High Court Of Kerala
Malayala Manorama Co. Ltd. vs. CIT
Section 80-I
Asst. Year 1990-91, 1991-92
V.P. Mohan Kumar & K.K. Denesan, JJ.
IT Appeal No. 11 of 1999
4th April, 2002
Counsel Appeared :
M. Pathrose Mathai & Ramesh John, for the Appellant : P.K.R. Menon & George K. George, for the Respondent
JUDGMENT
V.P. Mohan Kumar J. :
The assessee challenges the orders whereby its claim for allowance of deduction with respect to its share of income from advertisement as claimed by them is partly disallowed. The facts of the case are as under :
The appellant is a company engaged in the business of publishing newspapers, weeklies and other publications. The appellant has been publishing its newspapers, weeklies, etc., during the accounting years relevant to the asst. yrs. 1990-91 and 1991-92 from its industrial undertakings (hereinafter referred to as “units”) at Kottayam, Cochin, Kozhikode and Thiruvananthapuram. For the said assessment years, the appellant claimed benefit for its newly started industrial undertaking or unit at Thiruvananthapuram under s. 80-I(1) r/w the proviso thereto. In respect of new industrial undertaking company, deduction of an amount equal to 25 per cent, of its profits and gains shall be allowed in computing the total income of the assessee for a period of seven years from the year ofcommencement.
For the asst. yrs. 1990-91 and 1991-92, the appellant claimed deduction of Rs. 15,03,130 and Rs. 2,46,252, respectively, under s. 80-I(1) of the Act in respect of the appellant’s new unit at Thiruvananthapuram. The main source of income of the appellant-assessee is by way of advertisements and sale of newspapers. Sale of newspaper is separately accounted for each of the units publications but in respect of the advertisement the revenue is common since the revenue is derived from the publications of all the units. The aforementioned amounts claimed as deduction were computed by taking the income from the sale of newspapers of the Trivandrum unit accounted in the said unit and also by taking 19 per cent. of the total advertisement receipts of all the units as attributable to the Trivandrum unit for the asst. yr. 1990-91 and 21 per cent. for the asst. yr. 1991-92. From the said income direct expenses of the Trivandrum unit and 15 per cent. of the common expenses incurred for all the units as attributable to the Trivandrum unit was deducted and the profit of the Trivandrum unit was arrived at Rs. 60,12,518. 25 per cent. of the said amount, i.e., Rs. 15,03,130, is the amount claimed under s. 80-I. For the asst. yr. 1991-92, similar profit arrived at was Rs. 9,85,009 and 25 per cent. of the said amount, namely, Rs. 2,46,252, was claimed as deduction under s. 80-I. The assessing authority, however, reduced the amount to be allowed as deduction and allowed only Rs. 1,39,617 against the deduction of Rs. 15,03,130 made by the appellant. For the asst. yr. 1991-92, the assessing authority disallowed the entire claim of Rs. 2,46,252 on the ground that there was a loss of Rs. 49,78,946 for the above year.
The income by way of advertisement of the Trivandrum unit was apportioned at 19 per cent for the asst. yr. 1990-91 and at 21 per cent for the asst. yr. 1991-92. The circulation of publications as certified by the Audit Bureau of Circulation attributable to the Trivandrum unit for the asst. yr. 1990-91 out of the total circulation of publication of all the four units is 15 per cent and for the asst. yr. 1991-92 it was 17 per cent The said circulation certified by the Audit Bureau of Circulation is based on the actual sale of the number of copies. But for apportioning the common advertisement income 19 per cent was adopted for the asst. yr. 1990-91 by adding 25 per cent to the circulation percentage of 15 per cent for the asst. yr. 1990-91. For the asst. yr. 1991-92, 21 per cent was adopted by adding 25 per cent to the circulation percentage of 17 per cent The assessee claimed that this apportioning was made in respect of the advertisement in view of the wider readership of the newspaper having its circulation in the area of Trivandrum Corporation and the Trivandrum unit thus has the better advantage in readership than mofussil areas. The average readership per newspaper in the Corporation area is much larger than per newspaper in mofussil area. Thus it is claimed by the assessee that the advertisements in the newspaper published from Trivandrum unit has a wider range and impact of publication by reason of the wider readership and thus had an added and better advantage of being read by more readers in the Corporation area of Trivandrum.
The assessing authority during the course of assessment called for the basis of 19 per cent adopted for the asst. yr. 1990-91. This was furnished to the assessing authority by letter No. 631 of 1993, dt. 4th Feb., 1993. Though the assessing authority entered a finding that undoubtedly the Trivandrum edition is having wider readership and thereby anything advertised gets wider publicity, yet he held that the said advantage is directly derived by the advertiser only. According to the assessing authority, although it is true that certain “wanted” category of advertisements in the appellant’s daily reaches every nook and corner of the globe because, as rightly claimed Keralites are spread over throughout the world but the benefit is derived by the advertiser only and not by the assessee. The assessee contended that it was totally impermissible for the assessing authority to interfere with the method of computation adopted according to and consistent with the principles of commercial accounting and followed by the assessee all along.
Aggrieved by the said orders of assessment, the appellant preferred appeals before the CIT(A). The CIT(A) after considering all relevant materials and facts held that the assessing authority himself after having accepted the fact that the readership in Trivandrum area is very wide, the only ground on which he interfered in the computation is that the benefit of such advertisement is derived by the advertisers only and not the appellant-assessee. The CIT(A) further held that on the precise ground the appellant’s contention has to be allowed because it is the newspaper that actually derives the benefit. The CIT(A) hence found that there was nothing wrong in the appellant’s claim for computation of the advertisement revenue at the particular percentage. The appeal against the order of assessment for the asst. yr. 1991-92 was also allowed by the CIT(A).
Against the orders of the CIT(A), the Department preferred appeals before the Tribunal, Cochin Bench. During the course of hearing of the appeals, the Tribunal directed the appellants to furnish the method of working in adopting 19 per cent as profits and gains for the asst. yr. 1990-91 and 21 per cent as profits for the asst. yr. 1991-92 and the appellant furnished the same. The same was supplied. It appears the Department at the time of hearing of the appeals filed a paper cutting showing different advertisement rates of different units. After adverting to these documents, the Tribunal by its order dt. 16th Oct., 1998, allowed the appeals of the Department accepting the reasoning of the assessing authority. Aggrieved the appeal.
8. The question raised depends on the wording of s. 80-I of the IT Act, 1961, (hereinafter referred to as “the Act”). For convenience we will extract the section hereinbelow (after omitting that part of the statute not relevant).
“80-I—(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to oceangoing vessels or other powered craft, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof : Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel, as if for the words ‘twenty per cent’, the words ‘twenty-five per cent’ had been substituted.”
As noticed earlier, the assessment years relate to 1990-91 and 1991-92. Trivandrum is one among the four units of the assessee newspaper. The income of the newspaper includes the revenue from advertisement as well. The assessee claimed a share in the income from advertisement as attributable to its unit at Trivandrum and therefore claimed the deduction under section 80-I of the Act. Admittedly, the Trivandrum unit of the assessee is a new unit that is entitled to claim the deduction of 25 per cent from out of the profit generated by it which is accountable to the unit. One such item of profit is the revenue generated out of advertisement. The view taken by the Department is that as the benefit of the advertisement is gained solely by the advertiser and not by the paper in any manner and hence the deduction of 25 per cent cannot be allowed to the unit.
We have heard the rival contentions of Mr. Pathrose Mathai, who appeared for the assessee, and Sri George K. George, who appeared for the Revenue.
We are of the view that the view taken by the AO and the Tribunal cannot be sustained. The advertiser primarily chooses the media in the light of the circulation it has. Reaching out to more readers is a material factor for an advertiser to choose any particular medium to advertise or propagate his commodity. A person chooses Hyde Park to speak out because the park exists and it attracts many people. Had it been a forlorn place with no attractions to visitors at all the soap-box orator would have chosen elsewhere to exhibit his histrionics. Therefore, the upkeep of the Hyde Park is a material circumstance that increases the attraction of the speaker to that place. Hence, the speaker chooses that place because it is well kept and attractive to the public. As such, the benefit rendered is mutual. The speaker cannot claim that the reputation of Hyde Park is because he has chosen that place to speak. Likewise, if the paper expends large sums of money to increase its circulation it would necessarily increase its circulation. As an offshoot by such increased circulation a keen advertiser would choose that particular medium to reach out its message to its consumers. As a corollary, the increased advertisement necessarily increases the revenue of the newspaper because the increased circulation is the sole factor for an advertiser to have chosen that particular media. If the paper does not circulate and circulation is confined to a peripheral region, the message an advertiser wanted to disseminate will not circulate and reach his consumer. As such, like in Hyde Park’s case, the benefit reaped is mutual. Therefore, the paper has to keep an eye on keeping the circulation on the higher ebb.
In order that the paper gains higher circulation it has to employ better editorial staff, better layout artists, wider coverage of news and utilise other wherewithal to make it more readable. In case a particular newspaper is published from the metropolis alone, it will not have circulation elsewhere other than that particular metropolis. If that newspaper diversifies and the news coverage is of the places in and around that city, then necessarily it reaches those readers outside as well. If for instance that newspaper gives news of, besides the above centre the regional news covering neighbourhood States as well, the readership necessarily increases as the readers in the mofussil get a wider view of the news. The newspaper has to carry the information from NEWS, (i.e., North, East, West and South) to gain popularity. It would mean a mammoth infrastructure would be needed for the newspaper to increase its circulation. Had not the assessee established a new unit at Trivandrum, the readers that it would have covered would be proportionately less as it could not have given more coverage for the places in and around that city. As such, it did give a step up in the circulation of the paper as well. It means larger revenue would have been needed to keep the newspaper going catering to the needs of the reading public. Expending that revenue as stated, increased circulation and that alone made an advertiser to choose that newspaper for advertising because of wider circulation it enjoyed. It consequently yielded increased revenue and part of the credit for the increased revenue is for that unit of the newspaper and not for the advertiser.
12. The assessee started an independent unit at Trivandrum. The circulation as indicated increased only because of its efforts and the better news coverage it carried with respect to news in and around Trivandrum. That provided the motive for the advertiser to choose the assessee to advertise his message resulting thereby in increased revenue to the assessee. A share of the advertisement revenue was hence earned because of the contribution of the Trivandrum unit as well. As such one can hardly say that the lone beneficiary by virtue of the increased circulation is the advertiser alone. As stated earlier, it is reciprocal and both reaped the benefit.
In view of the matter, we set aside the order of the Tribunal and restore the order of the first appellate authority. The questions raised are answered in favour of the assessee and against the Revenue.
[Citation : 257 ITR 633]
