TaxTMI 
TaxTMI 
1988 (5) TMI 54
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....ertising 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 manufacture ....
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.... 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 to the assessee consti....
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....as, 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 use the same for the purposes of appre....
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....tors 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 of the hearing. The case law cited at th....
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.... 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" Dicti....
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....; article is the result of treatment, labour and manipulation. But, something more is necessary and that must be transformation; a new and different article must emerge having a distinctive name,....
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....leading to the accomplishment of some result. 15. The assessee in the course of the first appellate proceedings also furnished a detailed note to the CIT (A) relating to its system of Bulling. This note is as under : "Jobs for making blocks for press advertising, printing work etc. are entrusted to suppliers, who carry out the jobs as per the designs created by the Company and specifications and under instructions and supervision of the Company. Proofs are approved by us before jobs are finally carried out by the said outside fabricator. They do not charge 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 its....
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....nbsp; 6,700.00 Less : 15 % Agency Commission 1,005.00 -------- 5,695.00 ST @ 5 P per Re. &nbs....
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....; -------- 7,155.60 -------- 17. The other bills placed on the paper bill are also on identical lines and pertain to other activities of the company in the field of advertisement such as newspaper insertions which includes block making, as also the works pertaining to TV Advertisement such as preparation of Audio Tracks, as w....
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....got done from outside the same is subjected to strict control and supervision on the part of the assessee from time to time. 19. We are also of the view that the case law referred to by the learned counsel during the course of the hearing supports the assessee's case. The authorities cited before us were also relied upon in the course of the first appellate proceedings and have been duly considered by the CIT (A). For purposes of disposing of the present appeals we need refer to only two of these authorities since these have subsequently been accepted by the Board as well as suitable instructions issued to the assessing offices to follow them. The first decision would be that of the Hon'ble Gujarat High Court in the case of Ajay Printery (P.) Ltd. The issue before the Hon'ble High Court was whether the printing of balance sheets and dividend warrants amounted to "manufacture of goods". The High Court was of the view that the end-product, namely, the balance sheet or the share certificate was an article quite different from the materials such as paper and ink from which it was made. It was held that the aforesaid activity amounted to "manufacture of goods". The CBDT vide Circular F....
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....ases of CIT v. Commercial Laws of India (P.) Ltd. [1977] 107 ITR 822 and Addl. CIT v. A. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718, respectively. In the Madras decision it has been held that folding and stitching the printed sheets any converting them into parts or books, as the case may be, constitute processing of goods. In the Calcutta decision it was held that it is wholly unnecessary for a publisher of books to be an owner of a printing press or to be himself a book binder to be a manufacturer of books. A publisher may get the books printed from any printer, but the printer is a mere contractor and the publisher carries on the business of manufacturing and processing of goods. 2. The Board has been advised to accept there decisions. In view thereof, book publishing companies every though they may themselves not be engaged in the printing or binding of books quality to be treated as industrial companies for the purpose of section 104 as well as for the concessional tax treatment given to industrial companies. 3. The contents of the circular may kindly be brought to the notice of all officers working under your charge." In respect of its activities pertaining to preparatio....
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....h pertains to A. Y. 1981-82 and is as under : "The learned CIT (A) has erred in law and on facts in allowing the service charges of Rs. 12,886 in full though the same are covered by the provisions of section 80VV." 26. The ITO in the course of the assessment proceedings disallowed a sum of Rs. 12,886 being the payment made to M/s. Business Executives Organisation Pvt. Ltd. According to the ITO since the payment had been made for obtaining services in connection with the legal, financial and income-tax matters, the same fell within the purview of section 80VV of the Act. 27. The CIT (A), however, allowed the claim on the following lines : "The next ground of appeals is against the disallowance of service charges paid to Business Executive Organization Private Limited for Rs. 12,886. It is pointed out that similar payment made to B. E. O. in 1979-80 and in 1980-81 had been allowed by the ITO. Moreover, even for subsequent years i.e. 1982-83, the service charges have been fully allowed. For the present asst. year, I do not find any new ground or reasoning given by the ITO to make this disallowance. On the contrary, the ITO appears to have treated this payment for calculating disal....