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Addl. Commissioner Of Income-Tax, West Bengal-Iii, Calcutta v. A. Mukherjee And Co. (P.) Ltd.
Factual and Procedural Background
The Income-tax Appellate Tribunal referred a question of law under section 256(1) of the Income-tax Act, 1961, regarding whether the assessee was mainly engaged in the manufacture or processing of goods. The assessee, a publisher of books, claimed entitlement to a concessional tax rate as a manufacturer or processor. Initially, the Income-tax Officer did not address this claim, leading the assessee to seek rectification under section 154 of the Act. The Income-tax Officer rejected the application, but the Appellate Assistant Commissioner allowed it and directed relief. The department's appeal against this relief was dismissed by the Tribunal, which held that the assessee’s activities amounted to manufacturing or processing despite not owning a printing press. The Tribunal’s decision prompted the referral to this court to determine the correctness of that holding.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the assessee was engaged in manufacturing or processing activities.
Arguments of the Parties
Revenue's Arguments
- The assessee was not the owner of a printing press and outsourced printing; therefore, it did not engage in manufacturing or processing.
- The binding of books was also done by outside contractors, negating the assessee’s status as a manufacturer.
- Without owning a manufacturing plant or personally conducting binding or packing, the assessee cannot be considered a manufacturer.
Assessee's Position (As Reflected in Tribunal’s Findings)
- The assessee actively coordinates the entire publication process from manuscript acquisition to printing supervision and binding.
- The activities are integrated and constitute manufacturing or processing rather than mere trading.
- The absence of ownership of a printing press does not preclude manufacturing status.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ajay Printery P. Ltd., [1965] 58 ITR 811 (Gujarat High Court) | Definition of manufacturing or processing activities in the context of publication. | Used to support the view that integrated publication activities amount to manufacturing or processing. |
| M.R Gopal, [1965] 58 ITR 598 (Madras High Court) | Principles regarding manufacturing or processing in publishing. | Referred to in affirming that the assessee's activities constitute manufacturing or processing. |
| Commissioner of Income-tax v. Commercial Laws of India Pvt. Ltd., [1977] 107 ITR 822 (Madras High Court) | Distinction between processing and manufacturing; assessee held to be processing but not manufacturing. | Cited by revenue but court disagreed with the conclusion that printing does not amount to manufacturing. |
| Sati Prasanna Mukherjee v. Md. Fazel, AIR 1952 Cal 320 | Interpretation of "manufacture" in the context of property lease for printing press. | Referenced for context but no opinion expressed on manufacturing definition. |
| Commissioner Of Income-Tax, Kerala v. Casino (Pvt.) Ltd., [1973] 91 ITR 289 (Kerala High Court) | Definition of manufacture as a process resulting in a commercially new and different article. | Adopted by the court to affirm that the assessee’s activities produce a commercially different article (books). |
Court's Reasoning and Analysis
The court examined the nature of the assessee’s activities, emphasizing that manufacturing involves a process resulting in a commercially new and different article. It rejected the contention that ownership of a printing press or direct involvement in binding is necessary to qualify as manufacturing. The court found that the assessee’s coordinated activities—from manuscript acquisition, supervising printing, to binding—constituted an integrated manufacturing or processing operation. It distinguished manufacturing from mere trading, noting the assessee did not simply purchase finished books for resale. The court respectfully disagreed with the Madras High Court decision that the assessee was not a manufacturer, as no reasons were provided there. The court relied on established principles that manufacturing includes processes that alter raw materials into a new commercial article, which applies to the assessee’s publication activities.
Holding and Implications
The court answered the referred question in the affirmative, holding that the Tribunal was correct in holding that the assessee was engaged in manufacturing or processing activity. The revenue’s arguments were rejected. No order as to costs was made. The decision directly affects the parties by affirming the assessee’s entitlement to be taxed at the concessional rate applicable to manufacturers or processors. The opinion does not set any new precedent beyond confirming the application of existing principles to the facts of the case.
Deb, J.:— The Income-tax Appellate Tribunal has referred the following question of law to this court under section 256(1) of the Income-tax Act, 1961:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was mainly engaged in the manufacture or processing of goods?”
2. In the assessment year under reference the Income-tax Officer did not deal with the assessee's claim that it was a manufacturer or a processor of goods. Therefore, the assessee asked the Income-tax Officer to rectify the orders under section 154 of the Act and to consider whether the assessee as manufacturer or processor of goods was entitled to be taxed at a concessional rate. The Income-tax Officer rejected the application which was, however, allowed by the Appellate Assistant Commissioner who directed the Income-tax Officer to grant relief under section 154 of the Act. The department then filed appeal which was dismissed by the Tribunal in the following terms:
“The assessee is a publisher of books. The assessee's job is to get the manuscript for publication, hit upon a suitable format for the book, get it printed as per its requirements under its supervision, get the book bound after suitable changes and then put out the publication for sale. In all these activities, the assessee has to play an active role by co-coordinating its activities in a business-like manner. All these activities dovetail into one another and the stage from the acquisition of the manuscript right up to the publication is one integrated activity which tantamount to a manufacturing or processing activity in the light of the principles laid down by the Gujarat High Court in the case of Ajay Printery P. Ltd., [1965] 58 ITR 811 and by the Madras High Court in the case of M.R Gopal, [1965] 58 ITR 598 as stated above. It is no doubt true that the assessee does not have its own printing press. That, however, really does not make any material difference. The assessee's activity cannot be called purely a trading activity. A trader merely purchases the goods which have already been manufactured by others and then sells them. In this case, the assessee gets the books printed to suit its requirements and under its active supervision and guidance. Even after the printing is over, the assessee has to get the books bound which involves a considerable amount of processing. In other words it purchases paper and other printing materials and ultimately manufactures or processes publications for sale. The business that the assessee is doing can, therefore, be called a manufacturing or processing activity.”
3. In view of the order of the Tribunal, we re-frame the question as follows:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was engaged in any manufacturing or processing activity?”
4. It has been contended on behalf of the revenue before us that since the assessee was not the owner of a printing press and the printing was done from outside, it should be held that the assessee did not carry on any activity either in manufacturing or in processing of any books. It has also been argued that as the books were bound by the outside book-binders it cannot be said that the assessee was a manufacturer of any books. It has finally been submitted that, in view of the finding of the Tribunal that the assessee's activity cannot purely be called a trading activity, it should be held that the assessee was not mainly engaged in manufacturing or processing of books. In other words, the argument is that unless an assessee owns a manufacturing plant, he cannot be a manufacturer and similarly unless he himself does the binding or packing he cannot be a manufacturer.
5. As to the first proposition, reliance was placed on a decision of the Madras High Court in the case of Commissioner of Income-tax v. Commercial Laws of India Pvt. Ltd., [1977] 107 ITR 822. In that case, the assessee was the printer and publisher of “Sales Tax Cases No printing press was owned by the assessee and the printing was entrusted to a press. After the parts were printed, the contractor employed by the assessee folded and stitched the printed parts. Thereafter, the parts were packed and despatched to the subscribers. It was held that the assessee was processing the goods. It was, however, observed that the assessee was not the manufacturer of those books, but no reason was given for it.
6. In support of the contention that the printing is not manufacturing of the printed articles reliance was placed on the case of Sati Prasanna Mukherjee v. Md. Fazel, AIR 1952 Cal 320. It was a suit for ejectment. The defendant pleaded that the lease was taken for setting up of a printing press and, therefore, it was a lease for manufacturing purposes under section 106 of the Transfer of Property Act, and accordingly, the notice to quit was invalid. The learned judge rejected the defence that the lease was taken for setting up the printing press and, therefore, it was wholly unnecessary for him to express any opinion on the meaning of the word “manufacture”.
7. That apart, there is a long catena of decisions on the word “manufacturing” under the fiscal Acts and after fully considering them in the case of Commissioner Of Income-Tax, Kerala v. Casino (Pvt.) Ltd., [1973] 91 ITR 289 (Ker), their Lordships of the Kerala High Court, at page 298 of the report, say this:
“The result of our discussion can be summed up in these terms: Manufacture is a process which results in an alteration or change in the goods which are subjected to such manufacture. A commercially new different article is produced. May be that is produced by manual labour or mechanical force or even by nature's own process… … …The essential question is whether a commodity which, in a commercial sense, is different from the raw materials has resulted.”
8. We are in agreement with the above-quoted statements. As already stated no reason has been given in the aforesaid “Sales Tax Cases” by their Lordships of the Madras High Court and with due respect to them we are unable to agree with their observation, namely, that the assessee in that case was not a manufacturer of books.
9. In order that a publisher of books should be a manufacturer of books it is wholly unnecessary for him either to be an owner of a printing press or to be a book-binder himself. A paper is not a book, though it is printed on papers. A publisher may get the books printed from any printer but the printer is not the manufacturer but a mere contractor The findings of the Tribunal in our opinion conclusively show that the assessee was carrying on the activity of manufacturing and also of processing of books which are also goods.
10. The argument, namely, that the assessee was not mainly carrying on manufacturing or processing activities in view of the Tribunal's finding that “the assessee's activity cannot be called purely a trading activity” does not appeal to us. The assessee did not purchase any books from market or sell them at a profit. The assessee published books and sold them in the market. We also agree with the finding of the Tribunal that the assessee was also carrying on the processing activity inasmuch as the assessee had to do many things as stated in its order.
11. In the premises, the arguments made on behalf of the revenue must fail and we answer the re-framed question in the affirmative and in favour of the assessee. We, however, make no order as to costs.
C.K Banerji, J.:— I agree.
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