Commissioner of Income Tax vs Commercial Laws of India Pvt. Ltd.

Sethuraman, J.—u/s 256(1) of the Income Tax Act, 1961, at the instance of the Commissioner of Income Tax, Madras-II, Madras, the

Income Tax Appellate Tribunal has referred the following question :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee-company Was

carrying on business of manufacturing goods and liable to pay Income Tax as an industrial undertaking on its total income at the rate of 55 per cent,

under Paragraph F of the First Schedule to the Finance Act, 1968 ?"" The assessee is the printer and publisher of a fortnightly journal known as

Sales Tax Cases. The printing of the journal was done in the press known as ""S.T.C, Press"" till it was sold on July 16, 1966, to a proprietary

concern known as ""Techniprint"". The assessee got the printing work done from the said proprietary concern. Under Paragraph F of the First

Schedule to the Finance Act, 1968, the rates of Income Tax in the case of companies are set out. The relevant provision runs as follows:

In the case of a company, other than the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of

1956)-

In the case of a domestic company--.....

(2) where the company is not a company in which the public are substantially interested,--

(i) in the case of an industrial company-

(a) on so much of the total income as does not exceed Rs. 10,00,000--55 per cent.

(b) on the balance, if any, of the total income--60 per cent..."" The expression ""industrial company"" as defined in Section 2(6)(d) of the said Finance

Act is as follows I

''Industrial company'' means a company which is mainly engaged... in the manufacture or processing of goods ...

The Income Tax Officer had to examine the contention of the assessee as to whether this is a company which is an industrial company within the

meaning of the said provision. He held that the assessee was not an industrial company and therefore levied Income Tax at the rate of 65 per cent,

which is applicable to non-industrial companies. On appeal, the Appellate Assistant Commissioner confirmed this order of the Income Tax Officer.

The assessee thereafter went on appeal to the Appellate Tribunal. Since the question for consideration was whether the assessee was an industrial

company engaged in the manufacture or processing of goods the exact nature of the business conducted by the assessee had to be examined and,

therefore, the Tribunal called for a report from the Appellate Assistant Commissioner indicating the details as to the nature of the business

conducted by the assessee. The Appellate Assistant Commissioner, therefore, submitted the report and thereafter the Appellate Tribunal disposed

of the appeal finally. The Tribunal held that the assessee was entitled to the benefit of the rate of tax at 55 per cent. under Paragraph F of the First

Schedule to the Finance Act, 1968. It is this order of the Tribunal which is challenged in the question that has been extracted already.

At this stage, it is necessary to point out that the question as framed by the Tribunal does not bring down the real controversy. As pointed out

already, the expression ""industrial company"" as defined by Section 2(6)(d) of the Finance Act, 1968, refers to ""manufacture"" or ""processing"" of

goods. In the question as framed, the expression ""manufacture"" alone has been used. The question has, therefore, to be reframed as follows:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee-company was

carrying on business of manufacturing or processing of goods and liable to pay Income Tax as an industrial company on its total income at the rate

of 55 per cent, under Paragraph F of Part I of the First Schedule to the Finance Act, 1968 ?

The Tribunal has found after a consideration of the remand report as follows:

The appellant-company was printing the journal in its press till it was sold on July 15, 1966, to ''Techniprint'', a proprietary concern. Thereafter,

the printing of the journal was done in ''Techniprint'' and the bills were periodically sent to the appellant. The printing charges were paid by the

appellant-company. After printing, the printed sheets were handed over by ''Techniprint'' to the appellant-company. Folding and stitching of those

printed sheets were done by the appellant by employing some labour contractors. Thereafter, they were packed and despatched by the appellant-

company to the various subscribers.

It may be seen from this passage from the Tribunal''s order that the actual printing is done by a different concern and that the assessee was

engaged in folding and stitching of the printed sheets so as to be used as parts of the journal, which were later on despatched to the subscribers.

The short point to be considered is whether the folding and stitching of the printed sheets would come within the scope of ""processing of goods"".

The learned counsel for the revenue submitted that this is a case where there are actually no operations of manufacture conducted by the assessee-

company. The printing having been done by a different concern, the question as to whether the assessee has been carrying on the business of

manufacture would not arise on the facts here. However, the expression used in Section 2(6)(d) is ""manufacture or processing of goods"".

Therefore, it is enough if the assessee, in order to get the benefit of this provision, is engaged in the ""processing"" of goods. The goods in the present

case would be the parts or volumes of Sales Tax Cases. The ""processing"" engaged in by the assessee is to fold and stitch the printed sheets and

convert them into parts or books, as the case may be, which were later on despatched to the subscribers. This, in our opinion, would constitute

processing of goods"" so as to come within the scope of Section 2(6)(d) of the Finance Act, 1968. Consequently, the question which we have

reframed is answered in the affirmative and against the revenue. There will be no order as to costs.