C I T, LUDHIANA vs. M/S BAHADUR CHAND INVEST.(P) LTD, LDH

The Income Tax Appellate Tribunal, Chandigarh has referred following question of law for opinion of this Court, arising out of its order dated 15.5.1996 in I.T.A No.1386/Chandi/90 relating to assessment year 1985-86:- “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.”

The assessee claimed itself to be an industrial company for claiming lesser rate of tax. The Assessing Officer rejected the said claim. The CIT(A) upheld the plea of the assessee, following its order in the case of the assessee in the earlier assessment year, concluding as under:- “Considering the Delhi High Court decision and this office order in Freeman Sales (P) Ltd. it is held that what is to be decided is the percentage of income from various sources. No doubt the assessee company is not manufacturing anything but it has invested in the manufacturing process and being partner in the firm is a criteria to determine the source of income and which determines it is a non-trading and non-investment company: the lessor rate for manufacturing company or industrial company is to encourage the industrial activity and investment by a company in a firm which is involved in a manufacturing process satisfies the object of lessor rate. Therefore, following the Delhi High Court decision it is held that this company gets major part of its income from a manufacturing activity and thus liable to lessor rate of taxation?

The Tribunal upheld the said view.

We have heard learned counsel for the parties.

Learned counsel for the revenue relies upon order of this Court dated 7.8.2009 in I.T.R. No.187 of 1996 The Commissioner of Income Tax (Central), Ludhiana v. M/s Bhagyoday Investment (P) Limited, Ludhiana, wherein it was held that in view of clear language of the definition of ‘industrial company’, the assessee must itself be engaged in manufacturing activity of the nature specified in the definition and mere holding of shares of an industrial company, was not enough to declare an investment company to be an ‘industrial company’. The reference was made by the Tribunal on account of pendency of the reference in the above case, as is clear from paras 5 and 7 of the statement of this case.

Learned counsel for the assessee does not dispute that the issue involved in the present case is covered by order passed by this Court in M/s Bhagyoday Investment (P) Limited (supra).

Accordingly, the reference is answered in favour of the revenue and against the assessee. (ADARSH KUMAR GOEL) JUDGE August 10, 2009