Judgment:
1. These appeals are by the assessee and pertain to the assessment years 1981-82 and 1982-83. The common ground urged by the assessee in these appeals is directed against the consolidated order of the learned CIT(Appeals). The grievance of the assessee is that the learned DCIT(Asstt.) went wrong in not following the observations of the ITAT, Nagpur Bench in their order dated 25-5-1987 in IT Appeal Nos. 899 to 811/Nag/84 in assessee's own case. The case of the assessee is that the levy of additional tax under section 104 of the Income-tax Act, 1961 was as a consequence of not following the direction of the Tribunal in the assessee's own case cited supra.
The assessee is a private limited company in which the public are not substantially interested. The assessee is engaged in the execution of heavy concrete work in the Plate Mill Area of Bhilai. In this case, the initial assessments were made on a total income of Rs. 3,63,440 and Rs. 13,44,030 for the assessment years 1981-82 and 1982-83 respectively.
The Assessing Officer noticed that the assessee has not disclosed any dividend for the assessment year 1981-82 and declared the dividend of Rs. 28,680 only for the assessment year 1982-83. He issued notice under section 104 of the Income-tax Act, 1961, asking the reason as to why the additional tax under sections 104 to 109 should not be levied on it. The assessee furnished the reply submitting that the assessee is an industrial undertaking. The Assessing Officer took the view that the definition of an industrial company was enlarged only with effect from 1-4-1984. Prior to that an industrial company cannot cover a company engaged in the execution of projects as an industrial company. It was under these circumstances, the additional tax was levied at Rs. 27,371 and Rs. 1,04,972 respectively. It was the case of the assessee that for section 80J, the revenue itself has considered the assessee as an industrial company and, therefore, there could not be a different view for applying the provisions of sections 104 to 109 of the Act. It was the case of the assessee that even otherwise, the assessee is an industrial company inasmuch as it was an Indian company whose business consisted of mainly the construction of ships in the manufacture or processing of goods or in mining or in the generation and distribution of electricity or any other form of power. According to the assessee, the main activity of the assessee included : (i) production and processing of graded concrete of the required consistency and puring it into structures rising from 14 matras below ground level; It was the case of the assessee that it was required to manufacture structures of pre-cast concrete slabs, maintain fabrication yards, Batching Plant Yards and adhere to strict quality control as per specifications. All these activities fell within the definition of 'Industrial undertaking' as given in clause (a) of sub-section (4) of section 104 of the Act. The CIT(Appeals) decided the issue in favour of the assessee considering that the revenue itself has admitted the assessee as an industrial company for the purpose of section 80J of the Act. Aggrieved by the above order, the revenue went up in appeal before the Tribunal.
3. Considering the rival submissions, following the decision of the Orissa High Court in CIT v. N.C. Budharaja & Co. [1980] 121 ITR 212 and the Bombay High Court decision in the case of CIT v. Pressure Piling Co. (India) (P.) Ltd. [1980] 126 ITR 333/[1979] 1 Taxman 406 and CIT v.N.U.C. (P.) Ltd. [1980] 126 ITR 377 and also relying upon the decision of the Full Bench of the Tribunal at Delhi in ITO v. Hydle Construction (P.) Ltd. [1983] 6 ITD 575, the Tribunal held that a company engaged in construction of civil work like tunnels, dams, etc., cannot be treated as an industrial company, because construction of ship alone was covered in definition of an industrial company. Considering the above decisions, vide para 8 of its order, the Tribunal remanded the matter back to the file of the Assessing Officer with the following directions :- "Although the distinction drawn by the Bench is rather fine since they have gone deep into the matter and the report itself covers as many as 27 printed pages, in view of the serious controversy involved, we would meticulously follow the decision in its entirety.
So far as the words used in section 104(4) are concerned, they exclude an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power. The Special Bench had an occasion to interpret these very words in relation to the assessee's claim for lower rate of taxation. The Bench ultimately remanded the matter to the Assessing Officer to determine the extent of activity by looking into the nature of activities for each year separately and if the predominant activity was such that it would come under the head 'Manufacture or processing of goods', the benefit should be given to the assessee. Since none of the authorities below have specifically considered this issue from this angle, we are of the opinion that the matter should be restored to the file of the assessing authority, namely, the Income-tax Officer to decide this issue afresh in the light of the observations made by the Special Bench which have been quoted in extenso above." Consequential order was passed on 28-2-1990. It was the case of the assessee before the Assessing Officer that the limited issue for the Assessing Officer was to see whether the assessee is mainly engaged in the manufacture or processing of goods and whether it can be held as a company for that purpose. On facts, the assessee submitted that the only work which the assessee undertook was the Civil Engineering Works in Group II of Plate Mill Area of Bhilai Steel Plant. The terms 'Civil Engineering Works' is very wide. The Plate Mill of Bhilai Steel Plant functions in a vast shed. This shed was constructed on heavy concrete foundations/pillars/columns/slabs, etc. The above work was awarded to the assessee so as to lay heavy concrete foundations and casting concrete pillars/slabs/columns, etc. Earthwork is also part of concrete work because without earthwork heavy concrete foundation cannot be laid. The total value of the contract was Rs. 2,43,15,275. Section-wise values of the work given are as under :- Thus, the assessee contended that the concrete section and earthwork section put together constituted 77% of the total work. Thus, relying upon the decision of the Special Bench of the Tribunal cited supra, the assessee contended that the assessee is an industrial company mainly engaged in the business of manufacture or processing of goods inasmuch as the manufacture and processing related to the activities like manufacture of chips and bricks and production of a new separately identifiable product, viz., concrete. In view of the subsequent decision of the Delhi High Court in the case of CIT v. Minocha Bros.
(P.) Ltd. [1986] 160 ITR 134/26 Taxman 648 (which was then not available at the time of Special Bench decision), the Assessing Officer held that laying of heavy concrete foundation and casting concrete/pillars/slabs/columns, etc., cannot be considered as manufacture or processing and, accordingly, the Assessing Officer treated the assessee-company as "any other company not being a company as contemplated under section 104(4)(a) of the Income-tax Act, 1961".
Aggrieved by the above order, the assessee appealed before the CIT(Appeals).
4. It was the case of the assessee that the Assessing Officer went wrong in following the decision of the Delhi High Court in the case of Minocha Bros. (P.) Ltd.'s case (supra). It was the case wherein the assessee was actually in the field of construction of building and the manufacture that was to be done like the manufacture of doors, windows and it was really a part of the construction work. The same is not the case with the assessee. Further it was contended before the learned CIT(Appeals) that the Tribunal had given specific direction and the Assessing Officer should not have acted beyond the direction that was given. For this proposition, the assessee relied upon the decision of the Allahabad High Court in the case of CIT v. Kamla Town Trust [1992] 198 ITR 191. In this case, the Hon'ble High Court held that even erroneous decisions operate as res judicata between the parties. The finding recorded by the Tribunal in its original order were binding between the parties and the Income-tax Officer had not properly interpreted and implemented that order which had become final between the parties on the facts and circumstances of the present case. The Income-tax Officer had erred in recomputing the total income of the assessee in the manner in which he had done. It was further submitted that the assessee had been allowed deduction under section 80J and given the benefit of concessional rate of tax applicable to industrial company. Therefore, it was contended that the assessee should be treated as an industrial company also for the purpose of section 104 of the Act. It was also submitted that the ITAT, Nagpur Bench has held that section 104 is not applicable to the assessee for the assessment years 1983-84, 1984-85 and 1986-87 and 1987-88 vide its orders dated 9-1-1992 and 10-10-1991. The learned CIT(Appeals) held that the issue had been settled by the Hon'ble Supreme Court in the case of CIT v.N.C. Budharaja & Co. [1993] 204 ITR 412/70 Taxman 312 wherein the Apex Court held that the activity of construction of a dam, etc., could not be characterised as manufacture or production of an article or articles within the meaning of section 80HH(2)(i). The learned CIT(Appeals) held that in this case before the Supreme Court, the Hon'ble Supreme Court held that pressure piling construction of dam and canals, etc., was held not as a manufacture or production of article or thing. In view of the decision of the Supreme Court cited supra, he, therefore, held that the charge of additional tax under section 104 of the Act for the assessment years under consideration was justified. He further held that though the Tribunal directed to examine the case afresh, there was no specific direction as regards allowing or otherwise the claim of the assessee. Hence, he confirmed the order of the Assessing Officer for both the years under consideration. It is against this order, the assessee is in appeal before the Tribunal.
5. The learned counsel for the assessee reiterated the submissions made before the revenue authorities. The learned counsel further submitted that in other sections, like 32A, 80HH, 80-I, the word 'processing' is not discussed. Coming to the case in Minocha Bros. (P.) Ltd. v. CIT [1993] 204 ITR 628 (SC), confirming the decision of the Delhi High Court, referred to by the revenue authorities, the learned counsel submitted that it was because of the failure of the assessee to adduce any material to establish that the income of the assessee attributable to the activities of manufacture of production of goods was not less than 51 per cent of the total income. Hence, the learned counsel submitted that the intermediary product was and the assessee like one before the Tribunal - whether entitled for benefit as claimed by the assessee is still open. The Hon'ble Court has not decided the issue so far. The learned counsel further submitted that in the decision of the Special Bench of the Tribunal in the case of R.M. Enterprises v.First/Forth ITO [1992] 42 ITD 23 (Bom.) even after discussing the Delhi High Court decision, the Tribunal (SB) came to the conclusion that the deduction under section 80-I shall be available with reference to profit and gains attributable to manufacture and production of doors, frames, windows as well as cement concrete slabs and other allied articles which were used in building construction activity. In the light of the above decision, the learned counsel submitted that the assessee who is doing civil engineering works in Group II Plate Mill Area of Bhilai Steel Plant is entitled for the benefit. The learned counsel submitted that the total contract value undertaken by the assessee was Rs. 2,43,15,275. The work of concrete section comes to Rs. 1,48,42,100 and earthwork section comes to Rs. 38,05,000 and if both the works put together, it will constitute 66.69% of the total work.
Therefore, the assessee's counsel submitted that the assessee is mainly engaged in the manufacture or processing of goods and not liable for additional tax under section 104 of the Act.
6. On the other hand, the learned Departmental Representative supported the orders of the revenue authorities.
7. Further, the learned counsel sought our permission to raise the following additional ground :- "That on the facts and in the circumstances of the case, considering the smallness of profit and other relevant considerations, the assessee was not liable for additional tax under section 104 of the Income-tax Act, 1961 even on merits." The learned counsel submitted that the fact of the smallness of the amount was brought to the notice of the Assessing Officer vide the assessee's representation dated 23-1-1991 (a copy of the same has been filed). The learned Counsel further submitted that in Form No. 35 dated 19-4-1984 before the CIT(Appeals), this issue was raised as ground No.2. Since the learned CIT(Appeals) has not adjudicated upon this ground which formed part of the assessee's appeal and the department since had only challenged the relief under section 104A and the Tribunal set aside the matter, the present proceedings have been confined only to this point and the point on merit, taken now as additional ground, remained to be decided. Therefore, the learned Counsel concluded that in any case, since this ground was a part of the original appeal which remained undecided on merits, the matter should be sent back to the file of the CIT(Appeals). Since this being a legal ground, it can be taken at this stage, the learned counsel contended.
8. As against the above submissions, the learned Departmental Representative submitted that the assessee has not explained as to why this issue was not agitated before the Tribunal at the first instance and also on the second inning at the earliest stage. The learned Departmental Representative submitted that the delay requires to be explained by the assessee for each day.
9. Considering the rival submission on the additional ground taken now by the learned counsel for the assessee, we are of the view that it is not correct to say that the matter raised in the additional ground goes to the root of the case and it is a legal question. Even the ground taken by the assessee at the first appellate stage does not indicate that this issue was either agitated before the CIT(Appeals) or before the Tribunal. Since this ground has not been agitated by the assessee either at the first inning before the Tribunal or at an earlier stage in second inning, we find no reason to entertain this additional ground. The permission to raise the additional ground sought for by the assessee's counsel is rejected.
10. We have considered the rival submissions, gone through the orders of the revenue authorities and the decisions relied upon by the contending parties. The case of the assessee is that the definition of 'an industrial company' as given in section 104 is much wider as compared to the definitions given in the other sections, like sections 32A, 80HH and 80-I of the Act. The word 'processing' of goods used in Explanation to section 104 is concerned with the activity carried on by the company and has no relevance to manufacturing or end product. Thus, these words are wide enought to include the assessee who carries on construction business provided the activity involved in processing of goods account for more than 51% of the total work as envisaged by Explanation to section 104(4) of the Act. The word 'processing' is much wider in scope than the words 'manufacturing' or 'production'. In the case of Addl. CIT v. Farrukabad Cold Storage [1977] 1 ITJ 202 (All.), it was held that the act of subjecting goods to a particular temperature for a long period of time, as in the cold storage, amounts to processing of goods. In the case of Delhi Cold Storage (P.) Ltd. v.CIT [1991] 191 ITR 656/59 Taxman 144, the Hon'ble Supreme Court held that in common parlance "processing" is understood as an action which brings forth some change or alteration of the goods or material subjected to the act of processing.
11. As per the Webster's Dictionary - the word 'process' means - to subject to some special process or treatment, to subject (especially raw material) to a process of manufacture, development or preparation for the market, etc.; to convert into marketable form such as live-stock by slaughtering, grain by milling, cotton by spinning, milk by pasteurizing, fruits and vegetables for sorting and repacking.
Where, therefore, any commodity is subjected to a process or treatment with a view to its 'development or preparation of the market' as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity. The nature and the extent of processing may vary from case to case; in one case, the processing may be slight and in another it may be extensive; but if with each process commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and the extent of the change is not material.
What is necessary in order to characterise an operation as 'processing' is that the commodity must, as a result of the operation, experience some change. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, takes the commodity to the point where commercially it can no longer be regarded as the original commodity, instead it is recognised as a new and distinct article that a 'manufacture' can be said to take place. The test that is required to be applied is : does the processing of the original commodity bring into existence a commercially different and distinct commodity 12. The Oxford Dictionary defines the word 'process' as "a continuous and regular action or succession of actions taking place or carried on in a definite manner and leading to the accomplishment of some result." In the case of Moka Narasimhulu v. WTO [1979] 119 ITR 105, the Hon'ble High Court of Andhra Pradesh held that in common parlance, by processing of goods, meant that the goods are dealt with either mechanically or by manual labour and something is done to them to change them into some other article or to keep them fine or clean. In the case of CIT v. Sterling Foods (Goa) [1995] 213 ITR 851, the Hon'ble Bombay High Court held as under :- "'Processing' means subjecting a commodity to a process or treatment so as to develop it or make it fit for market. Processing is, thus, an operation or an article so that it undergoes a change. The three expressions 'processing', 'manufacture' and 'production' used in various taxing statutes are not interchangeable expressions. Though often used in juxtaposition, they convey different concepts and refer to different activities. 'Processing' is a much wider concept.
The nature and extent of processing may vary from case to case.
Every process does not tantamount to 'manufacture'. It is only when the 'process' results in emergence of a new and different article having a distinctive name, character or use, that 'manufacture' can be said to have taken place. Similarly, 'production' is wider than 'manufacture'. As a result, every production need not amount to manufacture though every manufacture can be characterised as 'production'." In the instant case of the assessee, it is the case of the assessee that the assessee may not be manufacturing or producing any new article or thing but it is certainly processing the goods. It is the case of the assessee that the assessee is not in the field of construction of building but it undertakes the works of mainly laying heavy concrete foundation, casting concrete pillars/slabs/columns, etc., and it can be reasonably held that the main activity of the assessee is manufacturing/processing of concrete and not construction of building.
As far as section 104 of the Act is concerned, we have seen that to avail the benefit of this section, either manufacturing or processing is sufficient and if the income attributable to any of the said activities is not less than 51% the assessee may escape from mischief of this section. As we have seen earlier, out of the total value of the contract, the earthwork section and concrete section put together constitutes 76.69% of the total contract work and, hence, the assessee is eligible to avail the benefit of the said section.
13. Coming to the argument of the assessee that the decision of the Hon'ble Supreme Court in the case of N.C. Budharaja & Co. (supra) does not apply in the instant case of the assessee as all the assessees before the Hon'ble Supreme Court were builders whereas the assessee is not a builder, is not acceptable. We have seen hereinabove that it is the stand of the assessee that comparing to other section, the word 'processing' used in section 104 is much wide and as such, the assessee is not engaged in the construction of building but in the work of laying heavy concrete foundation, casting concrete pillars/slabs/columns, etc., and the end product of the assessee is concrete and not a building. The main activity of the assessee is to manufacture or process a concrete and not construction of building (paper book page 15, assessee's letter to DCIT dated 26-2-1990). In the case of N.C. Budharaja & Co. (supra), one of the assessees, i.e., respondent in Pressure Piling Co. (India) (P.) Ltd.'s case (supra) was a company engaged in the business of laying foundation for building and other structures by specialised patented known as pressure piling.
Coming to the present assessee, the assessee in its letter dated 8th June, 1993 to the CIT(Appeals), submitted that the assessee has been awarded civil engineering work in group II of Plate Mill area of B.S.P., the assessee undertakes the work of laying heavy concrete foundation casting concrete pillars/slabs/columns, etc., laying them in a position and also in order to lay heavy concrete foundations and erect concrete pillars, columns, etc., earthwork is necessary and put together the earthwork and concrete work, it constituted 77% of the assessee's total work. Hence, this being not a civil construction work and only processing, the levy of additional tax under section 104 is not in accordance with law in view of Explanation appearing below section 104 of the Act. Their Lordships in the case cited supra held that the assessee was laying foundations for buildings and other structures by specialised patented method known as pressure pilling.
Their Lordships, therefore, further held that since upon that foundation, work done by the assessee, further construction or any other structure is raised, the process of laying foundation was an integral part of the construction of a dam, bridge, or building and the assessee's work was done on the spot and it was a works contract. It further held that, therefore, it was not a different from any other work contract which was done on the spot and became a part and parcel of a larger construction. In other words, the emphasis of their Lordships was that the work of the assessee does not end by merely laying foundation but a further improvement like building, structures, etc., were constructed on it. Similarly, in the instant case of the assessee, the work itself does not end merely by laying heavy concrete foundation, casting of concrete pillars/slabs/columns, etc. The work undertaken by the assessee in this contract are within the sphere of construction of building, or tunnel or shed. Whether, it is construction of a building, or tunnel or shed, ultimately it is a construction work. The assessee is doing one part of the construction work which is improved by some other party. Thus, the decision of the Hon'ble Supreme Court in the case of N.C. Budharaja & Co. (supra) [CIT v. Pressure Piling Co. (India) (P.) Ltd. (supra)] applies to the similar works undertaken by the assessee.