9911796707
TMI Blog1998 (5) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ishna Nagar, Delhi. It is a private limited company which is incorporated under the Certificate of Incorporation No. 16898, dated September 5, 1985. The assessee-company closed its accounts for the first time on December 51, 1984, and filed the return on June 25, 1985, disclosing a loss of Rs. 2,94,810 along with copies of audited balance-sheet and profit and loss account was the first return of the company. Along with its return, a copy of its memorandum and articles of association was also filed. The main object of the company as set out in the memorandum and articles of association is to deal in photographic equipment and paper. The Income-tax Officer, Com. Cir. XIII, New Delhi (hereinafter referred to as the "Assessing' Officer"), called upon the assessee-company to give details of its directors and shareholders, to file confirmations of secured and unsecured loans and details of various expenses claimed, etc, The assessee is said to have defaulted. The assessee-claimed to have purchased photographic equipment worth Rs. 7,76,000, for which no details were filed. The Assessing Officer felt that it is highly difficult for him to verify the genuineness of the claim. Therefore, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, in a subsequent year, if the appellant-company is able to create a statutory reserve, it shall be entitled to grant of investment allowance." Thus, the learned Commissioner of Income-tax (Appeals), by his impugned order dated February 26, 1990, partly allowed the appeal. Against the decision of the Commissioner of Income-tax (Appeals), the Revenue came up in second appeal and the only ground taken in the second appeal was the following: "On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in allowing the claim of investment allowance to the assessee-company which is engaged in the business of developing 'and printing' of photographs and as such is not an industrial undertaking." In the referring order dated January 31, 1996, the Division Bench found that the precise activity carried on by the assessee-company was developing and processing of films and for that purpose the assessee-company was running a colour lab. The learned Departmental Representative appeared to have submitted the following in support of the appeal: (1) Developing of a film does not amount to manufacture or production of an article or thing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. ITO [1989] 30 ITD 223 (Bom) [SB], on similar set of facts as in the case of the assessee-company, the Special Bench directed to allow investment allowance. Further, the referring Bench also found that the Calcutta Bench of the Income-tax Appellate Tribunal in Amiya Kumar Tarfdar v. ITO [1985] 14 ITD 172 (Cal) had directed to allow investment allowance in the case of an assessee engaged in printing and developing of photographs. Those decisions were all given prior to the decision rendered by the Supreme Court in CIT v. N.C. Budharaja and Co. [19931 204 ITR 412. Their Lordships of the Supreme Court held that the meaning of the word "construction" as well as the word "thing" must be determined having regard to the context in which the said words occur. The Supreme Court directed to apply the common parlance meaning of the various terms which were not defined in the Income-tax Act. Having thus surveyed the legal position as emerging from the decisions so far rendered, the referring Bench took up the facts of the case before them and the real issue which arose for consideration. They have chosen to accept the arguments advanced by the learned Departmental Representative before them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to item Nos. 9 and 10 of the Eleventh Schedule to the Income-tax Act which are as follows: "9. Projectors. 10. Photographic apparatus and goods." He invited our attention to the famous case of the Supreme Court in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 wherein the court held that though sections 3 and 4 of the Indian Income-tax Act, 1922, impose a general liability to tax upon all income, the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision. Where, however, the receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee. Therefore, on the basis of the ratio of this decision, the learned Departmental Representative argued that the burden to prove that the assessee is a small scale industrial undertaking and for that reason even though it manufactures or produces articles or things mentioned in Eleventh Schedule is entitled to investment allowance under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction was started on December 12, 1984. The investment in plant and machinery as per balance-sheet dated December 31, 1984, submitted along with the income-tax return amounted to Rs. 7,71,226 which is well within the limits of 20 lakhs rupees as per the definition given to small scale industrial undertaking defined under clause (ii) of section 32A of the Income-tax Act. Therefore, even though, the formal plea that the assessee is a small scale industrial undertaking was not taken before the Commissioner of Income-tax (Appeals), mistakenly since there is sufficient material and clinching evidence to prove that the assessee is a small scale industrial undertaking, this plea can be entertained even at the second appellate stage. In support of this contention, the learned advocate for the assessee invited our attention to the decision reported in CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778 (AP). The ratio of the decision is clearly spelt out from the headnote of the decision which is as follows: "The Appellate Tribunal disposing of an appeal under the Income-tax Act has got the power to allow the assessee to put forward a new claim, notwithstanding the fact that such a claim w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must be some explanation to show that the failure to adduce evidence earlier was not wilful and not unreasonable. In this case, the material was already there. There was only failure on the part of the assessee to raise necessary legal plea based on the material which is already on record. Therefore, following the above Andhra Pradesh High Court decision, we hold that the additional ground is clearly admissible. Now, let us see the relevant provisions of section 32A for the purposes of examining whether investment allowance is allowable to the assessee and the various contentions raised by both sides in this matter. "32A. Investment allowance .-(1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section and sub-sections (2B), (2C) and (4),-... (2) an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of the business of the undertaking does not exceed,-... (ii) in a case where the previous year ends after the 31st day of July, 1980, but before the 18th day of March, 1985, twenty lakh rupees; and... and for this purpose the value of any machinery or plant shall (a) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and (b) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant." The sub-section (4) to section 32A reads as under: "(4) The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:- (i) the particulars prescribed in this behalf have been furnished by the assessee in respect of the ship or aircraft or machinery or plant; (ii) an amount equal to seventy-five per cent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and such amount shall not be taken into account in determining the adequacy of the reserve required to be created by the assessee in respect of the previous year in which such further credit is made: Provided that such opportunity shall not be allowed by the Income-tax Officer in a case where the difference in the total income as proposed to be computed by him and the total income as returned by the assessee arises out of the application of the proviso to sub-section (1) of section 145 or sub-section (2) of that section or the omission by the assessee to disclose his income fully and truly." Having regard to the wordings of the above extracted provisions of section 32A, in a case where the previous year ends after the 31st day of July, 1980, but before the 18th day of March, 1985, if the aggregate value of machinery or plant installed before the close of the previous year does not exceed 20 lakhs of rupees it should be treated as a small scale industrial undertaking provided the plant or machinery is used for the purposes of business of the assessee. In this case, we are concerned with the assessment year 1985-86 for which the previous year ended by December 31, 1984. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry No. 9 in the Eleventh Schedule was inserted from April 1, 1989, and, therefore, that entry cannot be applied to assessment year 1985-86 with which we are concerned in this appeal. As far as item No. 9 in the Eleventh Schedule is concerned, as already extracted above, it concerns itself with photographic apparatus and goods. Therefore, it is clear that if the assessee is a manufacturer or producer of photographic apparatus and goods which come under the category of photographic apparatus or akin to photographic apparatus, then only it can be said that the assessee's business activity is hit by item No. 10 of the Eleventh Schedule. Learned counsel for the assessee, Shri K. Sampat argued that the assessee was only engaged in manufacture/production of exposed films and taking positive photographs from the negative films and not at all engaged in production of photographic apparatus or goods and, therefore, item No. 10 of the Eleventh Schedule does not apply or come under item No. 10 of the Eleventh Schedule. After deliberating upon this aspect of the matter, we fully agree with the argument of Shri K. Sampat and hold that the business carried on by the assessee was only taking ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... printer, the next manufacturing process is colour paper developing. The exposed negative prints exposed in the printer on colour paper, the exposed colour paper roll for developing is fitted in their machines for final print. The following chemicals are used in this process. (1) Developer; (2) Bleach; (3) rins/water. Then the paper roll comes in next process in the drawer for wetting the paper, on which process one hour time is taken to have photograph for customer." Shri K. Sampat contended that since the assessee is not a manufacturer of "cameras" or negative film itself or roll of negative films, the assessee cannot be said to have been engaged in a prohibited category of articles enumerated under item No. 10 of the Eleventh Schedule. We agree with this contention. The learned Departmental Representative wants to rely upon the Kerala High Court decision in CIT v. Polyclinic P. Ltd. [1994] 207 ITR 185 in support of his proposition that even in a case of a small scale industrial undertaking, if the article or thing produced or manufactured falls under any item of Schedule Eleven, then also, the assessee is not entitled to investment allowance, taking into consideration, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court held as under: The said process cannot be said to be one which results in changing the identity of the cloth which is subjected to the said treatment and the said process does not give rise to a new product which is marketable. The said process cannot, therefore, be regarded as a manufacturing process." The next decision to which our attention is invited by the learned Departmental Representative is provided at pages 3 to 5 of the paper book filed by the Department in the case of Union of India v. Parle Products Pvt. Ltd., AIR 1994 SC 106. The question which arose in the said case was whether process involved in converting' the aluminium, foil into "paper-backed aluminium foil" amounts to manufacture. This question is examined for purposes of applying the provisions of section 2(f) of the Central Excises and Salt Act, 1944. The Supreme Court decided that: "the position really turns upon whether as a result of the application of the process a new and commercially distinct article, known to the market as such, emerges at the end. This, in turn, depends upon the evidence as to the requisite transformation of the goods included a new and different article having di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for purposes of the Central Sales Tax Rules, 1957, rule 13 framed under the Central Sales Tax Act (74 of 1956), section 8(3)(b), was considered. The question considered was whether blending of ore of different qualities for obtaining ore of requisite specification amounts to processing within the contemplation of section 8(3)(b). In that case, the blending was done through mechanical ore handling plant. The Supreme Court in that case held that: "Where the blending was done through the mechanical ore handling plant, the plant fell within the description of 'machinery, plant, equipment' used in the processing of ore for sale and it follows as a necessary corollary that if any items of goods were purchased by the assessee as being intended for use as 'machinery, plant, equipment, tools, spare parts, stores, accessories, fuel or lubricants' for the mechanical ore handling plant, they would be eligible for inclusion in the certificate of registration of the assessee." Our attention is also invited to the CEGAT Delhi "D" Special Bench decision in M. Basheer Ahammed v. Collector of Central Excise [1990] 38 TTJ 266 (Delhi). In that case, meaning of the word "manufacture" was discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... else. The learned Departmental Representative cited before us-Kanti Bros. v. ITO [1994] 50 ITD 106 in which the Hyderabad Tribunal held that conversion of ground-nut oil into refined oil does not amount to manufacturing of a new article or thing. For the same purpose he also cited the Bombay Tribunal decision in Jatta Poly Yarn (P.) Ltd. v. ITO [1994] 50 ITD 368. The learned Departmental Representative also wanted to distinguish the following citations relied upon by the assessee: (1) CIT v. London Star Diamond Co. (I.) Ltd. [1995] 213 ITR 517 (Bom). The meaning of the words "manufacture" or "processing" in that case was done with reference to the definition of those words under section 2(8)(c) of the Finance Act, 1975. The question which cropped up before the Bombay High Court was whether the company which was engaged in cutting and polishing raw diamonds for the purposes of export is engaged in "processing of goods" or not. The Bombay High Court held that the expression "manufacture" and the word "processing" are not inter-changeable. They have clearly stated that the word "processing" is much wider than "manufacture". It includes activities which would tantamount to "manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The expressions 'manufacture' and 'produced' are normally associated with movables-articles and goods, big and small-but they are never employed to denote construction activity of the nature involved in construction of a dam or a building." While arguing this case, the learned Departmental Representative has submitted the following Supreme Court decisions in support of his contention that taking photos, touching them, getting positives out of the negatives, colouring them in the colour lab would not amount to either manufacture or processing. He had filed a copy of the decision in Everest Copiers v, State of Tamil Nadu [1996] 103 STC 360 (SC). In that case, the case was examined to find out whether the activity carried on by the assessee was a sale or a works contract under the provisions of the Tamil Nadu General Sales-tax Act. The assessee, in that case was an operator of photocopier or xerox machine supplying duplicate copies of documents of customers. The Sales Tax Department wanted to bring that transaction as amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee contended that firstly, the activity carried on by the assessee is already fully extracted in the above paras of this order and it may be duly borne in mind while determining the eligibility or otherwise for investment allowance to the assessee. What is the nature of the work a photographer does while taking a photograph and whether it involves manufacturing or processing may better be appreciated by fully knowing the work of a photographer, picturesquely described at page 241 of B.C. Kame's case [1977] 39 STC 237 by the Supreme Court. It is said "when a photographer like the respondent undertakes to take photograph, develop the negative, or do other photographic work and thereafter supply the prints to his client, he cannot be said to enter into a contract for sale of goods. The contract on the contrary is for use of skill and labour by the photographer to bring about a desired result. The occupation of the photographer, except in so far as he sells the goods purchased by him, in our opinion, is essentially one of skill and labour. A good photograph reveals not only the aesthetic sense and artistic faculty of a photographer, but it also reflects his skill and labour. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes or for examining whether the assessee is entitled to investment allowance under section 32A or not. What is relevant is whether there is any manufacture or processing involved in the activity carried on by the assessee or in taking photo developing into a positive film, colouring it and handing it over to the customer. This makes all the difference and the Supreme Court cases cited by the Learned Departmental Representative whether any sale is involved by the photocopier by the photographer himself are not at all relevant for the purposes of examining the main issue involved in this appeal. The learned advocate for the assessee stated that the question is decided in favour of the assessee not only by the several Tribunal decisions but also by the High Court decisions. He cited the decision reported in CIT v. D.K. Kondke [1991] 192 ITR 128 (Bom). The Bombay High Court in that case was considering the meaning of the words "manufacture" or "processing of goods" for purposes of the relief to be granted under section 80J. There also, the question was whether the cinematographic film amounted to "manufacture or an article or goods". The case came up under section 104(4)(a) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its identity completely and the photo is quite a different commercial commodity having its own identity, character and end use. Therefore, what is involved while taking a photograph by a photographer is manufacture. Way back in 1985 in the Calcutta "B" Bench in Amiya Kumar Tarfdar v. ITO [1985] 14 ITD 172 considered the exact question which is now before the Tribunal. The Tribunal held as follows: "Investment allowance is available to a small scale industrial undertaking established for manufacture or production of an article or thing. The assessee, being (registered) as a small-scale industry with the State Government was printing and developing of various articles from the negatives inserted in the imported machine. The final product was something different from the negative or the white paper which was inserted in the machine, and it was coming in different sizes. Therefore, if the operation of the machine was taken into consideration along with the final product, it would be clear that the assessee was manufacturing an article with the machine. Hence, investment allowance had been rightly allowed and the Income-tax Officer's order could not be taken as erroneous and prejudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned from these machines, which are the result of efforts or activity, therefore, can be said to be 'things' under section 32A of the Act. The installation of these machines in the hospital by the assessee was for the purpose of the business of production of things. The Tribunal was, therefore, right in allowing investment allowance to the assessee." The latest in the series which was cited before us was the Andhra Pradesh High Court decision in CIT v. Prasad Film Laboratories P. Ltd. [1997] 225 ITR 348. The question was whether production of a film is entitled for investment allowance under section 32A. Allowing the claim of the assessee ultimately, the High Court held the following: "Held, (i) that the production of a negative by exposing the raw film and recording the pictures and sound track thereon would amount to production of a cinematograph film. That process should also include developing the exposed film to have the negative or the master film, But when positive prints are made from the master negative, the cinematograph film which was already produced is the raw material, and therefore, it cannot be said that there is a production of cinematograph film in as much as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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