Preservation of goods by cold storage is processing of goods within the meaning of Section 2(7)(d) of the Finance Acts of 1966 and 1967.

C.S.P. Singh, J.

1. THE Income-tax Appellate Tribunal, "A" Bench, Allahabad, has, at the instance of the Commissioner, referred the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally correct in holding that the assessee-company was an "industrial company" within the meaning of Section 2(7)(d) of the Finance Acts of 1966 and 1967 and was, therefore, entitled to concessional rate of taxation ? "

2. THE reference relates to the financial years relevant to the assessment years 1966-67 and 1967-68. In these years, the assessee, which is a private limited company, was running three cold storages, two at Farrukhabad and Kamalganj in the district of Farrukhabad and the other at Allahabad. The Income-tax Officer assessed the company on its income at the rate of 65 per cent. An appeal was then preferred by the assessee. It was contended that the assessee was an industrial company within the meaning of Section 2(7)(d) of the Finance Acts of 1966 and 1967 and, therefore, its income was taxable at the concessional rate of 55 per cent. only. The Appellate Assistant Commissioner of Income-tax held that the activities of running the cold storage falls in the category of processing of goods and, as such, the assessee-company was an industrial company as defined in Section 2(7)(d) of the Finance Acts. He, as such, directed the Income-tax Officer to treat the assessee-company as industrial company and levy tax accordingly. An appeal filed by the department to the Tribunal failed.

Answer to the question referred to us depends upon the interpretation to be put on the word "industrial company" as defined in Section 2(7)(d) of the Finance Acts of 1966 and 1967. The word "industrial company" was defined in the Finance Act of 1966 and has been similarly defined in the Finance Act of 1967. Section 2(7)(d) of the Finance Act runs as follows :

"2. (7)(d).--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 of the aforesaid activities included in its total income for the previous year is not less than fifty one per cent, of such total income."

3. IN this case we are not concerned with the Explanation as there is no dispute that the income from cold storage business was more than 51 percent. Counsel for the revenue has urged that preservation of goods by cold storage is not processing of goods as is contemplated by the sub-section. It was contended that the word "processing" occurring in the sub-section contemplates a process which results in a finished Article, i.e., it must be of the nature of manufacture.

4. FIRST, we shall deal with the contention as to whether the word "processing" as used in the sub-section means an activity which must result in the manufacture of goods. It will be useful to refer to a decision in the case of Kilmarnock Equitable Co-operative Society Ltd. v. Commissioners of Inland Revenue [1966] 42 TC 675 (C Sess). The facts were these. The appellant-society carried on the business as general merchants and did a substantial trade, inter alia, in the sale of coal in bulk. It also sold coal in 28 Ibs. paper packets retail through its grocery branches. In the year 1962, the assessee incurred capital expenditure on the erection of a building at its coal depot to house machinery to pre-pack coal. The coal was conveyed by conveyor belt from wagons in the yard into a hopper near the roof, fed down a chute through a vibratory screen where dross was removed, passed by the