1982 (11) TMI 85 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under Section 80QQ of the Income-tax Act, 1961.
2. Treatment of interest payments as revenue expenditure.
3. Apportionment of common expenses between different business sections for the purpose of computing deductions under Section 80QQ.

Detailed Analysis:

1. Deduction under Section 80QQ of the Income-tax Act, 1961:

The primary issue in this case was the interpretation of Section 80QQ, which provides for a deduction of 20% of the profits and gains derived from the business of printing and publication of books. The assessee contended that the deduction should be based on the gross profit before any deduction of expenses, while the revenue argued that it should be based on the net profit after adjustments and deductions as per the Income-tax Act.

The Tribunal analyzed the wording of Section 80QQ and compared it with other sections in Chapter VIA, notably Section 80M, which had been interpreted by the Supreme Court in the case of Cloth Traders (P.) Ltd. The Tribunal noted that the Supreme Court's interpretation in Cloth Traders' case supported the view that deductions should be based on the gross income before any statutory deductions. The Tribunal also referred to the Finance Minister's speeches and legislative intent, which indicated that the deduction was intended to be a proportion of the gross income qualifying for the relief.

The Tribunal concluded that the measure for the deduction under Section 80QQ should be the gross profit from the business of printing and publication of books, and not the net profit after deduction of expenses. This interpretation aligns with the broader fiscal policy objectives of Chapter VIA to encourage specific industries.

2. Treatment of Interest Payments as Revenue Expenditure:

The assessee had claimed a deduction for interest payments, which were initially disallowed by the Income Tax Officer (ITO) on the grounds that they represented expenditure incurred for the acquisition of an asset of a permanent character and could not be regarded as of a revenue nature. However, the Commissioner (Appeals) allowed the deduction, referencing earlier assessment years where similar deductions had been permitted.

The Tribunal upheld the Commissioner (Appeals)'s decision, noting that the interest payments were incurred when the assessee took over the entire business of three concerns with all assets and liabilities. The Tribunal cited the Supreme Court's decision in Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT, which held that such interest payments were revenue expenditure and admissible as deductions.

3. Apportionment of Common Expenses Between Different Business Sections:

The assessee's business consisted of two sections: Esvee Press (printing business) and Ananda Book Depot (publishing business). The ITO had apportioned certain common expenses (e.g., audit fees, lighting, managing director's remuneration) between these two sections and deducted a proportionate amount from the net profit of the publishing business before calculating the deduction under Section 80QQ.

On appeal, the Commissioner (Appeals) disagreed with the ITO's apportionment and held that there was no justification for deducting the sum of Rs. 26,412 from the net profit for the purpose of computing the deduction under Section 80QQ. The Tribunal affirmed this decision, stating that the deduction under Section 80QQ should be based on the gross profit from the publishing business without arbitrary apportionment of common expenses.

Conclusion:

The Tribunal dismissed the revenue's appeal and confirmed the order of the Commissioner (Appeals), holding that the assessee is entitled to a deduction of 20% of the gross profit from the business of printing and publication of books under Section 80QQ. The Tribunal also upheld the treatment of interest payments as revenue expenditure and rejected the apportionment of common expenses between different business sections for the purpose of computing the deduction under Section 80QQ.