The central legal point established in the judgment is the interpretation of 'manufacture' and 'processing' in the context of determining whether a company qualifies as an industrial company under the Finance Act, 1975.

Jagannatha Shetty, J.—This is a referred under s. 256(1) of the I.T. Act, 1961. The question referred by the Income Tax Appellate Tribunal, Bangalore Bench, for the opinion of this court, is as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant could not be treated as an industrial company within the meaning of section 2(8)(c) of the Finance Act, 1975 ?"

2. The assessee is a private limited company. For the assessment year 1975-76, it had income from departmental stores, bakery, restaurant and bar. Its total income for the year was Rs. 3,88,333 out of which a sum of Rs. 1,69,428 was attributable to the bakery and an income of Rs. 72,807 was attributable to the restaurant. If the latter two sums are taken together, it would exceed more than 51 per cent. of the total income of the company. The assessee made that claim so as to be considered as an industrial company for the purpose of getting the benefit of concessional rate of tax.

3. Section 2(8) of the Finance Act, 1975, provides for rates of levy of tax in respect of the different types of companies mentioned therein.

4. Section 2(8)(c) of the Finance Act, 1975, defines an "industrial company" as follows :

"'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 of or distribution of electricity or any other from 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."

5. There is no dispute that the bakery is a manufacturing unit of the assessee. The assessee wants the restaurant section also to be treated as a manufacturing or processing unit. If this claim is allowed, then the assessee would be entitled to the benefit of s. 2(8)(c). The ITO, however, did not accept that claim. He held that the restaurant has not been licensed as a factory and the income therefrom cannot be taken for the purpose of considering the assessee as an "industrial company".

6. The assessee appealed to the AAC. The AAC allowed the appeal holding that the preparation and supply of vegetarian and non-vegetarian dishes in a hotel could be considered as processing of goods.

7. Being dissatisfied with the order of the AAC, the Department appealed to the Tribunal. The Tribunal accepted the appeal and held that the restaurant section cannot be considered as a manufacturing or processing unit. The Tribunal, while reaching the conclusion, relied upon the decision of the Kerala High Court in Commissioner of Income Tax Vs. Casino (Pvt.) Ltd., (1973) 91 ITR 289 Ker, in which an identical question was considered and determined against the assessee therein. The Tribunal, accordingly, reversed the order of the AAC and restored the assessment order.

8. The controversy raised in this case lied in a narrow compass. It primarily relates to the nature of the activities carried on by the assessee in the restaurant and the question is whether the preparations made and supplied to the customers therein have been manufactured or processed in the accepted terms.

9. Mr. G. Sarangan, learned counsel for the assessee, urged that there is a variety of dishes prepared out of a raw materials such as grains, pulses, meat, wheat and vegetables and they are prepared invariably by subjecting the goods to a process or treatment and, therefore, it should be held that the assessee is engaged in the "manufacture" or "processing" of goods in the resta