JUDGMENT

1. On an application filed under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion:

“Whether, on the facts, in totality of the circumstances and in view of detailed explanations/clarifications, the learned Tribunal was right in law in holding that remittances received by the assessee in convertible foreign exchange from abroad as advertisement charges were not on account of sale proceeds of any goods which are exported out of India and hence would not be export turnover under Explanation (B) to section 80HHC of the Income-tax Act, 1961?”

2. The other questions proposed in the application were rejected. Thereafter the petitioner has also moved an application under section 256(2) of the Income-tax Act, 1961, before us and raised the following questions:

“1. Whether the learned Tribunal was right in law in holding that the action by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, is with jurisdiction?

2. Whether, on the facts, in totality of the circumstances and in view of detailed explanations/clarifications, the learned Tribunal was right in law in holding that remittances received by the assessee in convertible foreign exchange from abroad as advertisement charges were not on account of sale proceeds of any goods which are exported out of India and hence would not be export turnover under Explanation (B) to section 80HHC of the Income-tax Act, 1961?

3. Whether the learned Tribunal was right in law in directing the Assessing Officer to recompute the deduction as per the decision of the Special Bench in the case of International Research Park Laboratories Ltd. v. Asst. CIT, [1995] 212 ITR (A.T) 1 (Delhi) [SB]?

4. Whether the learned Tribunal was right in law in holding that the Commissioner of Income-tax was within his power to invoke the jurisdiction under section 263 though the Commissioner of Income-tax (Appeals) had decided the issue relating to deduction under section 80HHC of the Act before initiation of action under section 263 of the Act?”

3. As all the aforesaid questions are arising out of the same impugned order of the Tribunal, we hear and dispose of the reference as well as reference application under section 256(2) of the Act by this common order.

4. The assessee is a firm constituted in the month of September, 1990. The business of the firm is publication of a journal known as Diamond World. The relevant assessment years are 1991-92 and 1992-93. During these assessment years, the assessee received subscription from abroad against the supply of this publication Diamond World. The assessee also received substantial amount against advertisements published in this publication.

5. This Diamond World is circulated in India as well as in abroad. The assessee claimed the benefit of section 80HHC on the amount of subscription received from abroad against this magazine/journal Diamond World and also the amount received against advertisements given by foreigners for publication in this journal. The Assessing Officer allowed the benefit of section 80HHC on both the amounts.

6. On scrutiny of the assessment orders for 1991-92 and 1992-93, the Commissioner of Income-tax found that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. He issued notice to the assessee to show cause as to why the benefit of section 80HHC should not be withdrawn. After considering his submissions, the Commissioner of Income-tax has directed the Assessing Officer to withdraw the benefit of section 80HHC given to the assessee on the amount received against advertisement which has been published in the journal. Thereafter, the assessee carried the matter before the Tribunal. The Tribunal has also upheld the view taken by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.

7. Mr. Ranka, learned counsel for the assessee-petitioner, submits that when the assessee received the amount against advertisements in journal which is circulated out of India and the amount is also received from abroad, the assessee is entitled for deduction under section 80HHC in respect of the amount received from abroad against advertisement. He further submits that when two views are possible the Commissioner of Income-tax cannot set aside the order of the Assessing Officer under section 263 of the Income-tax Act, 1961. He also submits that the Tribunal has confirmed the order of the Commissioner of Income-tax on the basis that it does not come under the definition of export turnover given in sub-section (4B) of section 80HHC.

8. Mr. Ranka placed reliance on the decisions published in CIT v. Trinity Hospital, [1997] 225 ITR 178 (Raj); Associated Cement Companies Ltd. v. Commissioner Of Customs, [2001] 124 STC 59 (SC); H. Anraj v. Government Of Tamil Nadu., [1986] 61 STC 165 (SC); P.S Apparels v. Deputy CTO, [1994] 94 STC 139 (Mad); Scientific Engineering House Pvt. Ltd. v. CIT, [1986] 157 ITR 86 (SC) and State of Andhra Pradesh v. National Thermal Power Corporation Ltd., [2002] 127 STC 280 (SC).

9. Mr. Mathur, learned counsel for the Department, submits that whatever the goods the assessee exports in the form of journal, he got deduction under section 80HHC. He further submits that if any information or advertisement is to be published at the instance of non-resident of India and any amount is received from abroad, that amount does not come within the definition of “goods” and the Commissioner of Income-tax as well as the Tribunal have rightly disallowed that amount under section 80HHC of the Act.

10. Mr. Mathur, learned counsel for the Department, brought to our notice paras. 8 and 9 of the order of the Commissioner of Income-tax wherein he has dealt with the argument whether the assessee is entitled for deduction under section 80HHC. Paras. 8 and 9 of the order of the Commissioner of Income-tax read as under:

“After due consideration it appears that the proposed action under section 263 is well justified and the plea of the assessee referred to earlier is devoid of any merit. It is no doubt true that relief under section 80HHC is envisaged with reference to export of goods/merchandise, of which the sale proceeds are received in convertible foreign exchange. But it is far fetched to construe advertisements as goods. Such an argument can hardly be accepted as logical. A book in the form of journal published by the assessee may be considered as ‘goods’ but the question is, whether an advertisement published in the journal which is sent outside, can be treated as supply of goods outside India? The assessee was doing the business of publishing a journal in India and in this journal advertisements given by different persons living in India and outside were being published. The advertisements obviously, were not free of cost, but for a price consideration which, in common parlance is known as advertisement charges. This would mean that the petitioner was in reality, rendering the service of publishing the advertisements of different persons in its journal and the persons giving such advertisements were paying advertisement charges in lieu of advertisements so published. As per the common practice, a copy of the journal has to be given to the advertiser so that he may know that his advertisement has been duly published in the journal for which he was paying advertisement charges. Thus, the copy of the journal supplied to the advertiser is mere voucher copy and solely for the purpose of collecting the advertisement charges. By no stretch of imagination, it can be treated as supply of goods though contended by the assessee. Even in commercial media like T.V, etc., the advertisements of persons living outside India are displayed and for the purpose of collecting the charges, necessary intimation in regard thereto is given to the advertiser. The same, in general terms, is considered a service rendered by the media to the advertiser for a monetary consideration and this is what the assessee has done. So far as the remittance in convertible foreign exchange, but it was in lieu of the advertisement so published in journal and not in lieu of the supply of journal. The contention of the assessee of the payment in convertible foreign exchange in lieu of supply of goods is misconstrued inasmuch as firstly, there was no supply of goods or export business done by the assessee who otherwise was engaged in publication of journal, and, secondly the payment of convertible foreign exchange was in lieu of the advertisement published, which constituted advertisement charges and not in lieu of supply of any goods outside India.

It may also be stated that whenever there is export of goods abroad, there will be purchasers placing orders for such goods and sellers supplying the goods in regard to sales abroad either independently or in lieu of orders received. In the instant case, there was no iota of evidence to show any orders for goods placed by a foreign buyer and it is only the advertisements given by the parties outside India that otherwise appeared in the shape of an advertisement, in the journal published by the assessee. Whatever book was given by the assessee to the persons giving advertisements was only by way of evidence to show that the advertisements so given have been published and in lieu of which advertisement charges were to be collected. It was only a ‘voucher copy’ as known in commercial circles and not supply of goods so as to qualify for deduction under section 80HHC. It was, in other words, a sort of service contract or service charges for the purpose of advertising in the journal and in lieu of which the payments made by persons living outside the country constituted the advertisement charges or the charges in lieu of the service rendered in the form of giving advertisements in the journal. By no stretch of imagination, the journal so given with a view to make the person concerned aware of the advertisement having been published could have been construed as supply of goods though contended by the assessee.”

11. The Tribunal has also considered the arguments of both the parties and concluded its decision in paras. 20, 21 and 22 of its order, which read as under:

“We have given our careful consideration to the rival contentions. The issue as to whether the assessee is engaged in the business of sale of goods and whether the assessee by selling the Diamond World abroad is engaged in the export business, need not be deliberated in view of the fact that the Commissioner of Income-tax has not withdrawn deduction under section 80HHC absolutely. The assessee has receipts on account of subscriptions and on account of advertisements. In so far as the Commissioner of Income-tax has not directed the Assessing Officer to withdraw deduction under section 80HHC in respect of the subscription received from abroad, it is abundantly clear that it has been accepted by the Revenue that the assessee is also engaged in the business of export of goods. The area of dispute before us is thus limited to the issue as to whether the amount received by the assessee on account of advertisement charged from abroad is includible as export turnover within the meaning of section 80HHC and whether, on the facts and in the circumstances of the case, the Assessing Officer was justified in allowing the claim of the assessee in full as claimed. In the light of the above findings, it is not necessary for us to analyse the decision cited on behalf of the assessee relating to the meaning of word ‘goods’. However, it is necessary to deal with the contention raised on behalf of the assessee that the advertisement charges were received by the assessee on account of composing, printing and sale thereof. The contention of learned counsel that the advertisement charges are for supply of the composed and printed material and, therefore, the receipts on account of advertisement charges were on account of sale of goods does not appeal to us. Advertisement charges are paid by the customers for inserting the advertisement in the journal. The very fact that the customers pay substantial amounts as advertisement charges when compared to the cost of printing goes very much against the theory advanced before us that such charges are paid for composing, printing and supply of printed copy of advertisement material. When the cost of composing, printing and supply of printed material is considerably low, a question arises as to why a customer would pay a high price to the assessee for the said job. The answer to this query is abundantly clear in so far as it is an open secret that the charges paid for advertisement by the customers depend on the circulation of magazine and publication. More the circulation of the magazine, the customer would be prepared to pay more as his message will be received by more people. The real intention of the customer is to get the benefit of circulation of the magazine by inserting the advertisement in the magazine rather than getting the printing material at a very high cost. As already pointed out if the assessee were to get the printing copy of advertisement material they would get the same at a very nominal cost.

The dictionary meaning of the word ‘advertisement’ is to give public information and to draw attention or to offer for sale by public notice. The act of asking anything by public notice amounts to advertisement. In our considered view advertisement charges cannot be said to be on account of sale of printed material for advertisement. However, we may hasten to add that the charges paid by the customers for advertisement have a close nexus with the sale of the magazine. The collection of advertisement charges is by reason of the publication and circulation of the magazine and not by reason of quality of the printed material. If there is no sale of the magazine, there would be no willing customers to insert advertisements in the magazine. The more the circulation and popularity of the magazine, there will be a greater demand for insertion of advertisement and the charges would also depend mostly on the popularity of the magazine. We have, therefore, no doubt in our mind that advertisement charges are incidental and ancillary to the export of the magazine. The charges received by the assessee would largely contribute to meet the cost of the publication. A perusal of the profit and loss account reveals that but for advertisement charges the assessee would have suffered heavy losses. The cost of publication is met by the assessee mostly by receiving advertisement charges from abroad as well as from Indian customers. Thus ordinarily the advertisement charges received from abroad would form part of export profits. But from the assessment year 1991-92 section 80HHC has been amended. Export turnover has also been defined. The assessee's case is a case where they are engaged in the business of exports and also deriving income from other than exports. In such cases, export profits for the purposes of allowance of deduction under section 80HHC are to be computed as per the following formula:

We have gone through the certificate issued by the chartered accountant, in respect of the assessment years 1991-92 and 1992-93 and find that in computing the export turnover the definition as per the Explanation after section 80HHC(4A) has been ignored, the learned chartered accountant has misunderstood. Explanation (b) to section 80HHC reads as under: ‘Export turnover’ means the sale proceeds received in, or brought into India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported Out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962).”

12. The Commissioner of Income-tax as well as the Tribunal both found that this amount does not come under the definition of “export turnover”.

13. Before we answer the question, we would like to refer to some decisions of the Supreme Court and High Courts relied on by Mr. Ranka.

14. In CIT v. Trinity Hospital, [1997] 225 ITR 178, the issue before this court was whether the x-ray machines, ultrasound scanner manufacture or produce anything. This court has taken the view that they manufacture and produce the goods, therefore, they are entitled for investment allowance under section 32A of the Act, 1961.

15. In the case of Bajaj Tempo Ltd. v. CIT, [1992] 196 ITR 188 (SC), there was no dispute before their Lordships whether a particular activity comes under the definition of “goods” or not. Therefore, this case has no relevancy.

16. In the case of Scientific Engineering House Pvt. Ltd. v. CIT, [1986] 157 ITR 86 (SC) the issue before their Lordships was whether books constitute plant for the purpose of section 43(3) of the Income-tax Act, 1961. Their Lordships on this issue held that it constitutes plant.

17. In the case of Shri Dipak Dhar v. State of West Bengal, [1986] 61 STC 165 (SC), the issue involved before us has not been considered. Therefore, this has also no relevancy.

18. In the case of State of Andhra Pradesh v. National Thermal Power Corporation Ltd., [2002] 127 STC 280 (SC), their Lordships have considered whether electric energy be treated as goods. Their Lordships held that electric energy has been covered by the definition of “goods” in article 366(12) of the Constitution of India.

19. In the case of Associated Cement Companies Ltd. v. Commissioner Of Customs, [2001] 124 STC 59 (SC), their Lordships have considered the meaning of “goods”. The technological advice or information put on media like paper, book or diskette are goods. The definition of “goods” has been given in section 2(22) of the Customs Act, 1962, and as per that definition those were treated as goods. Whether a particular article or thing is “goods”, if it has been given in the definition, the court has to go by that definition and not by the general meaning thereof.

20. In the case of P.S Apparels v. Deputy CTO, [1994] 94 STC 139 (Mad), the issue before the Madras High Court is whether sale of licence is sale of goods. The Madras High Court has taken the view that the transaction attracts sales tax.

21. The facts are not in dispute that in the assessment years 1991-92 and 1992-93, the assessee has received some amount against the subscription and advertisement. The details thereof are as follows:

Subscription Advertisement Rs. Rs. Assessment year 1991-92: Indian 9,150 1,36,243 Foreign 12,386 4,49,797 Assessment year 1992-93: Indian 52,221 10,17,992 Foreign 43,824 15,55,742

22. Sub-section (1) of section 80HHC provides that whether the assessee being an Indian company or a person resident in India is engaged in the business of “export out of India of any goods or merchandise” to which this section applies, there shall be a deduction in computing the total income of the assessee to the extent of profit referred to in sub-section (IB) derived by the assessee from the export of such goods or merchandise. The details of percentage of deduction of benefit have been given in sub-section (IB). The benefit has been given on the basis of export turnover which has been defined in clause (b) of Explanation to sub-section (4B) of the Act which reads as under:

“‘export turnover’ means the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962);”

23. In the various provisions of section 80HHC, in each sub-section, the words “on export of goods and merchandise” have been used. At no stretch of imagination, can subscription against advertisement be treated as receipt against export of goods nor is it covered by the definition of “export turnover” on which the benefit of section 80HHC can be computed.

24. In our view, the Assessing Officer has gone absolutely wrong in allowing the deduction under section 80HHC on the amount received from foreigners against advertisements which have been given in the journal Diamond World.

25. Mr. Mathur also brought to our notice the decision of their Lordships in the case of Rainbow Colour Lab v. State of Madhya Pradesh, [2000] 118 STC 9 (SC). In this case, the issue before their Lordships was whether taking photographs, developing the negative films and supplying prints attracts the provisions of the Sales Tax Act, 1958. Their Lordships before para. 14 observed as under (page 14):

“Thus, it is clear that unless there is sale and purchase of goods, either in fact or deemed, and which sale is primarily intended and not incidental to the contract, the State cannot impose sales tax on a works contract simpliciter in the guise of the expanded definition found in article 366(29A)(b) read with section 2(n) of the State Act. On facts as we have noticed that the work done by the photographer which, as held by this court in Kame's case, [1977] 39 STC 237, is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent-State cannot be sustained.”

26. As we have considered the cases referred to by Mr. Ranka in earlier paras, the cases referred to are of no help to the assessee. Those cases relate to the issue whether there were activities of manufacturing of goods. In no case, the amount received against advertisements has been treated as the amount against the export of goods. For benefit of section 80HHC, the section contemplates that there should be an export of goods by the assessee. It is true, there was an export of the magazine Diamond World but against that, the assessee has received the amount in the form of subscriptions and for the amount of subscription, the deduction under section 80HHC has been allowed by the Assessing Officer and has not been disturbed by the Commissioner of Income-tax and the Tribunal. The amount received against that advertisement in that magazine by no stretch of imagination can be treated as amount received against the “export of goods”.

27. Mr. Ranka further argued that when two views are possible and if some view has been taken by the Assessing Officer, the Commissioner of Income-tax has no jurisdiction to initiate the proceedings under section 263 of the Act, 1961.

28. We agree with Mr. Ranka that if two views are possible and if any possible view has been taken by the Assessing Officer, that should not be disturbed under section 263 of the Act, 1961. In our considered view the Assessing Officer has gone absolutely wrong in allowing the benefit of section 80HHC on the amount received against the advertisement from abroad. The wrong view which has been taken by the Assessing Officer cannot be allowed to be perpetuated. Therefore, we find no force in the submissions of Mr. Ranka.

29. When two views are not possible and the Assessing Officer has gone absolutely wrong, the Commissioner of Income-tax as well as the Tribunal have rightly directed the Assessing Officer to withdraw the benefit of section 80HHC on the amount received against advertisements from abroad, no case is also made out for any direction to the Tribunal for referring the questions proposed involving the same issue. The application under section 256(2) of the Act is rejected. We also answer the question referred by the Tribunal in the affirmative, i.e, in favour of the Revenue and against the assessee.

30. In the result, both the reference application and reference petition stand disposed of accordingly.