Jagannatha Shetty, J.:— This is a reference under s. 256(1) of the I.T Act, 1961. The question referred by the Income-tax Appellate Tribunal, Bangalore Bench, for the opinion of this court, is as follows:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant could not be treated as an industrial company within the meaning of section 2(8)(c) of the Finance Act, 1,975?”

2. The assessee is a private limited company. For the assessment year 1975-76, it had income from departmental stores, bakery, restaurant and bar. Its total income for the year was Rs. 3,88,333 out of which a sum of Rs. 1,69,428 was attributable to the bakery and an income of Rs. 72,807 was attributable to the restaurant. If the latter two sums are taken together, it would exceed more than 51 per cent, of the total income of the company. The assessee made that claim so as to be considered as an industrial company for the purpose of getting the benefit of concessional rate of tax.

3. Section 2(8) of the Finance Act, 1975, provides for rates of levy of tax in respect of the different types of companies mentioned therein.

4. Section 2(8)(c) of the Finance Act, 1975, defines an “industrial company” as follows:

“‘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 one or more of the aforesaid activities included in its total income of the previous year (as computed before making any deduction under Chapter VI-A of the Income-tax Act) is not less than fifty-one per cent, of such total income.”

5. There is no dispute that the bakery is a manufacturing unit of the assessee. The assessee wants the restaurant section also to be treated as a manufacturing or processing unit. If this claim is allowed, then the assessee would be entitled to the benefit of s. 2(8)(c). The ITO, however, did not accept that claim. He held that the restaurant has not been licensed as a factory and the income therefrom cannot be taken for the purpose of considering the assessee as an “industrial company”

6. The assessee appealed to the AAC. The AAC allowed-the appeal holding that the preparation and supply of vegetarian and non-vegetarian dishes in a hotel could be considered as processing of goods.

7. Being dissatisfied with the order of the AAC, the Department appealed to the Tribunal. The Tribunal accepted the appeal and held that the restaurant section cannot be considered as a manufacturing or processing unit. The Tribunal, while reaching the conclusion, relied upon the decision of the Kerala High Court in CIT v. Casino Pvt. Ltd. [1973] 91 ITR 289, in which an identical question was considered and determined against the assessee therein. The Tribunal, accordingly, reversed the order of the AAC and restored the assessment order.

8. The controversy raised in this case lies in a narrow compass. It primarily relates to the nature of the activities carried on by the assessee in the restaurant and the question is whether the preparations made and supplied to the customers therein have been manufactured or processed in the accepted terms.

9. Mr. G. Sarangan, learned counsel for the assessee, urged that there is a variety of dishes prepared out of raw materials such as grains, pulses, meat, wheat and vegetables and they are prepared invariably by subjecting the goods to a process or treatment and, therefore, it should be held that the assessee is engaged in the “manufacture” or “processing “of goods in the restaurant.

10. Mr. Srinivasan, learned counsel for the Department, however, contended that it would be improper, if not ridiculous, to regard all the preparations of dishes and beverages in a hotel as “manufacture” or “processing” of goods.

11. The word “manufacture” or “processing” has not been defined in the I.T Act. We have been referred to several decisions in which their meanings are explained. We have also been referred to different dictionary meanings. It seems to us that in this case it may not be necessary to examine the various shades of those meanings and indeed it may be an idle parade. We may, however, try to understand the distinction between the said two words. In American Jurisprudence, II Edn., Vol. 68, page 160, it is stated:

“The terms ‘manufacturing’ and ‘processing’ imply essentially a transformation or conversion of material or things into a different state or form from that in which they originally existed, the actual operation incident to changing them into marketable products.”

12. In Union of India v. Delhi Cloth and General Mills, AIR 1963 SC 791 at page 794, the Supreme Court observed (p. 794):

“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 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.”

13. In Chowgule and Company Pvt. Ltd. v. Union of India [1981] 47 STC 124, the Supreme Court observed (p. 131):

“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 it, such operation would amount to processing of the commodity.”

14. The Supreme Court went on to state (p. 132):

“The question is not whether there is manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes processing”

15. In Idandas v. Anant Ramchandra Phadke, (1982) 1 SCC 27 : AIR 1982 SC 127 at page 129, the Supreme Court again summarised the meaning of the word “manufacture” as follows (p. 129):

“Coming now to the tests laid down by this court, the position may be summarised as follows:

1. That it must be proved that a certain commodity was produced;

2. That the process of production must involve either labour or machinery;

3. That the end product which comes into existence after the manufacturing process is complete should have a different name and should be put to a different use. In other words, the commodity should be so transformed so as to lose its original character.”

16. The processing has in one sense a wider meaning than the term “manufacture”. At some point, “processing “and “manufacturing” may merge, but where the commodity retains a substantial identity through the processing stage, it will be said to have been processed and not manufactured.

17. In a manufacture, a commodity undergoes a change as a result of some operation. It should be so transformed as to lose its original character. A manufacture may involve several processes but the ultimate product that emerges can no longer be regarded as the original commodity, but is a new and distinct commodity. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material. It is also immaterial whether there is manual application of energy or mechanical force is employed. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation is “processing” or “manufacture”.

18. Having thus seen the broad distinction between “manufacture” and “processing”, we may now turn to the facts of the case. In the restaurant, the menu list contains different varieties of food and beverages. Some preparations offered to customers are the mixtures of a number of articles of food. It is quite common that some readymade drinks and food are also offered which never undergo any processing or handling by the workmen. Some preparations, however, may undergo some kind of processing.

19. But there is no evidence of the income separately attributable to such preparations. In the absence of such evidence, the assessee's claim that the entire income from the restaurant section could be attributable to activities falling within the meaning of “manufacture” or “processing” of goods cannot, therefore, be entertained.

20. As observed by the Kerala High Court in Casino Pvt. Ltd.'s case [1973] 91 ITR 289, a restaurant, by and large, is a trading concern and the object of the restaurant is not the manufacturing or processing of goods for the purpose of sale.

21. It may not be out of context if we refer to the provisions of s. 80J of the Act in which a hotel is included along with industrial undertakings or ships for the purpose of relief under that section. It is an indication of the legislative intent that a hotel does not ordinarily fall within the ambit of the definition of “industrial company”

22. The assessee, therefore, has failed to establish that its income attributable to the manufacture or processing of goods is not less than 51 per cent, of the total income.

23. In the result, we answer the question referred in the affirmative and against the assessee.