1. This appeal has been filed by the department against the order dated 29-4-1981 of the Commissioner (Appeals). The assessee is a private limited company, deriving income from business in automobile repairs and services. In addition to the above the assessee was also engaged in the purchase and sale of mini-cars manufactured by Sunrise Industries Ltd., Bangalore. The assessment year involved in this appeal is 1979-80. The year ended 31-12-1978 was the relevant previous year.
2. The only ground taken in this appeal is that the Commissioner (Appeals) erred in holding that the repairing of motor car was 'processing of goods' within the meaning of the definition of 'industrial company' appearing in Section 2(7)(c) of the Finance Act, 1979 ('the Act.'). It may be stated in this connection thai: a lower rate of tax is applicable to industrial companies if they come under the aforesaid definition. The aforesaid definition is as below: '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 one or more of the aforesaid activities included in its total income of the previous year (as computed before making any deduction under Chapter VIA of th e Income-tax Act) is not less than fifty-one per cent of such total income.
3. The case of the assessee before the ITO was that it was actually engaged in processing of goods because it repairs damaged cars and brings into existence better cars than the damaged ones. The ITO did not agree. He noticed that the assessee was doing labour jobs like repairs or service of motor vehicles. In fact, the printed accounts of the assessee showed the remarks of the auditors to the effect that it was engaged in the repair of motor vehicles and sale of motor spare-parts and so that the company was not a manufacturing concern.
Hence, the ITO held that the assessee was not engaged in any of the activities envisaged under the definition of 'industrial company' and in particular, its activities, namely, repairing of cars and trading in spare auto parts did not amount to processing of goods. In this view of the matter, he rejected the claim of the assessee to be assessed at a lower rate applicable to an 'industrial company'.
4. The assessee appealed to the Commissioner (Appeals) and contended that Its claim should have been accepted. Reliance was placed on behalf of the assessee on the decision in the case of Griffon Laboratories (P.) Ltd. v. CIT [1979] 119 ITR 145 (Cal.). In that case, it has been decided that the assessee need not itself possess the manufacturing plant or machinery and can get the goods manufactured or processed through some body else, and yet it can be an 'industrial company'.
Reference was also made to the decision in the case of CIT v. Casino (P.) Ltd. [1973] 91 ITR 289 (Ker.) for the proposition that processing consists of changing of goods resulting in a commercially different articles, Further, reliance was placed on the decision in the case of CIT v. Commercial Laws of India (P.) Ltd. [1977] 107 ITR 822 (Mad.). In this case, the assessee was the printer and publisher of a journal. It got the journal printed by another concern. After receipt of the printed sheets the assessee engaged labour contractors who folded and stitched the printed sheets and produced the journals. It was held that the folding and stitching of the printed sheets would constitute 'processing of goods' within the meaning of 'industrial company' as envisaged under the aforesaid Finance Act, The case of the assessee before the Commissioner (Appeals) was that it got damaged automobiles and repaired the same in order to produce commercially new articles.
Hence, it was urged that the assessee was engaged in the processing of goods. The Commissioner (Appeals) agreed with the contentions of the assessee and directed the ITO to treat the assessee as an 'industrial company' and charge a lower rate of tax as applicable thereto.
5. Shri A.R. Viswanathan, the learned representative for the department, urged before us that the Commissioner (Appeals) erred in his decision. He stated that the activities of the assessee were such that they cannot be held as 'processing of goods'. He stated that the cases relied on by the assessee before the Commissioner (Appeals) were distinguishable from the facts of this case. He referred to the decision in the case of Casino (P.) Ltd. (supra) and stated that the said case did not consider the meaning of 'processing of goods'. On the contrary, he pointed out that the said decision is against the assessee because producing food articles out of the raw materials in a hotel was not even considered as processing of goods. Further, he referred to the decision in the case of Addl. CIT v. Chillies Export House Ltd. [1978] 115 ITR 73 (Mad.), for the proposition that merely making goods fit for the market does not amount to processing of goods so as to bring an assessee engaged in such activities within the aforesaid definition of 'industrial company'. He, therefore, urged that the assessee was not an industrial company as it was not engaged in processing of goods.
Further, he raised an additional point, namely, that the assessee has not shown that the income arising from the processing of goods consisted of 51 per cent of its total income and so, even if it is assumed that the assessee was engaged in the processing of goods, it was hit by the Explanation to the aforesaid definitions of 'industrial company'.
6. Shri N.G. Patel, the learned representative for the assessee, on the other hand, supported the order of the Commissioner (Appeals). He relied on the decision referred to in the order of the Commissioner (Appeals).
7. We have considered the contentions of both the parties as well as the facts on the record. In our considered opinion, the assessee was not engaged in the processing of goods within the meaning of the aforesaid definition of 'industrial company'. Servicing or repairing of cars, in our opinion, is not processing of goods. It merely amounted to removing the defects and making the car usable or fit for use. We find support for our conclusion on the decision in the case of Chillies Export House Ltd. (supra). All that the assessee did to the damaged cars was to set right the damage and restore the former usable condition of the car. Even the case of Casino (P.) Ltd. (supra), in our opinion, helps the case of the department. In that case preparing items of food out of the raw materials in a hotel has been held to be neither manufacture nor even processing of goods. The cases relied on by the learned Commissioner (Appeals) were distinguishable on facts. The case of Griffon Laboratories (supra) was concerned with a different question, namely, whether the assessee should manufacture or process the goods itself or can get that activity done by another concern in order to become an 'industrial company'. Similarly, in the case of Commercial Laws of India (P.) Ltd. (supra) the activity involved was quite different. It was not a repairing job that was done there. The assessee in that case was producing new articles which were not in existence before. In the case before us, the assessee was not engaged in any such activity. For the above reasons, we hold that the Commissioner (Appeals) indeed erred in holding that the assessee was engaged in the processing of goods within the meaning of the aforesaid definition of 'industrial company'. We, therefore, vacate his order and restore that of the ITO on this point.