ITR No.187 of 1996 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
ITR No.187 of 1996
Date of decision: 7.8.2009
The Commissioner of Income Tax (Central) Ludhiana
-----Applicant
Vs.
M/s Bhagyoday Investment (P) Limited, Ludhiana
-----Respondent
CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL
HON'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 Income
Tax Appellate Tribunal, Chandigarh Bench, Chandigarh dated
9.3.1995 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 the
case, the ITAT was right in law in holding that the
assessee be treated as industrial company and that the
tax be charged at low rate applicable to an industrial
company?”
2. The assessee company derives income from dealing in
shares, inter-alia, of M/s Munjal Castings, which is engaged in
ITR No.187 of 1996 2
manufacture and processing of goods. The assessee took the plea
that its income from shares exceeding 51% being from the shares
of a company which was engaged in the manufacture, the assessee
should be treated as an ‘industrial company’ for which rate of tax
was lower than non industrial company. The Assessing officer did
not accept this plea. On appeal of the assessee, it was argued that
the Assessing Officer had wrongly charged tax at rate applicable to
non industrial company. The revenue contested this plea by
submitting that the assessee could not be considered to be
industrial company as per definition in the Finance Act, as it was
not engaged in the business of generation or distribution of
electricity or any other form of power or in the carriage of
passengers or goods by roads or inland waterways or any other
activity specified therein. The assessee was merely a dealer in the
shares of M/s Munjal Castings on which basis it could not be
treated to be an industrial company. The CIT(A) upheld the plea of
the assessee only on the basis of its earlier order for the assessment
year 1984-85. The Tribunal also upheld the same for the same
reason.
3. Learned counsel for the assessee points out that in the
order of assessment, there was no discussion and the order of the
CIT(A) was based on its earlier order for the assessment year
1984-85. Similarly, order of the Tribunal was also based on the
order for the earlier year from which a reference was made to this
ITR No.187 of 1996 3
Court and was answered against the revenue being ITR No.287 of
1995(Commissioner of Income Tax (Central) Ludhiana v. M/s
Bhagyoday Investment Pvt. Limited, Ludhiana) decided on
21.5.2008.
4. Learned counsel for the revenue points out that the
earlier decision of this Court is based on an erroneous concession
made by him with regard to the matter being covered by judgment
of Delhi High Court in CIT Delhi I v. Bharat Ram Charat Ram
P Limited, (1986) 157 ITR 199, as he was not having record with
him and he stands by the statement made by the departmental
representative before the CIT(A) that the assessee was not
engaged in business of generation or otherwise so as to fall in the
definition under Section 2(8)(c) of the Finance Act, 1984 or
Explanation appended thereto.
5. The definition of ‘industrial company’ in the above
provision is as under:-
“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 carriage by road or inland waterways, of
passengers or goods or in the construction of ships or
in the execution of projects or in the manufacture or
processing of goods or in mining”.
“Explanation: for the purpose of this clause
ITR No.187 of 1996 4
i) 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
carriage by road or inland waterways, of passengers
or goods or in the construction of share or in the
execution of projects or in the manufacture or
processing of goods or in mining, if the income
attributable to any one or more of the aforesaid
activities included in its total income of the previous
year (as computed before making deduction under
Chapter VIA of the Income Tax Act) is not less than
fifty one percent of such total income.”
6. It is settled law that order on a question of law based on
erroneous concession of counsel cannot be accepted as a precedent
(see: P.Nallamalli v. State, 1999(6) SCC 554, para 7, Union of
India 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 qualify
as industrial company, the assessee itself must be engaged in the
nature of business specified in the definition i.e. generation or
distribution of electricity or carriage of passengers or goods or
construction of ships or in mining. It has nowhere been stated that
the assessee is engaged in any such type of activity. The statement
made before the CIT(A) as noted in para 3.1 was not factually
disputed by the assessee. The same is extracted below:-
ITR No.187 of 1996 5
“I have no objection to the entertainment of the
additional ground of appeal in case the assessee is
able to convince your honour as to why this
ground of appeal could not be taken up in the
original memo of appeal. However, on merits the
assessee has no case since the present company
cannot be considered to be an industrial company
in view of the definition of the industrial company
given in the Finance Act for the year under
consideration. The assessee Co., is not engaged in
the business of generation or distribution of
electricity or any other form of power or in the
carriage of passengers or goods or in the
manufacture or processing of goods or in mining.
Simply because the assessee company happens to
be a partner in M/s Munjal Castings, Ludhiana, it
does not follow that by this process the company
itself becomes an industrial company. The only
provision in the Income Tax Act is that the share
income from the firm would be treated as the
business income of the assessee and would be
assessed as such and nothing further follows from
this.”
8. Only plea taken by the assessee was that it was having
income from shares of a company which may qualify to be an
industrial company.
9. Thus, the question is whether merely because an
assessee derives income from shares of a manufacturing company,
it will become industrial company on that ground.
ITR No.187 of 1996 6
10. In view of clear language of the statute, we are unable
to hold that merely by having share income from an industrial
company, the assessee receiving such income will become
industrial company.
11. We may now refer to judgment of the Delhi High Court
relied upon on behalf of the assessee. In that case, a finding was
recorded that the assessee was a partner with a manufacturing
company and on that ground, it was industrial company. Relevant
observations are as under:-
“4. The Tribunal in the course of its decision stated that
this question was common for assessment years 1967-68
and 1970-71 and had depended on whether income
derived by the assessee from a partnership with M/s
Electrical Industries Corporation was to be used as a
qualification. We have examined the definition and find
that 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 income
was from the partnership which was concerned with the
manufacture of super-enamelled cooper wire, we find
that there is no error in the conclusion of the Tribunal
and we accordingly answer question No.3 referred to us
in the affirmative on the ground that the company was an
‘Industrial Company’ even if the said 51 percent or more
of the income came from a manufacture in partnership.
Whether that income came from partnership or not
makes no difference.”
ITR No.187 of 1996 7
12. In the present case, share income cannot be treated as
equal to income of a partner or a manufacturer. The assessee
cannot, thus, be held to be an industrial company.
13. Accordingly, the question referred is answered in
favour of the revenue and against the assessee.
14. The reference is disposed of accordingly.
(Adarsh Kumar Goel)
Judge
August 7, 2009 (Daya Chaudhary)
'gs' Judge