IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 29/10/2002
CORAM
The Hon'ble Mr.Justice N.V.BALASUBRAMANIAN
AND
The Hon'ble Mr.Justice K.RAVIRAJA PANDIAN
T.C.No.92 of 1998
The Commissioner of Income Tax,
Coimbatore. .. Applicant
-Vs-
Sree Annapoorna Gowrishankar Metals (P) Ltd.,
Coimbatore. .. Respondent
The above tax case is preferred under Section 256(1) of the Act,1961
by the department.
!For Applicant : Mr.T.Ravikumar,
Jr.I.T.S.C.
For Respondent : Mr.R.Meenakshisundaram.
:O R D E R
(Order of the Court was delivered by N.V.BALASUBRAMANIAN,J.)
The Tribunal has stated a case and referred the following
question of law at the instance of the Revenue:
“Whether on the facts and in the circumstances of the case the
Tribunal is right in law in holding that the assessee is a non-trading company
and hence the rate of taxation is 55%?”
2. The assessment year involved is 1986-87. The assessee is a
private limited company carrying on the business of running a chain of hotels
in Coimbatore and the Income Tax Officer in the original assessment made on
the assessee for the assessment year 1986-87, treated the company as a
non-trading company and levied the tax at the rate of 55 %. Thereafter, he
resorted to rectification proceedings under Section 154 of the Income Tax Act
and treated the company as a trading company and levied the tax at the rate of
60%. The assessee challenged the order of rectification by filing an appeal
before the Commissioner of Income Tax (Appeals) and the Commissioner of Income
Tax (Appeals) upheld the order of the assessing officer in the light of the
decision of this Court in the case of C.I.T. Vs. BUHARI SONS (P) Ltd. (144
I.T.R, 12). Aggrieved by the order, the assessee carried the matter in appeal
by filing appeal before the Income Tax Appellate Tribunal, Madras. The
Tribunal, following its earl ier order rendered in the assessee’s own case,
held that as per section 2(7)(g) of the Finance Act, 1986, the assessee is not
a trading company and is liable to be taxed at the rate of 55% and not at 60%
as levied by the Income-tax Officer in the order of rectification. The
Tribunal thereby allowed the appeal preferred by the assessee and the order of
the Tribunal is the subject matter of reference.
3. We heard learned counsel for the Revenue and the learned
counsel for the assessee. We noticed that the Tribunal has followed its
earlier order rendered in the assessee’s own case for the assessment years
1987-88 to 1989-90 holding that the assessee is a non-trading company, but the
earlier order of the Tribunal is not enclosed as a part of the statement of
case. The Tribunal has been reminded by this Court several times that when
the Tribunal relies on its earlier order, such earlier order should form part
of the statement of case, but, unfortunately, the Tribunal has not enclosed
its earlier order. Further, the present order of the Tribunal, which is the
subject mater of reference, does not contain any independent reason.
4. We also directed learned counsel for the Revenue to
furnish a copy of the order of the Tribunal. Learned counsel for the Revenue
submitted that though he instructed the department to forward a copy of the
order, the department has not furnished a copy of the earlier order. When the
Court directed the department to submit a copy of the order of the Appellate
Tribunal, the department should have produced the same. We record our strong
displeasure towards the attitude adopted by the Income-tax Department in not
furnishing a copy of the earlier order of the Tribunal, even when it was so
directed by the Court. We also make it clear that in future such lapse will
be viewed with more seriousness.
5. As far as the merits of the case are concerned, it depends
upon the interpretation of section 2 (7)(g) of the Finance Act, 1986 which
reads as under:-
“trading company” means a company whose business consists mainly in
dealing in goods or 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.”
A careful reading of the definition of ‘trading company’ shows that a company
is liable to be treated as a trading company, only if its main business
consists in dealing in goods or merchandise manufactured, produced or
processed by a person other than that company. The primary condition for a
trading company is that it must deal in the goods manufactured, produced or
processed by a person other than that company. Admittedly, the assessee is a
hotel and it produces its own food products and sells the same in its own
hotel. In other words, it is not dealing in the goods manufactured, produced
or processed by a person other than the assessee. Therefore the primary
condition to treat the company as a trading company is not satisfied and
hence, the Tribunal was correct in holding that the assessee company is a
non-trading company and it does not fall within the definition of the
expression, ‘trading company’ as defined in section 2 (7)(g) of the Finance
Act.
6. As far as the decision of this Court in C.I.T. v. BUHARI
SONS PVT. LTD. (144 ITR 12), which has been relied upon by the assessing
officer to initiate rectification proceedings is concerned, the case dealt
with the definition, ‘industrial company’ within the meaning of section
2(7)(d) of the Finance Act, 1986. Though this Court has dealt with the case
of a hotel, this Court was not considering the question whether the said hotel
should be treated as a trading company or a non-trading company, and hence,
the decision of this Court in Buhari Sons Pvt. Ltd. case has no application
to the facts of the case. We have also gone through the Finance Act, 1986 and
in the classification of companies, ‘trading company’ finds a place and we do
not find any classification as an ‘industrial company’. Therefore the
decision of this Court in Buhari Sons Pvt. Ltd. has no application.
7. Accordingly, we hold that the view taken by the Tribunal
is justifiable in law and there are no grounds or infirmities in the order
warranting our interference. Accordingly, the question of law referred to us
is answered in the affirmative, in favour of the assessee and against the
Revenue. Counsel for the assessee is entitled to costs of of Rs.500/-.
(N.V.B.,J.) (K.R.P,J.)
29-10-2002
Index-Yes.
Internet-Yes.
sk/na.
To
1.The Assistant Registrar,
Income-Tax Appellate Tribunal,
Rajaji Bhavan, Besant Nagar,
Chennai-600 090 (Five Copies with records)
2.The Secretary,
Central Board of Direct Taxes,
New Delhi (Three copies).
3.The Commissioner of Income-Tax,
Coimmbatore.
4.The Commissioner of Income-Tax (Appeals),
Coimbatore.
5.The Assistant Commissioner of Income-Tax,
Central Circle-I,
Coimbatore.