ITR 49-50/1996 and ITA 151, 302/2002 and 480/2005. Case: Commissioner of Income Tax Vs M/s. Delhi Press Patra Prakashan Ltd.. High Court of Delhi (India)
| Case Number | ITR 49-50/1996 and ITA 151, 302/2002 and 480/2005 |
| Counsel | For Appellant: Mr. N. P. Sahni, Adv. And For Respondents: Mr. O. P. Dua, Sr. Adv. with Ms. Babita, Adv. |
| Judges | Badar Durrez Ahmed and Vibhu Bakhru, JJ. |
| Issue | Factories Act, 1948 - Section 2(1); Income Tax Act, 1961 - Sections 143(1), 2, 254, 256(1), 260A, 32(A), 32(A)(2)(b)(iii), 80I, 80I(2), 80I(2)(i), 80I(2)(iii), 80I(2)(iv), 80I(5), 80IB, 80IB(2)(iii), 80IB(2)(iv), 80J; Indian Income-tax Act, 1922 - Section 4(3)(i) |
| Judgement Date | May 31, 2013 |
| Court | High Court of Delhi (India) |
Judgment:
Vibhu Bakhru, J.
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These are three appeals and a reference which involve similar issues and thus have been taken up together. ITR Nos. 49-50/1996 are cross references, one made by the assessee and the other preferred on behalf of the revenue against the order of the Income Tax Appellate Tribunal dated 26.04.1995. ITA No. 151/2002, ITA No. 302/2002 and ITA No. 480/2005 are appeals filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the "Act") filed on behalf of the revenue, inter alia, challenging the orders passed by the Income Tax Appellate Tribunal wherein the assessee has been allowed the benefit of deductions under Section 80-I of the Act. Whereas ITR No. 49-50/1996 relates to the assessment year 1991-92, ITA Nos. 151/2002, 302/2002 and 480/2005 are with respect to previous years relevant to the assessment years 1992-93, 1993-94 and 1994-95 respectively. In ITR 49-50/1996 the following questions were framed by the Tribunal and have been referred for our consideration:-
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Whether on facts and in the circumstances of the case, the ITAT was right in holding that requisite conditions of sec. 80-I are to be satisfied not only in first or the initial year but in all the assessment years in which the deduction under sect. 80-I is claimed by the assessee?
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Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that Unit Nos. 2 & 3 are industrial undertakings for purposes of Sec. 80-I of the IT Act, 1961?
Whereas the first question has been referred on behalf of the assessee. The second question has been referred at the instance of the revenue.
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The questions framed in ITA no. 151/2002 and ITA no. 480/2005 are similarly worded. The question framed in the said two appeals is as under:-
Whether on the facts and in the circumstances of the case the Tribunal was correct in law in holding that the activity of printing carried out by the assessee in its Units no. 2 & 3 constituted profits and gains derived by the assessee from an industrial undertaking within the meaning of section 80-I of the Income Tax Act, 1961?
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The question framed in ITA No. 302/2004 also relates to the question whether the assessee is entitled to the deduction under Section 80-I of the Act and is to the same effect as the question framed in ITA no. 151/2002 and ITA no. 480/2005
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The assessee is a company and is engaged in printing and publishing newspapers and periodicals in English, Hindi, Marathi and Kannada. The assessee company was set up sometime in 1973 and has its head office situated in New Delhi. The assessee company established a Unit in Sahibabad, District Ghaziabad, (U.P.) namely Unit No. 2 for carrying on the work of high speed printing. Unit No. 2 was set up during the year ending 30.09.1985 relevant to the assessment year 1986-87. Unit No. 2 consisted of a printing press which was imported by the assessee. During the first year of the operation, there was a loss and no deduction under Section 80-I of the Act was allowed to the assessee with respect to Unit No. 2 and the return filed by the assessee was processed under section 143(1) of the Act on 13.05.1989.
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The assessee filed a return for the subsequent assessment year, i.e., AY 1988-89, claiming a sum of ` 13,50,000/- as deduction under Section 80-I of the Act. The return filed by the assessee was taken up for scrutiny. During the assessment proceeding, the Assessing officer examined the claim of the assessee with respect to deduction under Section 80-I of the Act which was recomputed at ` 12,80,044/- as against the initial deduction of ` 13,50,000/- claimed by the assessee. The relevant extract from the assessment order dated 28.02.1990 for the assessment year 1988-89 is quoted below:-
Deduction u/s. 80-I has been claimed in the computation chart at ` 13,50,000/-. When confronted about the correctness of the claim, the assessee has filed a revised chart according to which the deduction under Section 80-I works out to ` 12,88,044/-. This deduction shall be allowed because it pertains to Unit No. 2, the profit of which works out to ` 1,80,43,064/-.
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The assessee claimed a deduction of 18,45,800/- under Section 80-I of the Act for the assessment year 1989-90 with respect to Unit No. 2 as well as Unit No. 3 which was established in 1987 and housed in the building adjacent to the building where Unit No. 2 had been set up earlier. The return filed by the assessee was taken up for scrutiny and an assessment order dated 31.01.1991 was framed by the Assessing officer allowing deduction under Section 80-I of the Act.
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The assessee filed a return for the subsequent assessment year AY 1990-91 wherein the assessee claimed a deduction of ` 38,02,747/- under Section 80-I with respect to the profits from Unit 2 & 3. The claim of the assessee was examined by the Assessing officer who passed the assessment order dated 31.01.1992 allowing the deduction under Section 80-I of the Act, but computing the same at ` 37,82,816/-. The relevant extract from the assessment order dated 31.01.1992 is quoted below:-
The assessee has claimed a sum of Rs. 38,02,747/- u/s. 80-I of the I.T. Act. The deduction u/s. 80-I has been claimed in r/o Unit-2 and Unit-3 receipts against which have been shown at Rs. 1,54,96,624/- and Rs. 1,33,04,340/-. After appropriating expenses under various heads profits from these Units has been shown at Rs. 1,31,77,889/- and Rs. 20,33,099/- respectively. The receipts from these two Units do not include interest income or misc. Income. However, the assessee has not appropriated expenses such as paper, printing and binding, magazine contribution, postage and forwarding charges', contribution to Provident Fund etc. The assessee has vide its letter dt. 31.1.91 submitted that Unit-I in r/o of which deduction u/s. 80-I is not allowable, is mainly engaged in this publication of magazines, whereas the other Units are doing printing work as web fed offset processes. The assessee has further submitted that the abovesaid expenses are entirely attributable to Unit-I only as it is engaged in the publication of magazines. Assessee's plea is tenable with regard to these expenses except the expenses pertaining to contribution to provident fund as the assessee has appropriated expenses under the head salary and bonus to Unit-2 and Unit-3 also. Out of total expenses of Rs. 1,67,946/- a sum of Rs. 79,774/- will be appropriated against the profits of Unit-2 and Unit-3 in proposition of the expenses attributed to these Units under the head salary. Deduction u/s. 80-I will be worked out to Rs. 37,82,816/- on total profits of Rs. 1,51,31264/- from new industrial units.
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For the previous year ended 1991 relevant to the assessment year 1991-92, the assessee company furnished a return of income of ` 44,44,203/-. The assessee also claimed deduction of ` 44,58,681/- under Section 80-I of the Act being 25% of the profits from Unit Nos. 2 & 3 disclosed by the assessee.
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The Unit No. 2 comprises of a computerized four colour heat set web offset printing machine which has the capacity to print on both sides of paper simultaneously at a speed of 35,000 sheets per hour. The said Unit included an oven for drying ink and a chiller to cool the printed paper and coat silicon on paper before folding the paper in the specified combination as required. In addition to the colour printing machine, Unit No. 2 also has other machines such as plate processing, exposing, not heat set web offset to perform non-colour printing. Unit No. 3 consists of a colour heatset offset printing press which has the capacity to print 40,000 sheets per hour. The printing press is coated with alcohol dumping system to improve the colour printing quality and also to provide sheen to the ink. Unit No. 3 also consisted of several other machines like scanner, densitometer, metal halide unit to supplement the work of the offset printing press.
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Both the Units, namely Unit Nos. 2 & 3 were established in Sahibabad in separate buildings situated adjacent to one another The electricity connection, telephone connections as well as senior managerial staff were common for both the Units. The assessee contended that Unit Nos. 2 & 3 were independent printing houses and the income of these Units was accounted on the basis of printing done by them at specified rates.
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The Assessing officer framed an assessment order dated 25.03.1994 for the Assessment year 1991-92 wherein the claim of the assessee for deduction under Section 80-I of the Act with respect to Unit Nos. 2 & 3 was disallowed. The Assessing officer observed that printing machines were highly sophisticated and computerized and could be operated and managed without employing more than two or three persons. The expenses incurred by the assessee with regard to Unit Nos. 2 & 3 were mainly payments made for purchase of ink and consumables. The workers employed in operating Unit Nos. 2 & 3 were employees of another company Vinapur (P) Ltd. which was a sister concern of the assessee company. Vinapur (P) Ltd. did not carry on any other business but was involved solely in engaging workers for the assessee. The Assessing officer concluded that the assessee company did not qualify for a deduction under Section 80-I of the Act with respect to Unit Nos. 2 & 3 for the following reasons:-
(A) Unit Nos. 2 & 3 did not employ any person in the manufacturing process as the persons engaged in the printing press were not employees of Unit Nos. 2 & 3 but of another company which was distinctly different from Unit Nos. 2 & 3.
(B) Unit Nos. 2 & 3 were not manufacturing any article or thing as printing on paper could not be construed to be manufacturing.
(C) Unit Nos. 2 & 3 had sophisticated computerized printing machines which did not require more than 2 or 3 persons to operate the press and hence, the condition under Section 80-I(2)(iv) of the Act which required that the industrial undertaking employ 10 or more persons...
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