1. Section 45(d) of the Wealth-tax Act, 1957, falls for consideration in this case. It is necessary to read the said provision and the Explanationn, which are as under :
'The provisions of this Act shall nto apply to-- .....
(d) any company established with the object of carrying on an industrial undertaking in India in any case where the company is nto formed by the splitting up, or the reconstruction, of a business already inexistence or by the transfer to a new business of any building, machinery or plant used in a business which was being previously carried on : ...
Explanation.--For the purposes of Clause (d), 'industrial undertaking' means an undertaking engaged in the manufacture, production or processing of goods or articles or in mining or in the generation or distribution of electricity or any other form of power ;....'
The proviso to the section limits the period of exemption to five years and is nto relevant for the purpose of this enquiry.
2. By Section 13 of the Finance Act, 1960, all companies were exempted from the operation of the Act. This controversy has, however, arisen because the matter relates to the period before the exemption was granted to the companies. The assessed is a hundred per cent. Government-owned corporation incorporated under the Companies Act, 1956. During the relevant period, that is, assessment years 1958-59 and 1959-60 (the relevant valuation dates being March 31, 1958, and March 31, 1959), the assessed was engaged in the construction of dams, barrages, etc. The works undertaken were of a considerable magnitude. The assessed had large workshops at work-sites for processing of steel, crushing stones and manufacturing lime and brick-dust, etc., for the execution of the works undertaken by it. The case proceeded on the admitted position that the processing of steel, crushing of stones and manufacturing of lime and brick-dust, etc., was done for the purpose of utilising the products in the construction of the various river valley projects undertaken by the assessed and nto for sale to the public. It his been found as a fact that these products were nto sold by the assessse to the public. The assessed claimed before the Wealth-tax Officer during assessment proceedings with respect to both the assessment years mentioned hereinbefore that it was entitled to exemption from wealth-tax under Section 45(d) of the Wealth-tax Act, 1957. The Wealth-tax Officer held that the assessed-company could nto be termed as an industrial undertaking since it was nto engaged in the manufacture, production or processing of goods or articles. The assessed preferred an appeal before the Appellate Assistant Commissioner who allowed the same upholding the claim of the assessed for exemption from wealth-tax. The Appellate Assistant Commissioner decided that:
'The assessed set up large workshops and did a lto of processing of steel, crushing of stone and making of lime and surkhi. That all this processing was incidental to the execution of the company's main work does nto in my view prejudice the assessed's case. There is nothing in the Explanationn to Section 45(d) which requires that the goods processed or manufactured must be sold as such. The requirement of the Explanationn is only that a company must be engaged in the manufacture, product-ion or processing of goods or articles or in mining or in the generation or distributionof electricity or any other form of power. It is nto also necessary that the company must be solely engaged in the activities detailed above. There is no doubt that the assessed-company engaged itself on a large scale in the processing of steel, crushing of stone, making of lime and surkhi, etc. It also excavated stones from stone rocks which is in a way a mining process. Whether it sold the processed steel or the stones or lime or surkhi is to my mind immaterial in the present context as the Explanationn to Section 45(d) does nto require that such goods must be sold.'
3. The revenue preferred appeals against the consolidated order of the Appellate Assistant Commissioner with respect to both the assessment years. They first filed one appeal with respect to both the assessment years on January 8, 1962, that is, one day before the expiry of the period of limitation. On January 10, 1962, the Income-tax Appellate Tribunal informed the revenue that the appeal was defective inasmuch as the years of assessment were two. Thereupon, the revenue preferred a separate appeal for the assessment year 1959-60, on January 16, 1962, without clarifying that the earlier appeal should be confined only to the assessment year 1958-59. The assessed by its letter dated December 12, 1962, raised the following technical objections to the validity of the appeals :
(1) the original consolidated Appeal No. W.T.A. 1149/61-62 was nto in order as a single appeal could nto be filed with respect to two assessment years;
(2) the second appeal filed on January 16, 1962, was barred by limitation ; and
(3) in both the appeals the column 'relief claimed' in the appeal forms was left blank invalidating the appeals.
4. With respect to the main contention of the revenue that the assessed was nto entitled to exemption under Section 45(d), the Tribunal held that a company even if established with one of the objects contained in the Explanationn to Section 45(d) could nto automatically earn the exemption unless it actively engaged itself in the manufacture, production or processing of goods or articles, etc., as provided in the Explanationn and that when the activity of manufacturing, etc., is incidental and carried on with the object of fulfillling the main activity of the company, the manufacturer does nto qualify for exemption under Section 45(d). It was further held that in the case at hand the company was really engaged in the construction of dams and barrages and engaged itself in the activity of manufacturing, producing and processing goods and articles and quarrying stones only incidentally for the purpose of carrying out its main works and, thereforee, it could nto be said that the company was engaged in the manufacture, production or processing of goods. It observed that 'the said activity should be the main and principal activity and nto merelythe means to an end'. From the statement of the case it clearly appears that in the opinion of the Tribunal 'the works undertaken were of considerable magnitude and it had large workshops at work-sites, for processing of steel, crushing stones, manufacturing lime and surkhi, etc., for the execution of the works undertaken by it'. In view of this finding it cannto be disputed that the manufacturing and processing work undertaken by the assessed-company was of considerable magnitude.
5. With respect to the technical objections, the Tribunal held on an application under Section 35 of the Indian Income-tax Act, 1922, that both the appeals filed were in order as a memorandum was issued to the revenue under Rule 13 of the Appellate Tribunal Rules, 1946, for removing the defects, and the revenue did remove the defects in the original appeal by filing a separate appeal for the assessment year 1950-60. For that reason, the first appeal, according to the Tribunal, was impliedly confined to the assessment year 1958-59. The Tribunal also observed that even if there be any technical defect and the second appeal had been filed beyond time, it was a fit case for condoning the delay as prayed for by the revenue in its letter dated January 16, 1962. Regarding the non-filling of the relief column, the Tribunal said that though the said column had been left blank the position regarding the relief claimed was quite clear and, thereforee, there was no such defect which should induce the Tribunal to reject the appeals.
6. At the instance of the assessed the following four questions were referred to the Punjab High Court under Section 27(1) of the Wealth-tax Act, 1957 :
'(1) Whether the Tribunal rightly held that the appeals preferred by the revenue are nto defective and untenable as contended by the assessed-company ?
(ii) Whether the Tribunal rightly held that Appeal No. 1186/61-62 is within time ?
(iii) Whether the Tribunal rightly held that even if Appeal No. 1186/ 61-62 were assumed to be barred by time, it was a fit case for condoning delay in filing the same ?
(iv) Whether the Tribunal, on the facts and in the circumstances of the case, rightly held that the assessed-company is nto entitled to exemption under Section 45(d) of the Wealth-tax Act.'
7. Mr. B. Sen, the learned counsel for the assessed, conceded that the contentions covered by the first three questions had been rightly decided by the Tribunal and I need nto say anything more than this that I am in agreement with the view expressed by the Tribunal. The first three questions are, thereforee, answered in the affirmative and against the assessed.
8. That takes me to the principal question. As I have already said, the Tribunal did find that the manufacturing, etc., work undertaken by the assessed was of considerable magnitude for which purpose the assessed had set up large workshops at work-sites. The only condition prescribed by the Explanationn to Section 45(d) is that the industrial undertaking should be 'engaged in the manufacture, production or processing of goods or articles'. It is nto the condition that the goods should be produced for sale. An undertaking engaged in the manufacture of goods for its own use may, thereforee, equally qualify for the exemption. The word 'engage' may have variety of meanings depending on the context and setting in which it is used. Ordinarily the expression connotes doing of more than one act or one transaction. Continuity of action is implicit in the meaning of the word. It has also been used in the sense of being busy or conducting or devoting attention or effort or employing oneself. The words 'engaged in the manufacture, production', etc., should normally, thereforee, mean continuously occupied in the manufacture as a principal business as distinguished from an occasional participation or single act or casual employment or a mere supervision without physical participation. The extent of activity would be a relevant factor and if such activity is at an extended scale it may be suggestive of being 'engaged' in manufacturing activity. In Regional Provident Fund Commissioner, Bombay v. Shri Krishna Metal Manufacturing Co. A.I.R. 1962 S.C. l53, 1542 the Supreme Court was concerned with the interpretation of section 1(3)(a) of the Employees' Provident Funds Act, 1952, which reads :
'Subject to the provisions contained in Section 16, it (i.e., the Act) applies in the first instance to all factories engaged in any industry specified in Schedule I in which fifty or more persons are employed, but the Central Government may, after giving nto less than two months' notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act to all factories employing such number of persons less than fifty as may be specified in the notification and engaged in any such industry.'
9. Their Lordships of the Supreme Court considered the cases of two respondents. Shree Krishna Metal Manufacturing Company had diverse businesses consisting of (1) manufacturing brass, copper and 'kasa' circular sheets and making of utensils there from ; (2) milling paddy ; (3) a flour mill; and (4) a saw mill. For the manufacture of metal circular sheets, the respondent had a rolling machine. The other respondent was carrying on the business of manufacturing hydrogenated vegetable oil and for the purpose of packing the vegetable oil it manufactured its own tin containers and the question was whether the two respondents were factories within section 1(3)(a). With respect to Shri Krishna Metal Manufacturing Company, their Lordships said that the activity a relation to industry whichfalls in Schedule I was neither minor, nor subsidiary, nor incidental to the other activities and was, thereforee, a factory under Section 1(3)(a). With respect to the other respondent the Supreme Court decided that the main industrial activity was of manufacturing hydrogenated vegetable oil and though manufacture of tin containers was an activity covered by the First Schedule yet this branch of activity formed a minor portion of its larger activity. For the purposes of determining the meaning of the expression 'engaged in any industry specified in Schedule I' of the said Act, their Lordships laid down the following test:
'It is true that in dealing with the construction of a clause which is capable of two reasonably possible constructions, it is nto easy to make a choice, particularly when both constructions seem to lead to some anomalies. On the whole, however, we are inclined to take the view that the clause 'engaged in any industry specified in Schedule I' should be interpreted to mean 'mainly engaged in any industry specified in Schedule I'. If a factory is engaged in two industrial activities one of which is its primary, principal or dominant activity and the other is a purely subsidiary, incidental, minor or feeding activity, then it is the primary or the dominant activity which should determine the character of the factory under Section 1(3)(a). This view does nto purport to add any word to the section ; it merely interprets the relevant expression ' engaged in any industry specified in Schedule I'. When it is said that a person is engaged in any business, it usually means he is engaged mainly or principally in that business ; and the same would be the position when the relevant clause refers to an establishment engaged in the specified industry. That is the commonsense view which is consistent with the current and accepted denotation of the words 'engaged in'.
One of the tests which can sometimes be applied is whether the product of the incidental activity is intended for the market or exclusively for use by the factory in its other department only. If the answer to this question is that the said product is sent out in the market for sale, then the activity in question cannto be treated as incidental. In such a case, it may be said, that the factory is engaged in both the activities and, as such, it is engaged in the industry specified in Schedule I. But the test of sending the product in the market cannto be treated as decisive or even very significant because the definition of the word 'manufacture' given in Section 2(ia) shows that a commodity may be produced by the factory as much for sale, transport, delivery or disposal as for its own use. thereforee, the fact that a commodity is produced only for the use of the factory in its other department may nto necessarily show that the activity which leads to the production of the said commodity is nto the main activity of the factory.
If a factory is engaged simultaneously in different industrial activities and one of these is in relation to an industry specified in Schedule I, then itcan be said that the factory is engaged in the industry specified in Schedule I. The fact that the factory is engaged in other industrial activities will nto necessarily take it out of the purview of section 1(3)(a). The broad test which may safely be applied in dealing with this question is: is the factory engaged in the industry specified in Schedule I from a business point of view and the answer to this question would generally give a satisfactory solution to the problem posed by section 1(3)(a). Whether or nto a factory is engaged in any industry specified in Schedule I would, thus, be a question of fact to be determined in the facts and circumstances of each case.'
10. It will thus be seen that if the manufacturing activity is purely subsidiary, incidental, minor or feeding activity then the dominant activity alone should be determinative of the question. If the incidental or feeding activity is of a large magnitude then one has to see and decide whether or nto the undertaking is engaged in the manufacturing, etc., activity from a business point of view. Section 45(d) does nto require that the undertaking should be engaged in the manufacture of goods for being sent to market or be solely engaged in the manufacture. As a matter of fact, the legislature has used the word 'solely' in Section 45(e). The assessed appears to have launched on manufacturing and processing activity so that it can carry on the business of constructing dams and barrages more efficiently and economically. It could have purchased these goods and articles from the market and constructed dams and barrages. It instead decided to manufacture them. From a business point of view it cannto be said that the assessed is nto engaged in manufacturing or processing of goods. True that in one sense it may be termed as a feeding activity but that activity is nto minor. The proportion that the manufacturing activity seems to have assumed makes it one of the assessed's principal activities.
11. Mr. Kapur, the learned counsel for the revenue, drew our attention to the memorandum of association and said that the principal object of the assessed was to construct roads, dams and bridges, etc. As envisaged by Clause III(1) of the memorandum of association and every other activity in pursuance of the following sub-clauses in the memorandum must be treated as ancillary and minor activity. That, in my opinion, is nto the test. If a company, under its memorandum is entitled to engage in different activities, it may decide to carry on the activity contained nto in the first clause but in the latter clauses. If that activity be a manufacturing activity it will nto be possible to suggest in that event that the company is nto engaged in manufacturing activity. As a matter of fact, the last paragraph in Clause III of the memorandum provides that each of the objects clauses should be read independently. I am, thereforee, of the opinion that the assessed was engaged in the manufacture, production orprocessing of goods or articles within the Explanationn to Section 45(d) and, thereforee, qualified for the exemption. I would, thereforee, answer the question in the negative and against the revenue. The assessed will have its costs which are fixed at Rs. 200.