H.C. Goel, J.
(1) By this Reference the following question of law has been referred for the opinion of this Court by the Income-tax Appellate Tribunal, Delhi Bench 'B' (hereinafter called as the Tribunal) :
'WHETHER on the facts and in the circumstances of the case the assessed company running a cold storage could be held to be an Indastrial Company . for purposes of Section 2(7)(c) of the Finance Act, 1973 and the First Schedule thereto ?'
The assessed is a company incorporated under the Indian Companies Act. The assessment year is 1973-74. The assessed earned income by running a cold storage. In the course of earlier proceedings before the Income-tax Officer it was claimed that it was an Industrial Company' as defined in S. 2(7)(c) of the Finance Act, 1973 for purposes of the First schedule thereto. Section 2(7)(c) of the Finance Act, 1973 defines the expression 'Industrial company' as under:
'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.'
(2) The Income-tax Officer for the reasons given in the assessment order did not accept the said contention of the assessed. In the appeal taken b^ the assessed to the Appellate Assistant Commissioner it was contended on behalf of the assessed that the cold storage plant of the assesses is used for the preservation of commodities of the. customers stored therein and the act of preservation of the goods stored and the method employed thereforee amounts to processing' of those goods and that included treatment of the goods to help their preservation. This contention of the assessed was accepted by the Appellate Assistant Commissioner.
(3) The Revenue took the matter in appeal to the Tribunal. The question revolved on the words 'processing of goods' as appearing in the relevant provision. The Single Bench of the Tribunal after examining the case law cited on behalf of the two sides came to the conclusion that the company which is engaged in the running of a cold storage cannot be said to be a company mainly engaged in the processing of goods. It was observed that the assessed by running the cold storage only keeps the goods of his customers in almost the same condition in which the goods are brought to it for being kept in the cold storage and that no new product comes into being by the keeping of the goods by the assessed in his cold storage. The Tribunal accordingly accepted the departmental appeal, thereby dis-allowing the relief to the assessed by treating the assessed company as an industrial company.
(4) We have heard Mr. M. L. Varma, learned counsel for the assessed and Mr. K. K. Wadhera, learned counsel for the Revenue. The question for consideration is as to whether the activity carried on in a cold storage is the one of manufacture or processing of goods. It cannot be urged nor was sought to be urged on behalf of the assessed that the running of a cold storage involves the manufacture of goods. However, it has been contended that the process involved in the preservation of goods stored in a cold storage amounts to process of the goods stored therein. It was pointed out that when articles like potatoes and fresh fruits are kept under refrigeration, their decay is prevented. The temperature in the cold storage is regulated by the use of the machinery. Preservation under refrigeration is a well known kind of process for keeping edible things in good condition for a temporary period in order to preserve them and to keep them marketable. The goods are thus prevented from any decay or deterioration. The contention of the assessed is that the subjection of the goods stored in a cold storage to a certain temperature regulated mechanically amounts to subjecting those goods to a process.
(5) The contention of Mr. Wadhera on the other hand has been that the goods must be subjected to a certain operation so as to bring about some change in its nature or form, howsoever slight they may be and that unless the operation applied to the goods has the effect of bringing about some change in the goods, the goods cannot be said to have been subjected to a process. The question seems to have been now settled by a decision of the Supreme Court in the case of Chougule and Co. Pvt. Ltd. and another v. Union of India and others (1981) 47 Stc (124) . In that case, the assessed dealer was carrying on the business of mining iron-ore and selling it in the export market after dressing, washing, screening and blending it. The entire activity of the assessed was broadly divisible into seven different operations, one following upon the other, namely, (i) extraction of ore from the mine; (ii) conveying the ore to the dressing plan; (iii) washing screening and dressing the ore; (iv) conveying of the ore from the mine site to the riverside; (v) transport of the ore from the riverside to the harbour by means of barges; (vi) stacking of the ore at the harbour in different stock piles according to its physical and chamical composition; and (vii) blending of the ore from different stock piles with a view to producing or of the required specifications and loading it into the ship by means of the mechanised ore handling plant. The questions that arose for consideration were (1) Whether the blending of ore whilst loading it in the ship by means of the mechanical ore handling plant constituted manufacture or processing of ore for sale within the meaning of section 8(3)(b) and rule 13; and (2) Whether the process of mining, conveying the mined ore from the mining site to the riverside, carrying it by barges to the harbour and then blending and loading it into the ship through the mechanical processing of ore for sale, so that the items of goods purchased for use in every phase of this integrated operation could besaid to be goods purchased for use in mining and manufacturing or processing of ore for sale falling within the scope and ambit of section 8(3)(b) and rule 13 so as .to attract the lower rate of sales tax under section 8(l)(b).
(6) Section 8 of the Central Sales Tax Act, 1956 and Rule 13 of the Rules framed under the Act read as below:
'SECTION 8(1) Every dealer, who in the course of interstate trade or commerce
(A) sells to the Government any goods; or
(B) sells to a registered dealer other than the Government goods of the description referred to in subsection (3);
Shall be liable to pay tax under this Act, .which shall be 3 per cent of his turnover.
(3) The goods referred to in clause (b) of sub-section
(B) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as .being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or. distribution of electricity or any other form of power. Rule 13. The goods referred to in clause (b) of sub-section (3) of section 8, which a registered of Income-tax, Delhi-1, New Delhi. dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants in the manufacture or processing of goods for sale, or in mining, or in the generation or distribution of electricity or any other form of power.'
(7) The question for consideration before the Supreme Court was as to whether the ore blended in the course of loading through the mechanical ore handling plant could be said to undergo processing when it was blended. The Supreme Court dealt with the same in the para at the end of page 130 going on to page 331 as below :
'THE answer to this question depends upon what is the true meaning and connotation of the word 'processing' in section 8(3)(b) and rule 13. This word has not been defined in the Act and it must thereforee be interpreted according to its plan natural meaning. Webster's Dictionary gives the following meaning of the word 'process': 'to subject to some special process or treatment, to subject (especially raw material) to a process of manufacture, development or preparation for the market, etc., to convert into marketable form as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurising, fruits and vegetables by sorting and repacking.' Where thereforee any commodity is subjected to a process or treatment with a view to its 'development or preparation for the market', as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of section 8(3)(b) arid rule 13. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive; but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to il, such operation would amount to processing of the commodity. The nature and extent of the change is not material.
What is necessary in order to characterise an operation as 'processing' is that the commodity must, as a result of the operation, experience some change.' (Underlined by us to provide emphasis).
Judging the case on the basis of the test as laid down above, it was observed as below : 'HERE, in the present case, diverse quantities of ore possessing different Chemical and physical compositions are blended together to produce ore of the requisite Chemical and physical compositions demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective Chemical and physical compositions, because what is produced by such blending is ore of a different Chemical and physical composition. When the Chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to 'processing' of ore within the meaning of section 8(3)(b) and rule 13. It is no doubt true that 'the blending of ore of diverse physical and Chemical compositions is carried out by the simple act of physically mixing different quantities of such ore on the conveyor-belt of the mechanical are handling plant. But to our mind it is immaterial as to how the blending is done and what process is utilised for the purpose of blending. What is material to consider is whether the different quantities of ore which are blended together in the course of loading through the mechanical ore handling plant undergo any change in their physical and Chemical compositions as a result, of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective Chemical and physical compositions.'
(8) Judging the case of running of a cold storage in the light of the aforesaid test as laid down by the Supreme Court the answer must be returned in favor of the Revenue. It is obvious that the keeping of goods in a cold storage does not bring about any change, whatsover, in the goods stored therein. To the contrary, they are kept intact; in the same nature and form in which they are originally stored. In this view of the matter, running of a cold storage cannot be said to be involving process of goods stored therein.
(9) The expression 'manufacture or processing of goods' as occurring in Section 2(7)(c) of the Finance Act, 1973, also came up for consideration before the Supreme Court in the case of Commissioner of Income-tax Gujarat-I, v. Lakhtar Cotton Press Co. (Pvt.) Ltd. : 142ITR503(Guj) . In that case the assessed company received cotton in bulk having lighter density which was sprinkled with water and through a mechanical device pressed into small units of convenient size and then packed into bales, because cotton packed in bales was commercially acceptable as merchants found it convenient to store cotton in that form. It was observed that the activity contemplated by the word 'process' is general, requiring only continuous and regular action or succession of actions leading to the accomplishment of some result, but it is not one of the requisites that the activity 416 should involve some operation on some material in order to its conversion into some other stuff. thereforee, what is necessary in order to characterise an operation as processing is that the commodity must, as a result of the operation, experience some change. It was further held that as loose cotton in bulk quantity with lighter density was 33 a result of pressing, converted into cotton bales and to that extent it underwent a change and, thereforee, the assessed company fell within the definition of an 'industrial company' because it processed cotton into cotton bales and was entitled to the concessional rate of tax within the meaning of Ss 2(7)(c) and 2(8)(c) of the Finance Acts, 1973 and 1974 respectively. In this case the aforesaid decision of the Supreme Court in the case of Chowgule and Co. Pvt. Ltd., (supra) was taken note of and was followed.
(10) Mr. Wadhera cited some other judgments, namely, Commissioner of Income-tax, Kerala v. Casino Pvt. Ltd., (1973} 91 Itr 289 Additional Commissioner of Income-tax Madras-1 v. Chillies Export House Ltd. : 115ITR73(Mad) and E Deputy Commissioner of Sales Tax (Law) Board of Revenue (Taxes), Emakulam v. Pio Food Packers, (1980) 46 Stc 63. In view of the aforesaid. decision of the Supreme Court in the case of Chougule and Co. Pvt. Ltd. (supra) we need not refer to these decisions.
(11) Mr. M. L. Varma, learned counsel for the assessed cited a number of authorities. In the case of Additional Commissioner of Income-tax, Kanpur, v. Farrukhabad Cold Storage (p) Ltd. : 107ITR816(All) , the Allahabad High Court dealt with the case of a cold storage. It was observed that the term 'processing of goods' as used in Section 2(7)(d) of the Finance Acts of 1966 and 1967, need not be of such a nature as to result in the manufacture of goods or manufacture of a new article. It was held that storing of goods in a cold storage amounts to their being subjected to a process and the assesses which was having the business of running a cold storage was an industrial company within the meaning of Section 2(7) (d) of the Act. The question as to whether to constitute an operation as 'processing' it was or was not necessary that the commodity must as a result of the operation undergo some change was not considered in that case. In the later case of Farrukhabad Cold Storage (P) Ltd. v. Commissioner of Income-tax, : 119ITR895(All) , the Allahabad High Court simply observed that it was bound by its earlier decision in the case of the same assessed reported as : 107ITR816(All) (supra).
(12) The Calcutta High Court in the case of Commissioner of Income-tax v. Radha Nagar Cold Storage (P) Ltd. (1980) 136 Ftp 66 referred to the said decision of the Allahabad High Court in the case reported as 107 Itr 816 and held that the act of cold storage was an acting of processing of goods in terms of the Finance Act, 1968. It is worth noting that in none of these cases was any argument raised that to constitute any operation in respect of goods as amounting to processing, it was necessary to bring some change in the nature, quality or form of the goods. All these ca,ses proceeded on the footing that processing was something different and lesser than manufacturing of goods, with which finding there can be no quarrel.
(13) In the case of Commissioner of Income-tax Patiala-II v.-Yamuna Cold Storage , the question for consideration before the Punjab arid Haryana High Court Was a,s to whether the process undettaLen in a cold storage falls Within the definition of 'Manufacturing process' in clause (k)(i)of Section 2 of the Factories Act, 1948. The term 'manufacturing process' was defined under Section 2(k) to the Factories Act, 1948 as below :
'2(K) 'Manufacturing process' means any process for
(I) making altering, repairing, ornamenting, .finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery disposal or (Underlining by vs to provide emphasis)
It was held that the process undertaken in a cold storage would be fully covered by clause (k) (i) because it would certainly be a process of treating the articles of goods with a view to preserve them for their use or sale. It is worth nothing that whereas the word 'processing' has not been defined under the' Finance Acts of 1973 and 1974, the definition of 'manufacturing process' as given under the said clause of the Factories Act is very wide.
(14) In any case all these cases were decided prior to the decision of the Supreme Court in the case of Chowgule and Co. Pvt. Ltd. (supra). In view of the decision of the Supreme Court in that case, these decisions can no longer be considered to be laying a good law.
(15) Reference was also made to a decision of the Court of Session (First Division) in the case of Kilmamock Equitable Cooperative Society Ltd. v. Commissioners of Inland Revenue, 42 T.G. 675. This decision was relied upon by the Allahabad High Court in deciding the case of Farrukhabad Cold Storage (P) Ltd. (Supra). In this case the question that fell for determination was whether the building in which the operation of the breaking up of bulk, separating out the dross from the coal by screening, and packeting the coal in bags of 28 1bs. each in weight was carried on was an industrial building or structure within the meaning of Section 271(l)(c) of the Income Tax Act, 1952 (in England). To fall under paragraph (c) it must be a 'building or structure in use for the purposes of a trade which consists in the manufacture of goods or materials or the subjection of goods or materials to any process.'
It was conceded on behalf of the Crown that the aforesaid activity as carried on in the building involved as 'process' within the meaning of Section 271(l)(c) of the Income Tax Act. It was, however, contended that, however, the goods i.e. the coal could not be considered to be subjected to a 'process' unless that process resulted in some alteration to the nature and the material itself. It was unanimously held that the activity carried on in the building involved subjection of coal to a process inasmuch as dirty coal in bulk was brought in the building and what was turned out of the building after coal was subjected to the process therein was clean coal, duly packed in paper bags of 28 1bs each after dross was removed there from. It is obvious that the goods i.e. coal in that case underwent a change in its quality and form. The further observations of the Lord President (Clyde) that indeed in his view any such alteration as taken place to the goods in the building was not essential to involve subjecting the goods to a process, were in the nature of obiter.
In conclusion, in view of what has been stated above, we answer the question referred in the negative i.e. in favor of the Revenue and against the assessed. In the circumstances of the case, the parties are left to bear their own costs of this Reference.