1993 (3) TMI 153 - AT - Income Tax

Summary

Issues Involved:
1. Whether the appellant qualifies as an "Industrial Company" under section 2(7)(c) of the Finance Act, 1980.
2. Applicability of the rate of tax for an Industrial Company.
3. Interpretation of income from "realisation on pictures" and "realisation on extra prints".
4. Consideration of previous assessments and the principle of res judicata in income-tax proceedings.
5. Relevance of CBDT Circulars in determining the status of the appellant as an Industrial Company.

Detailed Analysis:

Issue 1: Qualification as an "Industrial Company"

The primary issue is whether the appellant, a Private Limited Company engaged in the distribution of films, qualifies as an "Industrial Company" under section 2(7)(c) of the Finance Act, 1980. The CIT (Appeals) and the Assessing Officer concluded that the appellant did not carry on any manufacturing or processing of goods during the relevant accounting periods, and thus, did not qualify as an Industrial Company. However, the Tribunal found that the appellant's activities of producing motion pictures in earlier years and continuing to derive significant income from the re-release of these films and extra prints should qualify it as an Industrial Company. The Tribunal compared the appellant's situation to a manufacturer who suspends production but continues to sell previously manufactured goods, concluding that the appellant's combined activities of production and distribution of films should be recognized as continuous industrial activity.

Issue 2: Applicability of Tax Rate

The CIT (Appeals) upheld the tax rate applicable to non-industrial companies, rejecting the appellant's claim for the lower tax rate applicable to Industrial Companies. The Tribunal, however, determined that the appellant should be accorded the status of an Industrial Company, thus qualifying for the lower tax rate. The Tribunal emphasized that the appellant's income from the re-release of old films and extra prints constituted more than 51% of its total income, satisfying the criteria under section 2(7)(c) of the Finance Act.

Issue 3: Interpretation of Income from "Realisation on Pictures" and "Realisation on Extra Prints"

The CIT (Appeals) differentiated between income from "realisation on pictures" and "realisation on extra prints." While the latter was accepted as processing activity, the former was considered merely as income from distribution, not manufacturing or processing. The Tribunal disagreed, stating that the appellant's role in producing and distributing films, even if processed by third parties, should be considered as part of the manufacturing and processing activities. The Tribunal also noted that the appellant did not own cinema theatres and thus could not be classified as an exhibitor.

Issue 4: Consideration of Previous Assessments and Principle of Res Judicata

The appellant argued that it had been treated as an Industrial Company in the assessment years 1978-79 and 1979-80, and this status should continue. The CIT (Appeals) dismissed this argument, stating that the principle of res judicata does not apply to income-tax proceedings. The Tribunal, while acknowledging this principle, still found it relevant that the appellant's activities had not fundamentally changed and thus should be consistently treated as an Industrial Company.

Issue 5: Relevance of CBDT Circulars

The Tribunal placed significant weight on CBDT Circular No. 24 dated 23rd July 1969 and Circular No. 103 dated 17th February 1973. These circulars clarified that the production of cinematographic films constitutes manufacturing or processing of goods. The Tribunal applied these circulars to support the appellant's claim, emphasizing that the appellant's activities fit within the definition provided by the circulars and the Finance Act.

Conclusion:

The Tribunal concluded that the appellant qualifies as an "Industrial Company" under section 2(7)(c) of the Finance Act, 1980, and thus is entitled to the lower tax rate applicable to Industrial Companies. The appeals were allowed, overturning the decisions of the CIT (Appeals) and the Assessing Officer. The Tribunal's decision was based on a comprehensive interpretation of the appellant's activities, relevant circulars, and previous assessments, ensuring that the appellant's continuous engagement in film production and distribution was recognized as industrial activity.