P. Govindan Nair, C.J.
1. The question referred for our opinion reads as follows :
'Whether the profit of Rs. 3,73,870 obtained by the assessee during the relevant previous year by the sale of chemicals imported by it on the strength of licences issued to it, based on its export performance of leather, both manufactured and purchased by it, was rightly held as not attributable to the manufacturing activity carried on by it ?'
2. The question has to be answered with reference to Section 104(4)(a) and the Explanation to that section. It is as follows :
'104. (4) Without prejudice to the provisions of Section 108, nothing contained in this section shall apply to -
(a) an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power ; . . .
Explanation.--For the purpose of Clause (a) of this sub-section, the business of a company shall be deemed to consist mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, if the income attributable to any of the aforesaid activities included in its gross total income for the relevant previous year is not less than fifty-one per cent, of such total income.'
3. The assessee is engaged in the manufacture of leather. The assessee also purchases leather. Both the manufactured leather and the purchased leather are exported. As a result of such export, the assessee has been granted import entitlement. Chemicals were imported and sold by the assessee. Such imports and sales by the assessee resulted in a profit of Rs. 3,73,870. The assessee contended that the profit of Rs. 3,73,870 was attributable to the manufacture of leather goods which is one of the activities carried on by the assessee. If this is also treated as attributable to the manufacture of leather goods which is one of the activities carried on by the assessee, it is admitted that the profit of Rs. 3,73,870 is more than fifty-one per cent, of the total income. On that basis, it was contended that the Explanation was attracted. The contention is not well-founded. The words that have to be considered are the following in the Explanation :
'... the business of a company shall be deemed to consist mainly in ... the manufacture or processing of goods ... if the income attributable to (the same) included in its gross total income for the relevant previous year is not less than fifty one per cent, of such total income.'
4. The question is whether the business consists mainly of the manufacture of goods as in, Sub-section (4)(a) of Section 104 as has been explained by the statutory explanation. 'Attributable' is not a word which denotes that there should be a sufficient nexus between the manufacturing process and the resulting of income. Though the fact that the export business of leather manufactured by the assessee and purchased by the assessee was the remote cause for the import entitlements which in turn had given rise to import, and the business of selling imported goods and the earning of income from such sales and so, in one sense, connected with the manufacturing, the connection is not sufficiently proximate to enable us to say that the income was attributable to the manufacturing process of leather.
5. This is the view taken in T. C. No. 406 of 1974 : 179ITR179(Mad) in dealing with the same assessee's case with reference to the Finance Act No. 19 of 1968, in dealing with the Explanation to Section 2(6)(d) of that Act wherein almost identical words are used. We held therein that the assessee's contention is not well-founded.
6. In the light of the above, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee. The Revenue will be entitled to its costs including counsel's fee Rs. 500.
7. A copy of this judgment under the signature of the Registrar and the seal of this court will be sent to the Income-tax Appellate Tribunal, Madras Bench.