(Appeal by special leave from the judgment and order dated April 19, 1984, of the Delhi High Court in Income-tax Reference No.250 of 1975. The judgment of the High Court is reported as Delhi Cold Storage P. Ltd. v. C.I.T. (1985) 156 ITR 97 (Delhi).

Income Tax----

----"Industrial Company"--- Manufacture or processing of goods ---Company running cold storage is not an "Industrial Company"---Articles stored in cold storage do not undergo "process"---"Processing", meaning of---

In common parlance, "processing" is understood as an action which brings forth some change or alteration of the goods or material subjected to the act of processing.

In a cold storage vegetables, fruits and several other articles which require preservation by refrigeration are stored. While, as a result of long storage, scientific examination might indicate loss of moisture content, that is not sufficient for holding that the stored articles have undergone a "process" within the meaning of section 2(7)(c) of the Indian Finance Act, 1973.

Held accordingly, that the appellant-company running a cold storage was not an "industrial company" for the purpose of section 2(7)(c) of the Indian Finance Act, 1973, and Schedule I thereto and was not entitled to concessional rate of tax thereunder.

Addl. C.I.T. v. Farrukhabad Cold Storage P. Ltd. (1977) 107 ITR 816 (All.) and C.I.T. v. Radha Nagar Cold Storage P. Ltd. (1980)126 ITR 66 (Cal.) held overruled.

Chowgule and Co. P. Ltd. v. Union of India (1981) 47 STC 124 (SC) followed.

Decision of the Delhi High Court in Delhi Cold Storage P. Ltd. v. C.I.T. (1985) 156 ITR 97 affirmed.

Kilmarnock Equitable Co-operative Society Ltd. v. I.R.C. (1966) 42 TC 675 (C Sess) ref.

H.N. Salve and Promod Dayal, Advocates, for Appellant.

J. Ramamurthy, Senior Advocate (Vijay K. Verma and Ms. A. Subhashini, Advocates, with him), for the Respondent.

JUDGMENT

RANGANATH MISRA, C.J.I.---Special leave granted.

The judgment of the High Court of Delhi is challenged by the assessee in this appeal. The assessee is a private limited company running a cold storage. The year of assessment is 1973-74. An "industrial company" as defined in section 2(7)(c) of the Finance Act, 1973, for the purposes of the First Schedule of that Act was entitled to certain concessions in the matter of taxation. The appellant laid claim to such benefits by contending that it came within the meaning of "industrial company". The question that was referred by the Income-tax Appellate Tribunal to the High Court was (see p. 98 of 156 ITR):

"Whether, on the facts and in the circumstances of the case, the assessee-company running a cold storage could be held to be an industrial company for purposes of section 2(7)(c) of the Finance Act, 1973, and the First Schedule thereto?"

The Income-tax Officer had not accepted the claim of the appellant but the Appellate Assistant Commissioner conceded the claim and directed remission of the proceedings to the Income-tax Officer for recomputations of the tax by treating the appellant as an "industrial company". The Tribunal accepted the appeal of the Revenue and held that the appellant was not an "industrial company". The High Court has approved the conclusions reached by the Tribunal.

"Industrial company" has been defined in section 2(7)(c) of the Finance Act, 1973, thus:

"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." (Underlining is ours)

The appellant had taken the stand that the activity carried on by it came within the words "processing of goods". The short question for examination, therefore, is whether the cold storage of the appellant can be held to have been engaged in the processing of goods.

This question directly arose for consideration of a Division Bench of the Calcutta High Court in C.I.T. v. Radha Nagar Cold Storage P. Ltd. (1980) 126 ITR 66. Sabyasachi Mukharji, J. (as he then was) spoke for the Court in this case. Certain English cases were taken into consideration to find out the difference between manufacturing and processing and to find the true meaning of the word "processing". The word "processing" has not been defined in the Income-tax Act. The word "process" has various meanings, some wider than others. Lord Guthrie, in Kilmarnock Equitable Co-operative Society Ltd. v. IRC (1966) 42 TC 675 (C Sess) at page 681, observed that the word "does not have the widest significance of `anything done to the goods or materials'." The Division Bench of the Calcutta High Court looked for the meaning in the Oxford Dictionary, Webster's New International Dictionary Words and Phrases Legally Defined, Volume 4, and in Encyclopaedia Britannica, Volume 9. The High Court was impressed by the statement in Encyclopaedia Britannica, Volume 9, pp. 543,545, where it was said (p. 71 of 126 ITR):

"The only method by which fresh foods may be preserved for a considerable period in the raw state is by subjecting them to as low a temperature as possible without causing damage by freezing. Storage at temperature above freezing, in the neighbourhood of 35 F/2 C is known as cold storage. Storage at such temperature makes possible the holding in good condition of many fresh foods for considerable periods and their shipment to distant markets to consumers."

The High Court proceeded to state:

"The act of cold storage appears to us to be an act whereby foods or products stored in the cold storage are prevented from their natural decay. The potatoes which are kept in the cold storage are preserved in the original state and their normal decay is prevented. That, in our opinion, would be processing the goods, that is to say, preservation applying a method to the goods whereby the goods are prevented from taking their normal course. Therefore, looking from a broad point of view, in the light of the definition provided in the several dictionaries to which we have referred, it appears to us, that in the context of the present statute, which has used the expression `processing' in contradistinction or differently from the expression `manufacture' the assessee-company was engaged in the act of processing the goods in terms of the Finance Act at the relevant time."

The Court referred with approval to the decision of the Allahabad High Court in Addl. C.I.T. v. Farrukhabad Cold Storage P. Ltd (j 1997) 107 ITR 816. The Calcutta High Court s view direct supports the appellant s stand.

In the impugned judgment reported in Delhi Cold Storage (P.) Ltd. v. C.I.T. (1985 ) 156 ITR 97, after dealing with the cases of the Calcutta and Allahabad High Courts, reference was made to the decision of this Court in Chowgule and Co. P. Ltd. v. Union of India (1981) 47 STC 124 to find out the true meaning of the two words "manufacture" and "processing". After discussing some precedents, this Court observed thus (at p. 131):

"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. 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 ore 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."

The meaning given to the word "processing" and the test laid down by 1 the three-Judge Bench of this Court to find out whether the operation amounts to processing runs counter to the conclusions reached by the Allahabad and Calcutta High Courts. As we have already pointed out, the two direct decisions on the point are the cases from Allahabad and Calcutta. The other cases that have been cited in the Calcutta judgment or at the Bar are cases not relating to the meaning or ambit of the relevant expression in the definition of section 2(7)(c) of the Finance Act, 1973:

We have already noted that processing is a term of wide amplitude and has various aspects and meanings.

In common parlance, "processing" is understood as an action which brings forth some change or alteration of the goods or material. which is subjected to the act of processing. The dictionary meaning of the term is not very different from this meaning in one sense, while various other meanings of wider amplitude are also available. The view taken by the Allahabad and Calcutta High Courts did not find favour with the three-Judge Bench of this Court and, in dear terms, the judgment indicates that processing involves bringing into existence a different substance from what the material was at the commencement of the process.

In a cold storage, vegetables, fruits and several other articles which require preservation by refrigeration are stored. While, as a result of long storage, scientific examination might indicate loss of moisture content, that is not sufficient for holding that the stored articles have undergone a process within the meaning of section 2(7)(c), Finance Act, 1973. The three-Judge Bench decision must be taken to have overruled the view of the Allahabad High Court in Addl. C.I.T. v. Farrukhabad Cold Storage (1977) 107 ITR 816 and that of the Calcutta High Court in C.I.T. v. Radha Nagar Cold Storage Pvt. Ltd. (1980) 126 ITR 66.

The appeal has, therefore, to be dismissed and the opinion of the Delhi High Court has to be affirmed.

Parties are directed to bear their own costs.

M.BA./1220/T Appeal dismissed.