D.R. Dhanuka, J.
1. The Income-tax Appellate Tribunal has referred the following question to this court for its opinion under section 256(1) of the Income-tax Act, 1961 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-company was not mainly engaged in the manufacture of goods and as such it was not an industrial company as defined in the Finance Act, 1974 ?'
2. Section 2(8) (c) of the Finance Act, 1974, defines the expression 'industrial company' for the purposes of the said Act as under :
c) '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;
planation. - 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 one or more of the aforesaid activities included in its total income of the previous year (as computed before making any deduction under Chapter VI-A of the Income-tax Act) is not less than fifty-one per cent. of such total income;'
3. Paragraph F of the Schedule to the Finance Act prescribes a concessional rate of income-tax in case the assessee is an industrial company within the meaning of the said expression as defined by the Finance Act, 1974.
4. In this reference, the court is required to consider as to whether the assessee is a company which is mainly engaged in the manufacture or processing of goods within the meaning of section 2(8) (c) of the relevant Finance Act and thus an industrial company. It is well-settled by this time that the assessee-company which gets the goods manufactured under its direct supervision and control can also be considered as a manufacturer although it may not own machinery and plant or factory buildings of its own.
5. The relevant assessment year is the assessment year 1974-75. The assessee was being treated as an industrial company within the meaning of the relevant Finance Act year after year until the assessment year 1974-75 when the Income-tax Officer took a different view. By his assessment order dated September 29, 1975, the Income-tax Officer held that the assessee was liable to be treated as a trading company and not as an industrial company within the meaning of the Finance Act, 1974. By his order dated August 16, 1976, the Appellate Assistant Commissioner held that the assessee was mainly engaged in the manufacture or processing of goods and the assessee was an industrial company within the meaning of the above referred provisions. The Income-tax Appellate Tribunal did not agree with the view taken by the Appellate Assistant Commissioner and held that the assessee was not an industrial company within the meaning of the above referred provisions. Being aggrieved by the order passed by the Income-tax Appellate Tribunal, the assessee sought a reference to this court as contemplated under section 256(1) of the Income-tax Act, 1961, and the reference has been made by the Tribunal to this court as indicated above.
6. On September 12, 1956, the Government of India granted a licence in favour of Messrs. Dunlop Rubber Co. (India) Ltd., as contemplated under the provisions contained in the Industries (Development and Regulation) Act, 1951, and the Registration and Licensing of Industrial Undertakings Rules, 1952. Condition (8) of the said licence reads as under :
'(8) The capacity authorised for production in the new factory shall be made use of by Messrs. Dunlop for producing tyres under their own name. Messrs. Dunlop may, however, arrange a part of supplies for Good years and India Tyres from the new factory on the condition that the total off-take to these companies will not exceed the 1955 figures.'
7. The arrangement arrived at between the assessee and Dunlop Rubber Company (India) Limited in relation to manufacture of tyres for and on behalf of the assessee is set out in the agreement dated April 30, 1960, a copy whereof forms part of the paper book filed in this reference. By the said agreement, it was provided that Dunlop agreed to manufacture various goods mentioned in the schedule to the said agreement for and on behalf of the assessee at one or more of their factories and also such additional goods and class of goods in which the assessee will have proprietary rights as regards trade marks, patents, designs as may be agreed between the assessee and Dunlop. By the said agreement, it was in terms provided that Dunlop was to manufacture the specified goods for and on behalf of the assessee. By clause (b) of the said agreement, it was provided that all the goods manufactured shall be of good merchantable quality both as to material and workmanship and in accordance with the specifications furnished by the assessee. The agreement provided that the assessee shall have the right to inspect the factories of Dunlop where the goods were being manufactured, the raw material and work-in-progress in respect of the said goods as to their standards and specifications. By the said agreement an option was conferred on the assessee to take over the work-in-progress of any or all of the said goods at any stage and apply their own manufacturing equipment and techniques for completing and finishing the manufacture thereof. By clause (c) of the said agreement, the assessee agreed to reimburse Dunlop in respect of the cost of raw materials obtained for and on behalf of the assessee by Dunlop for manufacture of the goods in question and the costs of production thereof. The assessee agreed to pay a sum at the rate of five per cent. of the cost of such raw materials and production to cover the incidental expenses of Dunlop. By clause (d) of the said agreement, it was provided that Dunlop will notify to the assessee the number of moulds and other manufacturing equipment required to enable production of goods on behalf of the assessee. By the said clause, it was further provided that the assessee shall provide the moulds and other manufacturing equipment to Dunlop at their own cost. By clause (e) of the said agreement, it was provided that the manufacture of the goods by Dunlop for and on behalf of the assessee will be at the risk of the assessee in all respects. By clause (f) of the said agreement, it was provided that Dunlop shall be acting on behalf of the assessee and all the acts performed by Dunlop shall be binding on the assessee as regards the purchase of raw materials, engagement of labour, conducting of operations or other acts as aforesaid. The said agreement is an admitted document on both sides.
8. At all material times and for several decades, the assessee is holding a licence (i.e., the central excise licence) in its own favour. The said licence has been issued by the Central Excise authorities in favour of the assessee as contemplated under the Central Excise Rules, 1944. The said licence in terms provides that the assessee is permitted to manufacture the goods covered thereunder inside the premises of Messrs. Dunlop Limited. At all relevant times, the assessee also held the necessary licence under the relevant sales tax legislation :
Section 209(1)(d) of the Companies Act, 1956, is applicable to companies pertaining to any class of companies engaged in the production, processing, manufacturing or mining activities. The companies falling under section 209(1)(d) are required to maintain records containing particulars relating to utilisation of material or labour or other items of cost as may be prescribed. Section 233B of the Companies Act empowers the Central Government to direct the statutory audit of cost accounts of such company. In exercise of the powers conferred by sub-section (1) of section 642 read with clause (d) of sub-section (1) of section 209 of the Companies Act, 1956, the Central Government has made the Cost Accounting Records (Tyres and Tubes) Rules, 1967. By rule 2 of the said Rules, it is provided that the said rule shall apply to every company engaged in the production or manufacture of rubber tyres and tubes for all types of vehicles. In exercise of the powers conferred on the Central Government under section 233B of the Companies Act (1 of 1956), the Central Government did appoint Messrs. Mani and Co., Cost Accountants, as the statutory auditors to examine the books of account prescribed under section 209(1)(d) of the Act for the year ended December 31, 1974, relating to tyre and tube products. A copy of the audit report of the statutory cost auditors forms part of this reference. This report does also indicate that the Central Government considers the assessee as a person engaged in the manufacture of goods within the meaning of section 209(1)(d) of the Companies Act (1 of 1956). The assessee is considered as a person engaged in the business of manufacturing tyres by several departments of the Government under various Acts.
9. The following material facts emerge from the record of this case. The facts summarised hereinafter are set out in detail in the order of the Appellate Assistant Commissioner for the year 1974-75.
(a) The assessee has its own manufacturing equipment (moulding) installed in the Dunlop factories and the goods manufactured are stored in excise bonded warehouses set up by the assessee for its own excisable goods. When the goods (products) are removed from the warehouse, the relevant excise duty is directly paid by the assessee in accordance with the terms of the agreement between the assessee and Messrs. Dunlop Rubber Co. (India) Ltd. (hereinafter referred to as 'Dunlop');
(b) The assessee are the exclusive owners of the patents, trade marks and licences concerning the goods manufactured in the manner set out in the agreement between the assessee and Dunlop. Dunlop is not entitled to deal in the goods manufactured for the assessee;
(c) The assessee is engaged in the manufacture and marketing of its own product under the brand name 'India Super' since inception;
(d) The gross value of the moulds belonging to the assessee as on December 31, 1976, amounted to Rs. 19,02,896. The assessee is required to supply moulds to 'Dunlop' in order to enable 'Dunlop' to manufacture the goods for and on behalf of the assessee subject to the overriding power of the assessee to take over the work-in-progress in its own hands and complete the manufacture by itself.
10. The Tribunal has not taken a different view of the facts.
11. The Appellate Assistant Commissioner came to the conclusion that the assessee was 'mainly engaged in the manufacture of goods' within the meaning of section 2(8) (c) of the relevant Finance Act and was thus an industrial company as defined therein.
12. The Income-tax Appellate Tribunal reversed the decision of the Appellate Assistant Commissioner, inter alia, on the ground that the assessee did not hold a licence under the Industries (Development and Regulation) Act, 1951, even though the manufactured products were included in the Schedule to the said Act. The Tribunal also referred to the fact that the assessee did not supply raw materials to Dunlop for manufacture of goods in support of its conclusion that the assessee could not be considered as a person engaged in the manufacture or processing of goods. The Income-tax Appellate Tribunal also observed in its judgment that no significance could be attached to the audit report of the statutory cost auditors relied upon by the assessee in support of its contention that the assessee was being considered by the Central Government as a company engaged in the manufacture of goods by various Departments of the Government discharging statutory functions under various Acts. In our opinion, the Tribunal took a totally erroneous view in the matter. We shall discuss the relevant aspects of the matter in the later part of this judgment. In our opinion, the absence of a licence for production or manufacture of articles under Act 65 of 1951 is irrelevant for the purpose of considering the question as to whether the assessee was an 'industrial company' within the meaning of the said expression as defined in the Finance Act.
13. Learned counsel for the assessee has relied upon the ratio of the judgment of this court in the case of CIT v. Neo Pharma Pvt. Ltd. : [1982]137ITR879(Bom) . In this case, the assessee used to get its products manufactured by another company under the direct supervision and assistance of technically qualified staff. The question before the court was as to whether the assessee was an industrial company within the meaning of the said expression as defined in the Finance Act, 1966, and was entitled to the benefit of the concessional rate of tax applicable to 'industrial companies' as defined in the Act. It was held by the court that although the plant and machinery employed by the assessee for the purpose of manufacture belonged to a third party known as 'Pharmed' and services of certain employees of Pharmed were also utilised in the process, the manufacturing activity was really that of the assessee. In this case, our court held that the assessee was an 'industrial company' within the meaning of the said expression as defined under the relevant Finance Act. To our mind, this judgment is on all fours with the case of the assessee. In this case also there is enough material to show that Dunlop has been manufacturing the goods in question for and on behalf of the assessee and by and under the supervision of the assessee. We have already summarised the provisions of the agreement dated April 30, 1960, between the assessee and Dunlop and various other documents on record. Learned counsel for the Revenue has submitted that the assessee ought to have obtained a licence under the Industries (Development and Regulation) Act, 1951, and in the absence of such a licence the assessee cannot be considered as an industrial company within the meaning of section 2(8) (c) of the Finance Act, 1974. The question as to whether the assessee is an industrial company within the meaning of the Finance Act, 1974, cannot be decided with reference to the provisions contained in the Industries (Development and Regulation) Act, 1951. It would be an error in construction to interpret the expression 'industrial company' defined in section 2(8) (c) of the Finance Act, 1974, with reference to the definition of the words 'industrial undertaking' or 'existing industrial undertaking' as set out in the Industries (Development and Regulation) Act, 1951. The scheme and object of the two Acts are totally different. Mere absence of a licence under the Industries (Development and Regulation) Act, 1951, due to non-applicability of the Act or otherwise cannot lead the court to the conclusion that the assessee is not an 'industrial company' under the relevant Finance Act when the criteria laid down by the Finance Act are fully satisfied by the assessee. The assessee is not entitled to apply for a licence under the Industries (Development and Regulation) Act, 1951. Condition No. 8 of the licence granted in favour of Dunlop extracted in the earlier part of this judgment constitutes sufficient authorisation for the assessee to get the goods in question manufactured from Dunlop for and on behalf of the assessee. In our opinion, the argument of learned counsel for the Revenue is without any merit when he contends that the assessee should not be considered as an industrial company under the Finance Act merely by reason of the assessee not holding the industrial licence to manufacture tyres in its own name under the Industries (Development and Regulation) Act, 1951. Learned counsel for the assessee submits that the said Act is not applicable to the manufacturing activity of the assessee and the question of the assessee having not obtained any licence under the said Act cannot, therefore, arise.
14. For the purpose of applicability of section 2(8) (c) of the Finance Act, the assessee need not necessarily own a factory at which the goods may be manufactured. For the purpose of the Industries (Development and Regulation) Act, 1951, 'industrial undertaking' has been defined to mean any undertaking pertaining to a 'scheduled industry' carried on in one or more factories by any person or authority including the Government. Section 2(8) (c) of the Finance Act is attracted when the assessee manufactures or processes any goods. Section 3(d) of the Industries (Development and Regulation) Act (Act No. 65 of 1951), is applicable to undertakings pertaining to a scheduled industry. The basic provisions of the two Acts are materially different. It is not possible to read the definitions and the provisions contained in the Industries (Development and Regulation) Act, 1951, for the purpose of interpreting and applying the relevant Finance Act. In our opinion, reference to the provisions of Act 65 of 1951 is irrelevant for the purpose of construing section 2(8) (c) of the relevant Finance Act.
15. Learned counsel for the assessee has also relied on the judgment of this court in the case of CIT v. Anglo French Drug Co. (Eastern) Ltd. : [1991]191ITR92(Bom) . Following the ratio of the judgment of this court in the case of Neo Pharma Pvt. Ltd. : [1982]137ITR879(Bom) , this court hold that if the assessee had employed another company for getting the goods manufactured by it under its own supervision or control, the assessee must be considered as a company engaged in manufacturing of goods and, thus, as an industrial company under the relevant Finance Act. Having regard to the undisputable facts of this case and the provisions contained in the agreement dated April 30, 1960, and the various licences held by the assessee, it must be held that the assessee is a person engaged in the manufacture of goods and the assessee was entitled to avail of the concessional rate of tax applicable to an 'industrial company' as prescribed by the Finance Act, 1974.
16. Learned counsel for the assessee has also invited the attention of the court to the judgment of the High Court of Calcutta in the case of Addl. CIT v. A. Mukherjee and Co. (P.) Ltd. : [1978]113ITR718(Cal) . In this case, the assessee carried on business as a publisher of books. The question before the court was as to whether the assessee can be considered as carrying on manufacturing or processing of goods even though the assessee did not own the printing press and the work of printing and binding was done by a third party under the supervision of the assessee. In this case, the High Court of Calcutta held that in order that a publisher of books should be considered as a manufacturer of books under the relevant Finance Act, it was wholly unnecessary for him either to be an owner of a printing press or a book binder himself. In this case, it was argued on behalf of the Revenue that the assessee could not be said to be a person carrying on manufacturing or processing activity. This submission urged on behalf of the Revenue was rightly rejected by the High Court of Calcutta. It is of considerable significance that the Central Board of Direct Taxes issued a circular being Circular No. 347, dated July 7, 1982 (see [1982] 137 ITR 14) stating therein that the Board accepted the correctness of the decision of the High Court of Calcutta in the above referred case in Addl. CIT v. A. Mukherjee and Co. (P.) Ltd. : [1978]113ITR718(Cal) . In paragraph 2 of the said circular, it is specifically stated that book publishing companies were liable to be treated as industrial companies for the purposes of section 104 as well as for the concessional tax treatment given to industrial companies although they themselves may not be engaged in the printing or binding of books. This circular was in terms relied upon by our court in support of the view taken by it in the case of CIT v. Anglo French Drug Co. (Eastern) Ltd. : [1991]191ITR92(Bom) .
17. After considering the submissions made by learned counsel on both sides, we have reached the conclusion that during the relevant assessment year, the assessee was an industrial company within the meaning of section 2(8) (c) of the Finance Act, 1974. We have also no doubt in holding that the Tribunal misdirected itself in law while attempting to distinguish the judgment in Neo Pharma's case : [1982]137ITR879(Bom) . The Tribunal was in error in observing that the assessee could not be considered as an industrial company as the assessee did not supply the required raw materials to Dunlop while getting the goods manufactured from Dunlop. It is in terms provided by the agreement dated April 30, 1960, that Dunlop was to purchase the required raw materials for and on behalf of the assessee and the assessee must reimburse Dunlop in respect of the cost of raw materials obtained by Dunlop for and on behalf of the assessee. On this aspect, the Tribunal ought to have considered clause (c) of the agreement dated April 30, 1960, specifically providing for reimbursement of Dunlop by the assessee in respect of the cost of raw materials. The Tribunal misdirected itself in law by erroneous interpretation and application of the Industries (Development and Regulation) Act, 1951, to the assessee and by overlooking material clauses of the agreement dated April 30, 1960.
18. The Tribunal committed an error of law in holding that the cost audit statutory report was of no significance even though the said report was made on the footing that the assessee was engaged in the manufacture of goods. Having regard to the binding judgment of this court and the admitted or proved facts of this case and the documents on record, the Tribunal ought to have held that the assessee was engaged in the manufacture of goods and thus an industrial company within the meaning of section 2(8) (c) of the Finance Act, 1974.
19. In view of the above, we answer the question referred to us in the negative and in favour of the assessee. In other words, we hold that the assessee was an industrial company as defined in the Finance Act, 1974, during the relevant assessment year and thus entitled to the benefit of the concessional rate of tax as provided by the said Act.
20. Having regard to the facts and circumstances of the case, there shall be no order as to costs.