727. Book publishing company – Whether qualifies to be treated as company engaged in manufacture or processing of goods within the meaning of section 104(4)(a)

1. The Board has received representations that companies engaged in publishing of books should be treated as industrial companies for the purpose of section 104. Reference has been made in this connection to the decisions of the Madras and Calcutta High Courts in the cases 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 High Court deci­sion it has been held that folding and stitching the printed sheets and converting them into parts or books, as the case may be, constituted processing of goods. In the Calcutta High Court 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 these decisions. In view thereof, book publishing companies even though they may them­selves not be engaged in the printing or binding of books qualify to be treated as industrial companies for the purpose of section 104 as well as for the concessional tax treatment given to indus­trial companies.

Circular: No. 347 [F. No. 166/4/81-IT(A-I)], dated 7-7-1982.

JUDICIAL ANALYSIS

EXPLAINED IN – In Rashron Heavy Engg. (P.) Ltd.  v. ITO  [1992] 43 ITD 355 (Ahd. – Trib.), it was observed that Circular No. 347 of CBDT, dated 7-7-1982, expressly lays down that the Board has accepted the view expressed in certain decisions to the effect that it is not necessary that the assessee itself should carry on the entire activities of manufacture and that it is enough if such activity is carried on with the aid of other units under the supervision of the assessee.

EXPLAINED IN – In CIT  v. Ackrow India Ltd.  [1991] 188 ITR 485 (Bom.), the above circular was referred to with the following observations :

“. . . While deciding this case, our  High Court relied upon several judgments of the High Court of Calcutta referred to in this case and particularly its judgment in Addl. CIT v. A.M. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718 (Cal.). In the Calcutta case, the assessee-company carried on the business of publishing books. It was held by the High Court of Calcutta that the assessee was a manufacturing or industrial company although it did not own a printing press and it got the books printed somewhere else. By its Circular No. 347, dated July 7, 1982, the Central Board of Direct Taxes accepted the above-referred decision. In a given case, the assessee may exercise direct supervision over the process of manufacture by deputing its staff at the factory and paying their wages. In another case, the assessee may exercise similar super­vision by issuing written instructions to the contractor and by supplying drawings and specifications and inspecting the manufac­turing process from time to time. In substance, the relevant test is satisfied although the facts of one case are not identical with the facts of the above-referred case.” (p. 489)

EXPLAINED IN – The above circular was relied on in Rashron Heavy Engg. (P.) Ltd. v. ITO [1992] 43 ITD 355 (Ahd.), with the following observations :

“. . . Circular of CBDT No. 347, dated 7-7-1982 expressly lays down that the Board had accepted the view expressed in certain decisions to the effect that it is not necessary that the assessee itself should carry on the entire activities of manufacture and that it is enough if such activity was carried on with the aid of other units under the supervision of the assessee. . . Considering the entire circumstances I hold that the fact that the main project was still under construction was irrelevant and that the activity of the assessee of manufacture of plate bending machine would entitle the assessee to claim the status of industrial company and claim benefit of concessional rate of tax. The assessee was also entitled to claim deduction under section 80-I if other conditions are fulfilled. . . .” (p. 358)

EXPLAINED IN – The above circular was referred to in Chillies Exports House Ltd. v. CIT [1997] 225 ITR 814 (SC). The Supreme Court observed :

“On hearing the rival pleas urged before us, it is evident that the various aspects highlighted in the decisions adverted to hereinabove as also the circular of the Central Board of Direct Taxes were not available to the Madras High Court when it ren­dered its main decision in Addl. CIT v. Chillies Export House Ltd. [1978] 115 ITR 73. The ultimate conclusion as to whether the assessee was carrying on the business of processing of goods would depend upon the consideration of all relevant materials available in the case. . . .” (p. 824)

EXPLAINED IN – The above circular was referred to in Gulabchand Jain v. WTO [1983] 17 TTJ (Jab.) 489. The Tribunal observed :

“2. Before us it has been submitted that the assessee was a publisher but he was not owning a press of his own. He was, however, organizing his own business by getting books printed by others. Reference was made to the case of Calcutta High Court in A. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718 (Cal.). In this case it was held that it was 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 books printed from any printer but the printer acts as a mere contractor and the publisher carries on business of manufacturing and processing of goods. This decision was accepted by the Board vide Circular No. 347 dated 7-7-1982. Though this was for treating a company as an industrial undertaking under the IT  Act, the position would be the same under the WT Act. Similar view was taken by Spl. Bench in WTA Nos. 340-341 of 1977-78 (80 ITJP 296 (sic. )” (p. 490)

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