Jagannatha Shetty, J.

1. This is a reference under s. 256(1) of the I.T. Act, 1961, and the question of law referred is :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in treating the assessee either as a manufacturer of goods or as engaged in the processing of goods within the meaning of section 2(7)(c) of the Finance (No. 2) Act, 1977 ?"

2. The assessee is a company. It claimed that it was an industrial company as defined under s. 2(7)(c) of the Finance (No. 2) Act, 1977. If it was an industrial company, it would be entitled to be taxed at a concessional rate. The ITO rejected that claim and assessed the income by applying normal rate of taxation, but in appeal before the AAC, the assessee succeeded.

The Department preferred an appeal before the Tribunal. The Tribunal after hearing the arguments, made a local inspection of the assessee's premises to know what the assessee was really doing. The members of the Tribunal personally observed the operation of the computers installed by the assessee. A note was also prepared by the learned counsel for the assessee and given to the members of the Tribunal. That note gives the