Income Tax Appellate Tribunal - Delhi
Ubs Publishers Distributors Ltd. vs Inspecting Assistant Commissioner on 11 December, 1990
Equivalent citations: [1991]36ITD457(DELHI)
ORDER
K.S. Vishwanathan, Vice President 1 The assessee, a Public Ltd. Company, has raised two issues in this appeal. The assessee has a business in printing and publishing books.
2. The first issue is the computation of disallowance under Section 37(2A). The Assessing authority found that Rs. 1,65,846 have been debited as sales promotion expenditure. But the details show that Rs. 1,48,750 were really entertainment expenditure. He further found that another amount of Rs. 84,926 has been shown as expenditure of the export department. This was also in reality entertainment expenditure. Thus, the total amount of entertainment expenditure was found to be Rs. 2,33,676. After allowing statutory deduction of Rs. 5,000, he disallowed Rs. 2,28,676.
3. On appeal, the CIT(Appeals) agreed that most of the expenditure debited at the Head Office as well as branches at Delhi, Bombay, Bangalore and Calcutta, were incurred in providing tea, coffee etc., to the visitors and customers. However, this expenditure was only Rs. 2,21,490. He upheld the disallowance to this extent.
4. On further appeal, it has been submitted before us that part of the expenditure is relatable to the members of the staff and so, to that extent, the entire disallowance would be unreasonable. He submitted that the expenditure relatable to the staff should be allowed. We, however, find that the submission that part of the expenditure relates to the staff has not been taken up at any of the earlier stages. It was submitted by the assessee that the position in this respect is similar to the assessment years 1980-81 and 1981-82, wherein the Tribunal has admitted the assessee's contentions and had referred the matter back to the assessing authority to verify the submission. We have gone through the Tribunal's order. It appears that, for these years also, this submission was taken up for the first time at the Tribunal's stage. The Tribunal observed in paragraph 4.4 of the order as under :-
4.4. On this issue, we find considerable force in the argument of the DRand since the issue was never examined from the point of view, we are of the opinion that it would only be proper to remand the issue back to the files of the ITO for fresh adjudication as per law. The ITO shall re-examine this issue and consider the reasonability or otherwise on the claim made by the assessee.
5. For the sake of uniformity, we would adopt the same reasoning and refer the matter back to the assessing authority.
6. Ground No. 2 is about the rejection of the claim for Investment Allowance in respect of a computer installed by the assessee. It appears that the company had installed HCL system 4 computers in June 1981. The total cost of the machinery was Rs. 9,51,321. The assessee had claimed Investment Allowance thereon. The submissions of the assessee are :-
(a) The assessee is a small scale industry and, therefore, the requirement that the production should not be listed in the Eleventh Schedule is not relevant.
(b) The assessee is producing articles or things and they could be listed as below :-
(i) Preparation of catalogues/pamphlets,
(ii) Registration of orders,
(iii) Printing and maintenance of stock valuation report,
(iv) Preparation and printing of bills payable account,
(v) Preparation and printing of bills receivable,
(vi) Agewise analysis of debts, and
(vii) Preparation and printing of invoices, credit notes, cash memos etc. Reliance was also placed on the decision of the Bombay High Court in the case of CIT v. I.B.M. World Trade Corporation [1981] 130 ITR 739 and the decision of the Gujarat High Court in the case of CIT v. Ajay Printery (P.) Ltd. [1965] 58 ITR 811.
7. The assessing authority did not accept the assessee's submissions. According to him, the Computer is really a data processing machine, which has been installed in the office. Therefore, allowance of Investment Allowance is clearly barred by the Eleventh Schedule. He did not accept the assessee's submission that the assessee was a small scale industry. In this respect, the assessee had relied on a Government of India Notification dated 12-8-1980, but he held this Notification as not relevant. He also held that the work performed was essentially the work of office appliance. So the claim for Investment Allowance was rejected.
8. The CIT(Appeals) also agreed with the assessing authority. He agreed that the assessee was not a small scale industry because the value of plant and machinery was more than Rs. 20 lakhs. He also found that the assessee was only a dealer in books. He also pointed out that the Computer was not installed in the factory. It was only in the office premises. Further, it was working as a data processing machine, i.e., information in a raw form is not an article or thing. He, therefore, agreed that the assessee was not entitled to the allowance.
9. It was submitted before us that the company is maintaining a complete data centre. This company could have been registered as a small scale industry with the Government of India. He referred to the letter of the Ministry of Industry - Office of the Development Commissioner, Small Scale Industries, dated 12th August, 1980 which stated that a specialised type of operation including software servicing and data processing could be treated as industrial activity of a small scale industry for the purpose of registration as small scale industry. He then submitted that the value of plant and machinery did not exceed Rs. 20 lakhs. Therefore, the assessee satisfied the conditions of being treated as a small scale industry under the Income-tax Act also. Referring to the decision of the Bangalore Bench of the Tribunal in the case of Krishna Associates v. ITO [1987] 22 ITD 530, he submitted that, under similar circumstances, the contentions of the assessee have been accepted. He also submitted that the Karnataka High Court in the case of CIT v. Datacons (P.) Ltd. [1985] 155 ITR 66, had accepted a similar contention. In fact, it was submitted that in the assessee's own case, a similar point had come for decision in the assessment year 1981-82 and the matter was referred back to the ITO. He also pointed out that, in the case of a sister concern, Universal Subscription Agency P. Ltd., the ITO himself had allowed the claim for the assessment year 1983-84.
10. Mrs. Neena Kumar, for the Department, submitted that the Tribunal's decision for the year 1981-82 should not influence a decision on merits for this year. She submitted that, for that year, no details were available and that is why the matter was remitted back to the ITO. In this year, there are details available. She then pointed out that the Computer does not manufacture anything and the data which is processed is only for self-consumption. She also pointed out that the assessee cannot be considered as a small scale industry, because the cost of plant and machinery is more than Rs. 20,00,000.
11. We have considered the submissions. The first issue to be decided is, whether the assessee could be considered as a small scale industry. For this purpose, we agree with the department, that the letter dated 12th August, 1980 from the Ministry of Industry, is not relevant. What is to be seen is, whether the assessee would satisfy the conditions laid down for this purpose in Clause (2) of the Explanation to subsections (2B), (2C) and 4 of Section 32A. According to this provision, the aggregate value of the machinery and plant other than the tools.jigs,dies and moulds installed for the purpose of business should not exceed Rs. 20 lakhs. For the purpose of valuation of plant and machinery, the actual cost to the assessee must be taken into account. We have gone through the balance-sheet of the company. The total cost of the fixed assets is Rs. 23,21,860. So, the assessee, prima facie, does not satisfy the condition. We have looked into Schedule 5 of the fixed assets which shows the total cost of all the assets at Rs. 43,09,082. Out of this, we must exclude the cost of buildings, temporary wooden structure, temporary sheds and furniture and fittings. Even then the cost would be much more than Rs. 20 lakhs. We firmly reject the assessee's contention that we should look into only the cost of the data processing machines. We are unable to do so, because the section requires ascertainment of the aggregate value of the machinery and plant. The only item that should not be taken into account are the tools, jigs, dies and moulds. All the other items should be taken into account. They are all plant and machinery as the definition of plant in Section 43 itself makes it clear. Thus, the assessee cannot be treated as a small scale industry.
12. Therefore, it is necessary for the assessee to fulfil the conditions required in the section, i.e., the assessee should construct, manufacture or produce an article or thing other than what is specified in the Eleventh Schedule.
13. The assessee has given a list of things which are produced from the data processing machine. It is very difficult for us to say that they represent any article or thing. We must make it clear here that the article or thing produced must be a commercial commodity, i.e., it should be marketed and the assessee's business would depend upon marketing these goods. For this purpose, we would refer to the decision of the Madras High Court in lhe case of CIT v.Buhari Sons(P.)Ltd. [1983) 144 ITR 12. Therein, the High Court has observed at page 17 "We are of the view that the word 'goods' has been used here in the sense of merchandise, i.e., the articles for sale". The items which had been given in the list as product of the assessee's computer, does not show them to be a merchandise or a commercial produce. Registration of orders, maintenance of stock valuation report, bills receivable, preparation of invoices, credit notes - all these are work done in the accounting department of any assessee to inform the management about the assets and liabilities of the company. These represent information required by the management. These are not any products, goods or articles meant for sale. Therefore, the condition that the assessee should construct, manufacture or produce an article or thing is not satisfied.
14. At this stage, we may refer to the two authorities relied upon by the assessee. The first is the decision of the Bombay High Court in the case of LBM WorldTrade Corpn. Ltd. (supra). Therein, the High Court was considering the provisions of Section 33 regarding development rebate and the question was, whether the data processing machines were office appliances or not. It should be noticed that the question was not, whether the assessee was producing an article or thing. The question was entirely different. The Bombay High Court had held that the data processing machine is not an office appliance. But this decision will no longer be relevant because of the Eleventh Schedule. Item 22 of the Eleventh Schedule gives office machines and apparatuses as ineligible for Investment Allowance. The Explanation to Item 22 has expanded the scope of office machines by including therein the machines for data processing. From the description of the work done through the computer, it is clear to us that it was used only for data processing. The second decision, i.e., Ajay Printery (P.) Ltd.'s case (supra) is also distinguishable. That was a case of a company which was carrying on business of printing balance-sheet, profit and loss accounts, pamphlets, dividend warrants and share certificates of another group of companies under the control of Kasturbai Lalbai. Thus, whatever the assessee was making there, was a commercial product, commercial goods, sold to others after manufacture. That is not the position in the assessee's case here. So this decision has also no relevance. The decision of the Karnataka High Court in the case of Datacons (P.) Ltd. (supra), is easily distinguishable. That was a decision given under Section 2(7)(c) of the Finance Act, 1977. The section required an assessee to be engaged in manufacture or processing of goods. Mark the word "processing". The High Court agreed that the assessee was processing goods there. The word 'processing' does not appear in Section 32A. Besides, the assessee therein was doing all this work to their customers. This is clear at page 70, where the High Court observed: "It would be clear from these activities that the assessee receives vouchers and statements of accounts from the customers and they are converted into the required balance-sheet, stock account, sales analysis etc. They are got printed as per the requirements of the customer". It will be seen that the activity is like that of Ajay Printery works' case (supra).
15. We will now consider the decision of the Tribunal in the assessee's own case for the year 1981-82. At paragraph 9(4), the Tribunal has observed as under :-
On this issue we, therefore, feel that it requires re-examination by the ITO. The ITO shall have to consider the claim of Investment Allowance on the facts of this year alone and should not substitute the facts of any other year for allowing or rejecting the claim of the assessee. The ITO shall also examine, whether it is a fact that the assessee had manufactured what he had claimed to have done and further whether it was intended for self-consumption or sale to outsiders. If it was intended for self-consumption and so consumed then it could be only held that in the year it was used as office automation machine. But in case it had sold the manufactured items, then it could be held that it did carry on the manufacturing activity and thus eligible for the Investment Allowance. The other factor to be kept in mind is the job alleged to have done for the outsiders, as to whether any such job was done in the year or not. If it was done the claim could be accepted. With these remarks, the issue is remanded to the file of the ITO.
16. It would be seen from the above observation that paucity of materials was the reason why the Tribunal set aside the matter to the assessing authority. There is no such reason for this year. All materials necessary have been considered by us. We may also mention that the fact that in a sister company's case, the ITO himself has allowed the deduction, cannot carry the assessee's case for, because each case will depend upon its facts. Finally, we may also refer to the decision of the Bangalore Bench of the ITAT in the case of Krishna Associates (supra). That case was more or less similar to the Karnataka High Court decision in Datacons Ltd., considered above. So the facts of that case are entirely different. Under these circumstances, we are of opinion that the assessee is not entitled to Investment Allowance.
17. In the result, the assessee's appeal is treated as partly allowed for statistical purposes.