9911796707
TMI Blog1988 (5) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... ls advertising films etc. for publicity through cinema; (d) Commercial production including publicity through radio and TV; and (e) Erection of holdings for domestic work. The assessee also furnished a copy of its Memorandum of Association which listed the main objects of the company. It also drew the ITO's attention to the definition of an 'Industrial company' in section 2(7)(c) of the Finance Act, 1979. The ITO's attention was also invited to the decision of the Hon'ble Delhi High Court in the case of Orient Langman Ltd. v. CIT [1981] 130 ITR 477 in support of the company's case to be treated as an 'Industrial company'. 4. The ITO, however, rejected the clam of the assessee and in doing so referred to the meaning of the words 'manufacturing' and 'processing' vis-a-vis the activities of the assessee-company. The relevant observations of the ITO in this connection are as under : "In this behalf we have to examine the meaning of the word manufacturing and processing to arrive at the correct status of the assessee. 'Manufacturing' has been defined in the Permanent edition of 'Words and Phrases' Vol. 26 as follows : Manufacture implies a change but every change is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (Appeals) detailed arguments were advanced on behalf of the assessee-company and these were followed up with a written note which has been re protected by the CIT (Appeals) in is appellate order for asst. year 1979-80. This note in fact not only gives a detailed description of the activities of the company but also refers to the case law and the relevant Circulars of the Board on the point under consideration. According to the assessee it was engaged in various types of activities connected with the filed of 'advertisement'. It was also submitted that the 'basic material' as well as the 'end product' were manufactured or produced by the assessee from different types of raw materials such as papers, hard board, card board, straw board, printing ink, raw films and other basic materials. According to the assessee these basic materials were processed and the end product such as the final art work to be exhibited, printed or published through different media emerged. It was also submitted before the CIT (A) that some of these activities were being carried on by the assessee itself whereas the others were got done from outside parties. The sum total of all these activities according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has to come up with innovative ideas, catchy phrases, distinct designs and appealing audio-visual suggestions. Therefore, it cannot be held that the assessee-company carries on a business which does not result in an end product. For the second factor the point to be examined is whether the end product comes within the meaning of the term 'manufacture' for the purposes of the application of Income-tax Act. I find that the words 'industrial company' have not been defined in section 2 or specially referred in the definition of the term 'company' given in section 2(17). It is only in the finance Act, wherein the rates of taxation are prescribed from year to year, that the definition of 'Industrial Company' is given. Third definition, especially that given in section 7(c) of the Finance Act, 1979 (which is relevant to the case of the appellant), is analogous to the wordings used in section 104(4). the Explanation given in both these provisions is also analogous to the Explanation give in section 2(18)(b) of the IT Act. If for the purposes of application of section 104 a clarification is issued by the authorised interpreting authority namely the CBDT, it would not be unwarranted to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der consideration. The note of the auditors according to the learned counsel, would not once again prevent the assessee from making the correct claim in accordance with the provisions of law. He also invited our attention to the assessment orders in the company's case for A. Ys. 1983-84 and 1984-85 to submit that since the claim on account of "Investment Allowance" had been allowed it would automatically follow that the assessee was an "Industrial Company". For this proposition he relied on the decision of the ITAT in the case of A. Construction Co. (P.) Ltd. v. ITO [IT Appeal No. 1767 (Ahd.) of 1985, dated 7-8-1986]. The learned counsel for the assessee also referred extensively to the paper book furnished by him and which included copies of the various documents furnished to the CIT (A) and which had been referred to by him in detail in his appellate order. It was finally submitted that the order of the CIT (A) be confirmed. 10. We have considered the rival submissions and have also perused the orders of the lower authorities. We have also examined the relevant portions of the paper book furnished by the assessee's counsel and to which our attention was drawn during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Art form or print form and the same s supplied to clients, e.g., calendars, posters, booklets are all got printed from outsiders. This is also true of Radio/TV films. These are got made in the studios taken on hire. The films, thereafter, belong to the clients. So it would be seen that what was rendered was that expert services were provided to the clients relating to Art or Cinematic Art to satisfy the marketing needs of the Corporate and other sectors in particular. After preparation of the designs, it acts as the advertising agent of its numerous clients in a big way getting them published in the various media, particularly, newspapers, e.g. for Decon Marketing and other companies of the Sarabhai Group. It may involve preparation in the studios and it may result in the preparation of some art work." 14. We would at this stage advert to the Dictionary meaning of the words "manufacture" and "process". This would be as under :- "MANUFACTURE" Dictionary Meaning (i) Murrays New English Dictionary To work up (material) into forms suitable for use. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge for materials and services separately. They are giving bills for gross charge and then they allow 15 per cent commission to the Company. (A specimen copy of bill received from Adoni Printers and Publishers is enclosed). The Company is charging to its clients for gross cost and other charges as billed by the suppliers. In the case of jobs like Design and Art work done by he Company itself also it does not charge separately for cost of materials and services. Specimens of bills issued by the Company to its clients are enclosed. Total of billing to clients during the year is Rs. 2,02,79,203. Statement of client wise billing is enclosed." 16. During the course of the hearing the learned counsel for the assessee placed on his paper book specimen copies of various bills at pages 27 to 39. A perusal of the same shows that whatever is stated in the note reproduced earlier appears to be correct. It leads credence to the assessee's argument that a part of the work is got done from outsiders and these outsiders have no relationship with the company's clients but are directly involved with the company itself. A perusal of the bills further shows that the parties from whom the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Audio Tracks, as well as panel display and outside hoardings. There is also a statement at pages 40 and 41 of the paper book which gives the particulars of billing client wise in respect of asst. year 1979-80. The amount in question runs to a figure of Rs. 2,02,79,203 and includes not only big industrial groups but also Govt. undertakings. The entire material referred to by us in the immediately preceding paras was placed not only before the CIT (Appeals) but also before us in the form of a paper facts The learned DR has also not challenged any of the aforesaid facts pertaining to the activities of the company and the system of billing. 18. We also find on perusal of the company's balance sheet pertaining to A. Y. 1979-80 that it has its own assets such as Printing Machinery and Studio's assets. These are reflected at a figure of Rs. 8,56,336. This would apparently mean that it is not a case where none of the activities were carried on by the assessee and everything was got done from outside. The existence of assets of this magnitude would mean that the most important aspect of the work i.e., "the making of the foundation " is being done by the assessee whereas the other su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The CBDT vide Circular F. No. 91/60/66-ITJ, dated 9-5-1967 issued the following instructions : "552. Lower rate for tax applicable to printing presses and newspapers as a result of the Gujarat High Court's judgment - Clarification regarding. The Gujarat High Court's judgment in the case of CIT v. Ajay Printery (P.) Ltd. [1966] 58 ITR 811, which was pronounced in the context of clause (ii) of Explanation 2 to section 23A of the 1922 Act [section 109(iii) of the 1961 Act], applies equally in the matter of charging tax at a lower rate which is applicable in the case of companies having business in the 'manufacturing or processing of goods'. In view of this decision, printing presses are entitled to the aforesaid lower rate of tax and the benefit will be available from the asset. year 1964-65 onwards. The assessments already completed may, accordingly, be rectified under section 154 apply the lower rate of tax and refunds, if due, may be granted. The Board are also of the view that the ratio of the Gujarat High Court's judgment in the case of Ajay Printery (P.) Ltd. is also applicable to the cases of newspapers, publishing concerns which print the newspapers in their own presses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities pertaining to preparation of advertisement shots the assessee has relied on the following circular issued by the CBDT. "Circular No. 24 F. No. 6/22/68-II (A-I) dt. 23-7-1969. "346. Production of films - Whether an activity in the nature of manufacture or processing of goods within the meaning of section 104(4)(a). 1. The question whether production of cinematographic firms, i.e., motion pictures would amount to "manufacture or processing of goods" within the meaning of section 104(4)(a) has been considered by the Board. The Board are advised that a cinema film suitable for exhibition is entirely different from the raw unexposed film which is loaded into the camera in a studio. 2. It has, therefore, been decide by the Board that the production of cinematographic films would amount to the manufacture or processing of goods within the meaning of section 104(4)(a) ". 21. According to us the aforesaid decisions as also the Circulars reproduced by us strongly support the assessee's case for being treated as an "Industrial Company" for purposes of being subjected to tax at a concessional rate. 22. During the course of the hearing we also had an opportunity to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave treated this payment for calculating disallowance under section 80VV. The assessee has duly explained that these service charges are not paid for representations before the Income-tax Authorities, but have been incurred for the services rendered by the B. E. O. in the field of secretarial taxation, accounting and banking matters. In view of these facts, the entire payment to B. E. O. for Rs. 12,886 should be allowed." 28. At the outset the learned counsel for the assessee invited our attention to the fact that no such disallowance had been effected in the earlier as also the subsequent years. According to him the ITO himself had allowed a payment of Rs. 34,662, Rs. 16,454, Rs, 19,072 and Rs. 13,590 in A. Ys. 1980-81, 1982-83, 1983-84 and 1984-85 respectively. It was submitted that the facts for tall these years were identical to those as existing in A. Y. 1981-82 and there was no good ground for making any disallowance. The D. R. on the other hand, supported the action of the ITO in making the impugned disallowance. 29. We have examined the rival submissions and are of the view that no disallowance is called for in the absence of any distinguishing features in A. Y. 1981-82 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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