Income Tax Appellate Tribunal - Mumbai
Dy. Cit, Special Range-34 vs Investwel Publishers (P.) Ltd. on 8 October, 2004
Equivalent citations: [2005]96ITD106(MUM)
JUDGMENT
K.K. Boliya, (AM.) These two departmental appeals are disposed of by this common order as the issues involved are common.
Appeal No. 1935 - Assessment year 1992-93
2. This appeal arises from the order dated 10- 1- 1998 of CIT(A)-I Mumbai. The revenue has raised the following ground of appeal:
"On the facts and circumstances of the case and in law, the learned CIT(A) erred indirecting the assessing officer to compute deduction under section 80-I on the gross total income and not on the income from printing and publishing of magazines as considered by the assessing officer, that is to allow 80-1 deduction of Rs. 10,30,418 instead of Rs. 5,10,651 allowed by the assessing officer!
3. The facts are that the assessee company is engaged in the business of publishing and the main object of the company is as under:
"To carry on the business of printer's and publishers of any newspapers, journals, magazines and other literary works, undertakings and publications including printing of reports, accounts statements and stationery calendars, pictures and other works of art."
During the course of the aforesaid business activity, the assessee is publishing weekly /fortnightly magazines called 'Capital Growth', 'News Letter', 'Share Price Data' and 'Capital Online'. The assessee has earned income from the sale of these magazines as also from advertisements published in these magazines. The assessee claimed deduction under section 80-I of the Income Tax Act. The assessing officer was of the view that deduction under section 80-I is not admissible in respect of some of the types of income earned by the assessee. 'The assessee claimed deduction under section 80-I at Rs. 10,30,418, which was restricted by the assessing officer to Rs. 5,10,651 only. The assessee's total turnover during this year is represented by the following:
Sales & subscription Rs.
1,50,90,437 Advertisement, underwriting & other income Rs.
1,02,10,078 Closing stock of magazine Rs.
25,557 Rs.
2,53,28,072 The assessee was of the view that deduction under section 80-I was admissible with regard to the income arising from the abovementioned gross receipts. The assessing officer allowed deduction in respect of income generated from the following turnover:
Sales of magazines:
Agents Rs.
1,18,46,572 Cash Rs.
47,464 Subscription Rs.
11,35,815 Back Issues Rs.
7,803 Special and others Rs.
43,005 Rs.
1,30,80,659 Less: Subscription refund Rs.
10,41,681 Rs.
1,20,38,978 On the above basis, the assessing officer disallowed deduction under section 80-1 with regard to the following income:
Sales of Capital Growth Rs.
8,47,209 Sales of Share Price Data Rs.
1,63,350 Sales of Capital Online Rs.
19,31,960 Advertisements Rs.
1,19,42,552 Closing Stock Rs.
27,557 The assessing officer has apparently disallowed the claim of the assessee on the ground that there is no direct nexus of these income with the industrial undertaking i.e., publishing and therefore the said income is not derived from the industrial undertaking. The learned CIT(A) has allowed the claim in the detailed order passed by him.
4. The learned DR contended before us that deduction under section 80-I is admissible,, with regard to profits and gains derived from an industrial undertaking. It is submitted that the word 'derive' has a restricted meaning and there should be a direct nexus of such income with the functioning of the industrial undertaking. The learned DR has strongly relied on the Supreme Court decision in the case of Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278 In this case, the Hon'ble Supreme Court has considered the scope of words 'derived from' in section 80-HH and the learned DR invited our attention to the ratio of this decision, which is reproduced below from the head note:
"The words 'derived from' in section 80-HH of the Income Tax Act, must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply, is a step removed from the business of the industrial undertaking. Held accordingly, that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the special deduction under section 80HH."
The learned DR has also invited our attention to the ITAT 'F' Bench, Mumbai order dated 24-2-2004 in the case of M/s. Orient Press Ltd. in ITA No. 5915/Mum./96, to which one of us (Accountant Member) was a party, The learned DR submitted that in the above case, the Supreme Court decisions in the case of Pandian Chemicals Ltd. (supra) as also in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84 (SC) have been considered and analysed. The learned DR submitted that indirect income like advertisement income cannot be said to be flowing from the industrial undertaking and therefore deduction under section 80-I is not admissible.
5. The learned Counsel for the assessee strongly supported the order of the learned CIT(A) and submitted that the assessee has no other activity except publishing activity and the entire income is flowing from that activity only. It is submitted that advertisement income is a direct result of publishing of advertisement in the magazine and therefore such income is eligible for deduction under section 80-I. It is submitted that the Kerala High Court, in the case of Malayala Manorama Co. Ltd v. CIT (2002) 257 ITR 633 (Ker), has held that advertisement income generated from publishing of advertisement in the magazines and newspapers is entitled to deduction under section 80-I
6. We have given a careful consideration to the rival submissions made before us and have gone through the facts. In our view, there can be no dispute that the ratio laid down by the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd (supra) is to be the guiding principle while deciding the issue of allowing deduction under section 80-I. The question before the Supreme Court was as to whether interest earned on the deposit made with the Electricity Board for supply of electricity to the appellant's industrial undertaking should be treated as income derived from the industrial undertaking within the meaning of section 80HH. Referring to the earlier decision of the Apex court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra), it was observed that the expression 'derived from' had a narrower connotation than the expression 'attributable to'. The Supreme Court, further observes that the words 'derived from' must be understood as something which has a direct or immediate nexus with the appellant's industrial undertaking. The Hon'ble Supreme Court observed that the electricity may be required for the purposes of industrial undertaking, but the deposit required for this purpose is a step removed from the business of the industrial undertaking and therefore interest on such deposit cannot be said to be flowing directly from the industrial undertaking. Therefore, before any deduction is allowed under section 80-I, it must be established that the profits and gains have directly flowed from the functioning of the industrial undertaking. In other words, there has to be a direct nexus between the income and the functioning of the industrial undertaking before such income can be held to be eligible for deduction under section 80-I. In the case of Orient Press Ltd. (supra), it was held that the income derived from courier service by a publishing house has no nexus whatsoever with the industrial undertaking and therefore is not eligible for deduction under section 80-I. It may be mentioned here that the Kerala High Court, in the case of Malayala Manorama Co. Ltd. (supra), held that income derived publishing of advertisements in the newspapers /magazines would be eligible for deduction under section 80-I.
7. In the present case, the main income on which deduction has been disallowed by the assessing officer is income from advertisement. In our view, the income derived by the assessee from publishing of advertisements in the magazines has a direct and intimate connection with the functioning of the industrial undertaking. If the relevant magazines are not published, the assessee will have no income from advertisement. As a matter of fact, the newspapers and magazines survive only on account of income received from advertisement published in the newspapers and magazines. For example, the cost of production of a newspaper may amount to Rs. 6-7, whereas it is sold for an amount of Rs. 2 only. The main receipts would be from publishing of advertisements. In our view, the income from publishing of advertisements is an integral part of the publishing business and therefore, such income is eligible for deduction under section 80-I. Similarly, we hold that income from publishing/sale of magazines like 'Capital Growth', 'Share Price Data' and 'Capital Online' is also eligible for deduction under section 80-I.
8. The miscellaneous income of Rs. 1,08,940 comprises of the following:
Subscription Centre Rs.
40,000 Raddi sale Rs.
67,317 Miscellaneous Rs.
1,045 The details are placed at page 42 of the Paper Book. In our view, the raddi sale should form part of income derived from the publishing business. The magazines which are not sold become obsolete and the same are sold as raddi and therefore this income is of the same nature as income received by sale of magazines. Therefore, deduction under section 80-I would be eligible on this income, as held by the CIT(A). The learned counsel, however, was unable to explain the exact nature of subscription center (Rs. 40,000) and miscellaneous income (Rs. 1,045). Therefore, we hold that deduction under section 80-I is not available on these two incomes and to that extent the order of the learned CIT(A) is modified.
9. The closing stock of Rs. 27,557 forms part of the trading account and deduction under section 80-1 is clearly available. On this point, the order of the learned CIT(A) stands confirmed. The other income amounts to Rs. 67,677. The Id. Counsel for the assessee was unable to show as to how deduction under section 80-I is available on this other income. Therefore, we hold that deduction under section 80-I is not admissible on other income of Rs. 67,677 and to that extent, the order of the learned CIT(A) is modified.
Appeal No. 504 - Assessment year 1993-94
10. The grounds of appeal raised by the department in this appeal are similar and the only dispute is about deduction allowable under section 80-I. The Assessing -Officer has allowed deduction with regard to income from sale and subscription of magazine 'Capital Market'. The learned CIT(A) has allowed the claim of the assessee in entirety. The principles which have to be considered and applied have already been laid down by us while deciding the departmental appeal for the assessment year 1992-93. The disputed items are accordingly dealt with as under.
11. Deduction would be allowable on income of Rs. 31,02,490 from sale and subscription of the magazine 'Capital Growth'. Similarly, deduction would be available on income of Rs. 22,27,121 and Rs. 25,97,572 on sale of magazines 'Share Price Data' and 'Capital Online', respectively. The receipt of Rs. 8,885 from Railways for loss of magazines in transit would also be eligible for deduction. The nature of Rs. 100 from 'Demo Diskette' could not be explained by the learned Counsel and therefore deduction will not be allowable on this income of Rs. 100. The deduction would be available on advertisement income and on closing stock. The nature of special underwriting commission and development income of Rs. 16 lakhs and other income of Rs. 1,26,629 could not be explained by the learned Counsel for the assessee and therefore could not be established as to how deduction under section 80-I is available on these incomes. Therefore, we hold that deduction under section 80-I is not admissible on the aforesaid incomes of Rs. 16 lakhs and Rs. 1,26,629. The assessing officer is directed to recompute the deduction under section 80-I on the above basis.
12. In the result, both the appeals are partly allowed.