue have to

be taken into consideration. In that case the expression ""industry"" occurring in s. 27(j) of the Industrial Disputes Act, 1947, was construed as

having a wide import so as to cover not only industries in a stick sense but also to cover any trade or business. The same view has also been taken

by the Supreme Court in S. Mohan Lal Vs. R. Kondiah, , in which it was held (p. 1134) :

It is not a sound principle of construction to interpret expressions used in one Act which reference to their use in another Act; more so, it the two

Acts in which the same word is used are not cognate Acts. Neither the meaning, nor the definition of the term in one statue affords a guide to the

construction of the same term in another statue and the sense in which the term has been understood in the several statues does not necessarily

throw any light on the manner in which the term should be understood generally. On the other hand it is a sound, and indeed, a well known

principle of construction that meaning of words and expressions used in an Act must take their colour from the context in which they appear.

Thus, it is clear that the words used in a statue must take colour from the objects of the Act and it cannot be taken to have a uniform meaning

in whatever statue it occurs. We are, therefore, of the view that the decision rendered in New Taj Mahal Cafe LTd. v. Inspector of Factories, AIR

1956 Mad 600, with reference to definition of ""manufacturing process"" occurring in s. 2(k) of the Factories Act cannot be of much assistance to

the assessee. Even otherwise, the expression constured in the said decision is ""manufacturing process"" which has been specifically defined in the

Factories Act. We are, however, concerned with a slightly different expression ""manufacture or processing of goods"". Can we say that a hotel or a

restaurant is engaged in the business of manufacturing of goods? As already stated, the Kerala HIgh Court in Commissioner of Income Tax Vs.

Casino (Pvt.) Ltd., , has taken the view that the expression ""manufacture of goods"" referred only to the activity of a manufacturing concern and not

the activity of a trader. Further, the expression used in s. 2(7) (d) of the Finance Act, 1966, is ""manufacture of good"". The question is whether the

assessee in this case can be said to manufacture of goods. We are the view that the word ""goods"" has been used here in the sense of merchandise,

that is, articles for sale. The expression ""goods"" if understood in a commercial sense will not include the eatables prepared in a hotel. In addition to

the reasoning given by the Kerala High Court in Commissioner of Income Tax Vs. Casino (Pvt.) Ltd., , that the expression ""manufacture"" in s. 2(6)

(d) of the Finance Act, 1968, will not denote a trading activity, the use of the word ""goods"" is another reason for holding that the definition of

industrial company"" will not include a trading activity such as the one being carried on by the assessee. We also find that the I. T. Act has drawn a

distinction between industrial undertakings and a hotel and, therefore, when the statue refers to an industrial company, it cannot be taken to refer to

an activity carried on in hotel. Take for instance s. 80J of the I. T. Act which specifically differentiates an industrial undertaking and hotel business.

We are, therefore, satisfied that the view taken by the Tribunal that the hotel business carried on by the assessee in this case is a manufacturing

activity so as to attract the definition of ""industrial company"" occurring in s. 2(7) (d) of the Finance Act, 1966, cannot legally be sustained.

Therefore, both the questions are answered in the negative and against the assessee. The Revenue will have its costs from the assessee,.

Counsel''s fees, Rs. 500 (one set).