COMMISSIONER OF INCOME TAX vs. LOK PRAKASHAN LIMITED

TAXAP/1049/2006HC GujaratGJHC24053268200625 April 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA16 pages
AI SummaryPartly Allowed

What were the facts?

The appeals by the Commissioner of Income Tax (Revenue) challenge the common judgment of the Income Tax Appellate Tribunal (Tribunal) concerning assessment year 1989-90 for the respondent-assessee, Lok Prakashan Ltd. The primary dispute revolves around the allocation of advertisement expenses for calculating deduction under Section 80-I. The assessee, a publication house, has multiple printing units, including an eligible Nilgiri unit and a non-eligible Khanpur unit in Ahmedabad. The Assessing Officer (AO) disallowed certain expenditure for late contributions to Provident Fund and ESIC. The CIT(A) and Tribunal deleted this disallowance. The AO also re-allocated advertisement income, deviating from the assessee's claim of 89.97% for the Ahmedabad edition, and then allocated it between the Nilgiri and Khanpur units based on the proportion of copies printed. The CIT(A) devised a weighted average formula for allocation, which was then considered by the Tribunal.

What did the High Court hold?

The High Court decided the second issue summarily, remanding it to the Assessing Officer to ascertain whether the late contributions to Provident Fund and ESIC pertained to the employer's or employees' contribution. Disallowance would only apply to employees' contributions made after the due date, unless paid within a grace period as discussed in Commissioner of Income Tax v. Amoli Organics (P) Ltd. (41 Taxmann.com 149). For the primary issue concerning Section 80-I deduction, the Court found the weighted average formula devised by the CIT(A) and approved by the Tribunal to be lacking scientific basis and based on unverified facts. The Court noted that the assessee had not maintained separate accounts for its two Ahmedabad units. Therefore, the Court restored the formula adopted by the Assessing Officer, which allocated advertisement income between the Nilgiri and Khanpur units in the proportion of their internal publication and circulation of the Ahmedabad edition. The Court held that this was the most fair and equitable means of dividing the income. The question was answered in favour of the Revenue, with the AO directed to recompute the income from eligible and non-eligible units.

What were the issues?

1. Whether the Tribunal was right in law and on facts in holding that the respondent was entitled to deduction on Weighted Average while allocating the advertisement expenses for the purpose of calculation of deduction u/s. 80-I of the Income Tax Act, 1961? (Question of law and fact, concerning Section 80-I). 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that even though the contributions towards Provident Fund are made beyond the due date specified in section 36(1)(va) of the Act, no disallowance u/s. 43B of the Act can be made if the same is made before due date of filing of return? (Question of law, concerning Sections 36(1)(va) and 43B). Assessee's contentions: Regarding issue 1, the assessee argued that the Ahmedabad edition represented 66.9% of total copies sold and 67.8% of total sales, and received 89.97% of advertisement income. It also argued that between the Khanpur and Nilgiri units, the proportion of copies printed and sold for the Ahmedabad edition was 60.35% and 39.65% respectively. The CIT(A) devised a weighted average formula for allocation. Revenue's contentions: Regarding issue 1, the Revenue contended that the CIT(A)'s formula lacked scientific basis and was based on unverified facts, specifically the assertion that 81% of publication in Ahmedabad city was printed at Nilgiri. The Revenue relied on the AO's allocation based on the inter se proportion of copies printed and sold by the two units. Regarding issue 2, the Revenue relied on the judgment in Commissioner of Income Tax vs. Gujarat State Road Transport Corporation (366 ITR 170) for disallowance of employees' contribution to PF/ESIC if paid after the due date under Section 36(1)(va).

Which sections of the Income-tax Act were involved?

Section 80-I,Section 36(1)(va),Section 43B

AI-generated summary — verify with the full judgment below

C/TAXAP/950/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 950 of 2006 With R/TAX APPEAL NO. 1049 of 2006 With R/TAX APPEAL NO. 951 of 2006 With R/TAX APPEAL NO. 952 of 2006 With R/TAX APPEAL NO. 953 of 2006 With R/TAX APPEAL NO. 954 of 2006 With R/TAX APPEAL NO. 955 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== COMMISSIONER OF INCOME TAX Versus LOK PRAKASHAN LTD. ========================================================== Appearance: MR M R BHATT WITH MRS MAUNA M BHATT(174) for the PETITIONER MR S N SOPARKAR WITH MR B S SOPARKA

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