A company is entitled to the concessional rate of tax under the Finance Acts if it is mainly engaged in the manufacture or processing of goods. A company is deemed to be mainly engaged in the manufacture or processing of goods if the income attributable to such activity is not less than 51% of its total income.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, we are concerned with the following questions of law : " 1, Whether, on the facts and circumstances of the case, the Tribunal was justified in upholding the reopening of the assessment under Section 147 (b)?

( 2 ) WHETHER, on the facts and circumstances of the case, the Tribunal was justified in holding that the assessee was not a company engaged in the manufacture or processing of goods and was, therefore, not entitled to the concessional rates of tax under the respective Finance Acts ? " 2. The assessee is a private limited company and is engaged in pharmaceutical business. The assessment years are 1965-66 and 1966-67 and the relevant accounting years are calendar years 1964 and 1965, respectively.

( 3 ) IN the assessment proceedings, the assessee was treated as a manufacturing concern and was taxed at concessional rates under the Finance Acts of 1965 and 1966, respectively. Thereafter, the Comptroller and Auditor-General of India raised certain objections in the audit report regarding the assessments. The ITO, after applying his mind to the said audit report, reasonably believed that the income had escaped assessments in both the years and, accordingly, he reopened the assessments.

( 4 ) IN the reassessment proceedings for the accounting year 1964, the ITO held that the assessee was not a manufacturer of those goods. He found that in the accounting year 1965, the assessee started a factory and incurred a net loss of Rs. 2,27,620 in the manufacturing activity. Accordingly, the ITO held that the assessee was not an iudustrial company in the accounting year 1965 and was, therefore, not entitled to the concessional rate. In those circumstances, the business income of the assessee was taxed by the ITO at the general rates in both the assessment years.

( 5 ) THE assessee filed appeals. The AAC held that the assessee was not engaged in any manufacturing activities. He also held that the reopening was justified and dismissed the appeals.

( 6 ) THE assessee filed further appeals. The Tribunal held that the reopening was justified. It was admitted on behalf of the assessee before the Tribunal that in the accounting year 1964, the assessee did not own or possess any plant or machinery and it entered into a manufacturing agreement with Messrs. Smith Stainstreet and Co. Ltd. , under which the said company manufactured and produced medicines, cosmetic goods, etc. , for the assessee, which the assessee, in turn, marketed.

( 7 ) IT was argued before the Tribunal by the assessee's representative that the assessee was entitled to the concessional rate although it did not own or possess any plant or machinery for manufacturing those goods in the accounting year 1964. It was submitted on its behalf that by reading the aforesaid manufacturing agreement as a whole, it was clear that the overall control and management of the products manufactured by the said company was in the hands of the assessee and, accordingly, it should be held that the assessee was a manufacturer of those goods in the accounting year 1964. Reliance was also placed on its behalf on certain licences and certificates issued by the Government departments to show that the assessee was the manufacturer of those goods.

( 8 ) THE Tribunal, however, held that the assessee was not a manufacturer of those goods as it did not own or possess any plant or machinery and caused those goods to be manufactured by the said company in the accounting year 1964. The Tribunal also sustained the order of the ITO for the assessment year 1965 and dismissed both the appeals.

( 9 ) MR. S. R. Banerjee, learned counsel for the assessee, argues before us that the Tribunal was not justified in upholding the reopening, but in view of the decision of the Supreme Court in the case of R. K. Malhotra, ITO v. Kasturbhai Lalbhai , his contention must fail and we return our answer to question No. 1 in the affirmative and agains