A construction company can be considered an industrial company under Section 2(7)(c) of the Finance (No. 2) Act, 1977, if it can demonstrate that 51% or more of its income is derived from manufacturing or processing activities.

R. JAYASIMHA BABU, J.

The common question that has been referred to us for our consideration is as to whether the assessee who is engaged in the construction of buildings as also in the manufacture of doors, windows, cement slabs, etc. and from which activities of manufacture the assessee claims to derive 51 per cent of its income is a manufacturing company for the purpose of Finance (No. 2) Act, 1977. The assessment years are 1973-74 to 1977-78.

2. "Industrial company" is defined in s. 2(7)(c) of Finance (No. 2) Act, 1977, 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 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 VI-A of the IT Act) is not less than fifty-one percent of such total income."

3. It is evident from the Explanation that before assessee-company can be regarded as an industrial company, it must be shown to be engaged in any one of the following activities as its main activity;

(a) generation or distribution of electricity or any other form of power;

(b) construction of ships;

(c) manufacture or processing of goods;

(d) mining

4. Expln. to s. 2(7)(c) further explains as to what the legislature meant by using the words 'mainly engaged in the business'. If the income attributable to any one or more of the aforesaid activities referred to in s. 2(7)(c) in the total income of the previous year as computed before making any deduction under Chapter VI-A of the IT Act is not less than fifty-one per cent of the total income, then such company is to be regarded as an industrial company.

5. It is, therefore, necessary to ascertain as to whether the 51 per cent or more of the income of the company which claims to be an industrial company is derived from any one of the activities specified in s. 2(7)(c) of Finance (No. 2) Act, 1977.

6. The fact that the assessee is engaged, in the construction of buildings, by itself does not disqualify it from claiming to be an industrial company if it is able to show that 51 per cent or more of the total income is derived from an activity which can be regarded as manufacture or processing of goods. That was indeed the endeavour of the assessee before the authorities below, and it had succeeded in convincing the CIT, who in his order dt. 27th July, 1982, relating to the asst. yrs. 1973-74; 1974-75; 1976-77 and 1977-78 had, after calling for the details from the assessee and after perusing the data so furnished, held that the data relating to 17 items of works completed by the assessee during the period from 28th January, 1971 to 1st December, 1978, showed that the total value of the bills was Rs. 53.60 lakhs of which the bill amount relatable to activities accepted to be manufacture or processing activities amounted to Rs. 38.88 lakhs or 72.53 per cent of its total value of the bills. The CIT had also called for the comments of the ITO on the data so produced before him. The ITO had observed that the assessee had taken into account the works involving cement or casting cement slabs and other works involving the use of cement, as constituting manufacturing activity to arrive at the percentage of manufacturing activity at 72.53 per cent of the total value of the work. The CIT however held that the figure of 72.53 per cent as representing the value of the manufactured goods was correct. He had, therefore, directed the ITO to recompute the tax payable by treating the assessee as an industrial comp