SUMMARY OF CASE LAW
Those undertakings would qualify as `industrial undertakings’ which
are involved in `manufacturing activity’; the activity of construction can,
by no stretch of imagination, be treated as manufacturing activity as
it does not amount to manufacture or production of an article or a thing.
CASE LAW DETAILS
Decided by: HIGH COURT OF DLEHI,
In The case of:
Ansal Housing & Construction Ltd. v. CIT,
Appeal No.: ITA Nos. 1261,1278,1287 & 1402 of 2008,
Decided on: October 30, 2009
RELEVANT PARAGRAPH
11. In the absence of any definition provided under the Income
Tax Act, it would be admissible to find out the scope of this
expression by resorting to its meaning in common parlance
as understood by common persons or its natural and grammatical
manner. Law Lexicon, the Encyclopedia Law Dictionary (1997 Edition),
provides the following meaning :-
“Industrial Undertaking –
To be an industrial undertaking, the work of manufacture or production
should be carried on in one or more factories by person or authority
including Government.”
Likewise,Wharton .s Law Lexicon (Dictionary) (15 th Edition) defines
this expression as –
“any undertaking pertaining to a scheduled industry carried on in
one or more factories by any company but does not include-
(i) An ancillary industrial undertaking as defined in clause (aa) of
section 3 of the Industries (Development and Regulation) Act, 1951;
and (ii) a small scale industrial undertaking as defined in clause (j)
of the aforesaid section 3. [Sick Industrial Companies
(Special Provision) Act, 1985 (1 of 1986), section 3(1)(f)]
Means any undertaking pertaining to a scheduled industry
and includes an undertaking engaged in any other industry,
or in any trade, business or service which may be regulated
by Parliament by law. [Central Industrial Security Force Act,
1968 (50 of 1968) section 2(1)(b)]. Means any undertaking pertaining
to a scheduled industry carried on in one or more factories by any
person or authority including Government. [Industrial (Development
and Regulation) Act, 1951 (65 of 1951), section 3(d)].”
12. Going by the dictionary meaning as well, one would find that
industrial undertakings take their flavour from the manufacturing
or production activities carried by factories. The expression „industrial
undertaking .appears in Section 54 -D of the Act as well and the
KeralaHigh Court also had an occasion to expound this term in
the case of P. Alikunju M.A. Nazeer Cashew Industries v. CIT, 166 ITR 804.
That Court was also of the opinion that natural meaning to the
words „industrial undertaking .should be given in the absence
of any statutory definition.
13. To this extent, there is no quarrel. However, Mr. Ajay Vohra,
learned counsel for the appellant submitted that wide meaning
should be given to the expression „industrial undertaking .
as was done by the KeralaHigh Court, which is clear from the
following discussion contained in the said judgment :-
“5. What then is an “industrial undertaking” ?
The Income-tax Act does not define what is “an undertaking”
or what is an “industrial undertaking” . It has, therefore, become
necessary to construe these words. Words used in a statute
dealing with matters relating to the general public are presumed
to have been used in their popular rather than their narrow,
legal or technical sense. Loquitur ut vulgus, that is, according
to the common understanding and acceptation of the terms,
is the doctrine that should be applied in construing the words
used in statutes dealing with matters relating to the public in
general. In short, if an “Act is directed to dealings with matters
affecting everybody generally, the words used have the meaning
attached to them in the common and ordinary use of language.”
(Vide Unwin v. Hanson [1891] 2 QB 115 , per Lord Esher M. R. at page 119).
That the Income-tax Act is of general application, is beyond dispute.
It, therefore, follows that the meaning that should be given to these
words “industrial undertaking” must be the natural meaning.
It is all the more so because the Income-tax Act is one
consolidating and amending the law relating to income-tax
and super tax. (See Rao Bahadur Ravulu Subba Rao v. Commissioner
ofIncome tAx (1956) 30 ITR 163 (SC) at 169).
“Undertaking” in common parlance means an “enterprise” ,
“venture”, “engagement” . It can as well mean “the act of one
who undertakes or engages in a project or business” (Webster),
An undertaking mentioned in Section 54D must be one maintained
by a person for the purpose of carrying on his business. “Undertaking”
for the purpose of this section, however, must bean “industrial undertaking” .
The demonstrative adjective “industrial” qualifying the
word “undertaking” unmistakably and with precision shows
that the undertaking must be one which partakes of the
character of a business. That that is the meaning that is intended
by Parliament is clear from the context in which these words have
been used in the section. A reference in this connection to the
following clause, namely :
“………being land or building or any right in land or building,
forming part of an industrial undertaking belonging to the assessee
which, in the two years immediately preceding the date on which
the transfer took place, was being used by the assessee for the
purposes of the business of the said undertaking. …… ”
(emphasis supplied) is profitable. The word “business” has
been denned in the Income-tax Act. The definition reads :
” ‘Business’ includes any trade, commerce or manufacture or
any adventure or concern in the nature of trade, commerce or
manufacture. “
7. Construing this word “business”, the Supreme Court in Narain
Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax
[1954]26ITR765( SC) has observed that “the word “business”
connotes some real, substantial and systematic or organised
course ofactivity or conduct with a set purpose.” Endorsing
this construction, the Supreme Court in a later decision in
Mazagaon Dock Ltd. v. Commissioner of Income
Tax (1958) 34 ITR 368 has observed (at page 376) :
“The word ‘business’ is, as has often been said, one
of wide import and in fiscal statutes it must be construed
in a broad rather than a restricted sense.”
8. The words “industrial undertaking” therefore, should
be understood to have been used in Section 54D in a wide
sense, taking in its fold any project or business a person
may undertake. The “running of a lodge”, by the assessee,
therefore, can be said to be an “industrial undertaking”
within the meaning of Section 54D of the Income-tax Act.”
18. Therefore, we are of the opinion that common sense
approach will have to be adopted and those undertakings
would qualify as industrial undertakings .which are involved
in „manufacturing activity .
19. The activity of construction can, by no stretch of imagination,
be treated as manufacturing activity as it does not amount to
manufacture or production of an article or a thing. Law in this
behalf stands settled by the judgment of the Supreme Court in
the case of Commissioner ofIncome Tax , Orissa & Ors. v. M/s. N.C.
Budharaja & Company & Ors., 204 ITR 412. Following this judgment,
the Supreme Court in S.A. Builders Ltd. v. Commissioner ofIncome
Tax (Appeals), Chandigarh & Anr., 289 ITR 26, held that the business
of civil construction would not amount to carrying on any manufacturing
activity. Even this Court in Ansal Housing & Estates (P) Ltd. v.
Commissioner of Income Tax, 1999 (77) DLT 765, opined that the
business of construction of building will not fall within the ambit
of industrial company. This appears to be a case of sister concern
of the present assessee itself, but, unfortunately, our attention was
not even drawn to this judgment by the counsel on either side.
In these circumstances, we answer Question No. 1 formulated
above against the assessee and in favour of the Revenue.
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