JUDGMENT C.S.P. Singh, J.
1. The Income-tax Appellate Tribunal, "A" Bench, Allahabad, has, at the instance of the Commissioner, referred the following question for our opinion :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally correct in holding that the assessee-company was an "industrial company " within the meaning of Section 2(7)(d) of the Finance Acts of 1966 and 1967 and was, therefore, entitled to concessional rate of taxation ? "
2. The reference relates to the financial years relevant to the assessment years 1966-67 and 1967-68. In these years, the assessee, which is a private limited company, was running three cold storages, two at Farrukhabad and Kamalganj in the district of Farrukhabad and the other at Allahabad. The Income-tax Officer assessed the company on its income at the rate of 65 per cent. An appeal was then preferred by the assessee. It was contended that the assessee was an industrial company within the meaning of Section 2(7)(d) of the Finance Acts of 1966 and 1967 and, therefore, its income was taxable at the concessional rate of 55 per cent. only. The Appellate Assistant Commissioner of Income-tax held that the activities of running the cold storage falls in the category of processing of goods and, as such, the assessee-company was an industrial company as defined in Section 2(7)(d) of the Finance Acts. He, as such, directed the Income-tax Officer to treat the assessee-company as industrial company and levy tax accordingly. An appeal filed by the department to the Tribunal failed.
3. Answer to the question referred to us depends upon the interpretation to be put on the word "industrial company" as defined in Section 2(7)(d) of the Finance Acts of 1966 and 1967. The word "industrial company" was defined in the Finance Act of 1966 and has been similarly defined in the Finance Act of 1967. Section 2(7)(d) of the Finance Act runs as follows :
"2. (7)(d).--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.
Explanation.--For the purposes of this clause, a company shall be deemed to be 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, if the income attributable to any of the aforesaid activities included in its total income for the previous year is not less than fifty one per cent, of such total income."
4. In this case we are not concerned with the Explanation as there is no dispute that the income from cold storage business was more than 51 percent. Counsel for the revenue has urged that preservation of goods by cold storage is not processing of goods as is contemplated by the sub-section. It was contended that the word " processing " occurring in the sub-section contemplates a process which results in a finished Article, i.e., it must be of the nature of manufacture.
5. First, we shall deal with the contention as to whether the word "processing" as used in the sub-section means an activity which must result in the manufacture of goods. It will be useful to refer to a decision in the case of Kilmarnock Equitable Co-operative Society Ltd. v. Commissioners of Inland Revenue [1966] 42 TC 675 (C Sess). The facts were these. The appellant-society carried on the business as general merchants and did a substantial trade, inter alia, in the sale of coal in bulk. It also sold coal in 28 Ibs. paper packets retail through its grocery branches. In the year 1962, the assessee incurred capital expenditure on the erection of a building at its coal depot to house machinery to pre-pack coal. The coal was conveyed by conveyor belt from wagons in the yard into a hopper near the roof, fed down a chute through a vibratory screen where dross was removed, passed by the conveyor belt to the weighing point, packed into 28 Ibs. bags, and deposited at floor level to await disposal. The company claimed that it was entitled to capital allowances in respect of the expenditure on the building as it was an industrial building under Section 271 of the Income-tax Act, 1952. The General Commissioners found that the screening and packing of the coal was not a process within Section 271 of the Act. The question that arose was as to 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 Ibs. each in weight was carried on was an industrial building or structure within the meaning of Section 271(I)(c) of the Income-tax Act, 1952, which runs as under (page 679):
"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. "
6. It may be noted that in Section 271(1)(c), quoted above, both the words " manufacture " and " process " were used as are used in the present Section 2(7)(d) of the Finance Acts in hand. Lord President Clyde held :
" That processing of goods as contemplated by that section means an activity which falls short of manufacture. " He observed:
"Clearly this provision contemplates that an industrial building may connote something other than a place where goods or materials are manufactored: it may include within the category of an industrial building a place where goods or materials are subjected to a process which falls short of the manufacturing of a new Article. "
7. He then went on to hold that the breaking of bulk coupled with the separating out of the dross by screening and the subsequent packing of the coal into paper bags involves a process within the meaning of Section 271(1 )(c) of the Act.
8. Lord Guthrie put the matter thus ([1966] 42 TC 675, 681):
" The success of the appellant's contention on the first point in this case depends on whether their building is in use for the purposes of a trade which consists in the subjection of goods or materials to any process. ' Process ' is a word which has various meanings, some wider than others. I agree with the Lord Advocate that in Section 271(1)(c) it does not have the widest significance of ' anything done to the goods or materials '."
9. Lord Migdale at page 683 observed :
"Now I am unable to find any warrant in the sub-section for requiring that the nature or size of the material must be altered before one can say that it has been subjected to a process. In my opinion, when the coal was cleaned and then packed into containers of a convenient size it was subjected to a process. ' Subjected to ' means that it went through a process, and ' process' means some course of operations."
10. Similarly, Lord Cameron took the same view of the word " process " and expressed his opinion thus at page 685 :
"The word 'process' in its ordinary connotation seems to me to mean no more than the application of a method of manufacture or adaptation of goods or materials towards a particular use, purpose or end, while ' to subject' means no more than to treat in some manner or other." We are in respectful agreement with these observations. The "processing of goods " as used in Section 2(7)(d) of the Finance Acts need not be of such a nature as to result in the manufacture of new goods. All that is required is that the goods or the materials must be adapted for a particular use. The various acts performed in respect of the goods or the subjection of the goods to a particular process need not be such as may lead to the production of a new Article. We are fortified in the view that we are taking, on account of the fact that both the words " manufacture " and "processing" have been used by the legislature in Section 2(7)(d), thus indicating that the legislature drew a distinction between an activity which led to the manufacture of goods and that which fell short of manufacture, and could be described as processing of goods. The matter further appears to be clinched by the decision of the Supreme Court in the case of Union of India v. Delhi Cloth and General Mitts Co. Ltd. AIR 1963 SC 791, where their Lordships specifically rejected the contention that processing and manufacture can be equated. At page 794 of the report, Das Gupta J., speaking for the court, observed:
" To say this is to equate ' processing ' to ' manufacture ' and for this we can find no warrant in law. The word ' manufacture' used as a verb is generally understood to mean as 'bringing into existence a new substance' and does not mean merely ' to produce some change in a substance ', however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in permanent edition of Words and Phrases, Vol. 26, from an American judgment. The passage runs thus:
' " Manufacture " implies a change, but every change is not a manufacture and yet every change of an Article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation ; a new and different Article must emerge having a distinctive name, character or use.' "
11. Thus, the contention raised on behalf of the revenue must, therefore, be rejected.
12. The question then arises as to whether in the act of subjecting the goods to a particular temperature for a long period of time, as is done in cold storages, amounts to processing of goods. The assessee had explained the process of refrigeration in a note filed before the Appellate Assistant Commissioner of Income-tax on October 13, 1970. The process of refrigeration was explained in the following manner:
"The cold storage or mechanical refrigeration is the process of absorbing undesirable heat from one substance (potato) and transferring this heat to the atmosphere through a cooling medium. This transfer of heat is possible and practical in a mechanical refrigeration system, because commercial refrigerants are capable of absorbing heat and holding to gases at very low pressure and temperatures and of giving up this heat as they condense to liquids at higher pressures and temperatures. Warm high pressure liquid refrigerant from the receiver flows into the evaporator coils through the liquid control device (an expansion valve or a float valve). The pressure drops in the evaporator, due to the suction of the compressor and the liquid refrigerant boils to a gas, absorbing its latent heat of vaporization from the substance being cooled which surrounds the evaporator coils. The compressor picks up this cold low pressure gas from the evaporator and discharges it into the condenser at high pressure and temperature. The condenser is either air or water cooled. In the condenser the hot high pressure refrigerant gas gives up its latent heat on condensation to the cooling medium and returns to the liquid state. From the condenser, the warm high pressure liquid flows into the receiver to bring another cycle."
13. Counsel for the revenue has not disputed that the potatoes which the assessee concern stored were subjected to this process. In the Oxford Dictionary, 1962 edition, the word "process" is said to mean, inter alia, "treat (material), preserve (food)". Webster's New International Dictionary, 1967 edition, gives the meaning of the word "process" as "handling or other treatment designed to effect a particular result", to put through a special process, e.g., milk by pasteurising it. In Words and Phrases Legally Defined, volume 4, the meaning of processing is given as "processing (in relation to fish) includes preserving or preparing fish or producing any substance or Article from fish by any method for human or animal consumption". Thus, if we take dictionary meanings of the word " processing ", preservation of the potatoes by refrigeration would be a process. Preservation by refrigeration in cold storage is a well-known method of keeping edible goods fit for human consumption. In Encyclopaedia Britanica, volume 9, pages 543 and 545, various preservation processes for food are described:
"There are several major processes for food preservation. The growth of micro-organisms (and enzyme activity) in foods may be retarded by cooling or almost entirely prevented by freezing. Since water is necessary for the growth of micro-organisms, dried (dehydrated) foods will be kept for long periods. Or the enzymes and micro-organisms present in foods may be completely or almost completely destroyed by the application of heat as a thermal processing (canning)." At page 545 what has been stated about cold storage is as under :
"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 as consumers."
14. C. B. Richey in his book Agricultural Engineers Hand Book at page 741 states that the most effective method of retarding decay development is by temperature reduction. Practically all decay organisms are slowed in their rate of growth and development when the temperature is reduced from field temperatures to near freezing.
15. In Fruit Culture in India published by the Indian Council of Agricultural Research, New Delhi, the learned authors referring to the methods of temporary preservation said that the storage under refrigerated condition preserves commodities for limited period by retarding action of enzymes and micro-organisms.
16. Review of all these authorities clearly indicates that when Articles like potatoes, as in the present case, are kept under refrigeration their decay is prevented. The temperature in the cold storages, admittedly, is regulated by use of machinery. Thus, the mere fact that the potatoes themselves, which are kept in the cold storage, do not undergo any transformation and remain static, does not by itself mean that they are not subjected to any process at all during the period of storage. We have already held that the processing of goods need not lead to manufacture of new Article. Preservation by refrigeration is a well-known method for keeping edible things in good condition for temporary periods. But for refrigeration it would not be possible to keep things in edible state for a long period of time. During the period when they are kept in the cold storage they are subjected to the process of refrigeration. This being so, the assessee-company would be an industrial company as defined in Section 2(7)(d) of the Finance Acts of 1966 and 1967, and, therefore, entitled to the concessional rate of tax.
17. We, therefore, answer the question referred in the affirmative in favour of the assessee and against the department. The assessee is entitled to its costs which we assess at Rs. 200. Counsel fee is also assessed at the same figure.