Bombay H.C : Whether, on the facts and in the circumstances of the case, the activity of the assessee of producing cinematograph films is an ‘industrial undertaking’ for the purpose of deduction under s. 80J of the IT Act, 1961, for the asst. yrs. 1972-73, 1973-74 and 1974-75 ?

Counsel Appeared

V. Balasubramanian with G.S. Jetly & K.C. Sidhwa, for the Applicant : S.N. Inamdar with V.H. Patil, for the Respondent

D.R. DHANUKA, J.:

The Tribunal has referred the following question to this Court for its decision under s. 256(1) of the IT Act, 1961, at the instance of the CIT, Bombay. This question reads as under:

“Whether, on the facts and in the circumstances of the case, the activity of the assessee of producing cinematograph films is an ‘industrial undertaking’ for the purpose of deduction under s. 80J of the IT Act, 1961, for the asst. yrs. 1972-73, 1973-74 and 1974-75 ?”

During the previous year pertaining to the asst. yr. 1972-73, the assessee started production of motion pictures in the Marathi language. The assessee claimed the benefit of deduction under s. 80J of the IT Act, 1961, on the ground that the said business was an “industrial undertaking” within the meaning of the said expression used in s. 80J. The ITO refused to grant the said benefit to the assessee, as the ITO was not satisfied that the film industry was within the purview of the said section. Being aggrieved by the said order, the assessee filed an appeal before the AAC. During the course of the hearing of the said appeal, the assessee relied, inter alia, on Circular No. 24, dt. 23rd July, 1969, issued by the CBDT. By the said Board’s circular, it was notified by the Board that the production of cinematograph films amounted to manufacture or processing of goods within the meaning of s. 104(4)(a) of the IT Act, 1961. It was also stated in the said circular that, in the opinion of the Board, a cinematograph film suitable for exhibition was entirely different from the raw unexposed film which was loaded into the camera in a studio. Relying upon the said circular and the judgment of the Gujarat High Court in CIT vs. Ajay Printery Pvt. Ltd. (1965) 58 ITR 811 (Guj), the AAC accepted the claim made by the assessee. The AAC held that the activity of the assessee by way of production of motion pictures was liable to be treated as an “industrial undertaking” within the meaning of s. 80J of the IT Act, 1961, and the assessee was entitled to the necessary relief under the said section for the accounting period relevant to the asst. yr. 1972-73 and all subsequent years, subject to the assessee satisfying the other conditions also. Being aggrieved by the said order, the Department filed a second appeal before the Tribunal. The Tribunal examined the matter in further depth. The expression “industrial undertaking” has not been defined in the IT Act, 1961. The Tribunal applied the normal commercial meaning of the words “industrial undertaking” in support of its view that the aforesaid activity amounted to “industrial undertaking” and also referred to the definition of the word “industrial” from the Concise Oxford Dictionary and the Chambers Twentieth Century Dictionary. The Tribunal relied upon various judgments of the Hon’ble Supreme Court delivered under the Central Excises & Salt Act, 1944, and particularly the judgments in Union of India vs. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791, and in South Bihar Sugar Mills Ltd. vs. Union of India AIR 1968 SC 922, and held that “manufacture”, in its ordinary connotation, meant production of articles which was commercially different from the basic component by which the item was manufactured. We are in complete agreement with the view taken by the Tribunal. We do not think it necessary to refer to various judgments or discuss the matter in any greater detail.

Dr. Balasubramanian, learned counsel for the Revenue, has fairly admitted that the above referred circular is still operative and is being given effect to for the purpose of applying s. 104(4) (a) of the IT Act,1961. Sec. 104(4)(a) reads as under: “104(4) Without prejudice to the provisions of s. 108, nothing contained in this section shall apply to— (a) an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power ;”

If the production of a cinematograph film amounts to “manufacture of an article or goods” within the meaning of s. 104(4)(a) as it then stood, it follows that the said activity must be treated as an “industrial undertaking” within the purview of s. 80J of the IT Act, 1961. Apart from the circular, we are satisfied that, even on a common sense view, “film production” will have to be considered as a manufacturing activity and the undertaking will have to be considered as an industrial undertaking. It is so considered under excise law and other allied laws also. Whether the assessee satisfies all other conditions of the said section or not will have to be examined by the authorities below to whom the directions have already been issued by the Tribunal.

4. Accordingly, we answer the question referred to us in the affirmative and in favour of the assessee. There shall be no order as to costs.

[Citation: 192 ITR 128]