1986-VIL-76-ITAT-DEL

Equivalent Citation: ITD 019, 474, TTJ 027, 529,

Income Tax Appellate Tribunal DELHI

Date: 25.08.1986

MAHENDER KUMAR AGARWAL.

Vs

INCOME TAX OFFICER.

BENCH

Member(s)  : ANAND PRAKASH., M. C. AGARWAL.

JUDGMENT

Per Shri Anand Prakash, Accountant Member---The short controversy in these appeals is whether the assessee is entitled to the relief under section 80-I of the Income-tax Act, 1961 ('the Act'), in respect of the assessment years 1982-83 and 1983-84. The facts are in a very narrow compass and may be noted.

2. The assessee is an individual. He purchases yarn from the market and gives the same to the weavers to weave cloth as per his design. The cloth is then dyed and calendered. The assessee gets this work done on job basis from others. He has neither a factory nor any machinery of his own. The assessee's claim for deduction under section 80-I was rejected by the ITO by observing, inter alia, as follows :

"The assessee has claimed a deduction under section 80-I of the Income-tax Act, 1961 amounting to Rs. 12,356. The assessee has got no factory building nor has installed any plant or machinery whatsoever. He purchases yarn from the market and gets it weaved in factories on job work basis. He does not employ any labour or uses any power for carrying out production. He is neither a manufacturer nor makes any process."

The assessee carried the matter in appeal to the AAC who confirmed the order of the ITO by making, inter alia, the following observations :

"Hence, from the working of this section, it is very clear that appellant firm does not employ any workers for manufacturing of the cloth which the appellant's firm itself is admitting that he has got job work done from the weavers as well as dyed from different dyers on job work basis. In case, if as per wording of the section, which states undertaking employs 10 or more workers in a manufacturing process carried on with the aid of power or employs 20 or more workers in a manufacturing process carried out without the aid of power, even he will have to comply with the rules of Factory Act for various benefits which generally workers are entitled or even for the purpose of State Employees Insurance, etc. Since the present firm is not employing any workers for the manufacturing of the cloth under section 80-I, is not justified at all. Hence, going through the detailed facts of the case, I hold that the appellant's claim is not under the purview of section 80-I. In this way, the ITO has rightly disallowed the claim of the appellant under section 80-I, in both the cases."

3. The assessee is in appeal against the aforesaid concurrent findings of the authorities below and it is the contention of the assessee that he constitutes an industrial undertaking insofar as he has undertaken the work of getting the cloth manufactured and such manufactured cloth is sold by him. In support of the above plea, he relies on the following decisions---Orient Longman Ltd. v. CIT [1981] 130 ITR 477 (Delhi) and CWT v. Radhey Mohan Narain [1982] 135 ITR 372 (All.). It is urged that in the case of Radhey Mohan Narain, the facts were identical to those in the present case. There the firm was engaged in purchasing plain white cloth and was getting it converted into printed bed spreads, scarves and garments, etc., from others on job basis. On these facts the claim was made by the assessee that the firm was running an industrial undertaking in terms of clause (xxxii) of sub-section (1) of section 5 of the Wealth-tax Act, 1957, and the above plea was sustained by the Hon'ble Allahabad High Court. In the case of Orient Longman Ltd. also the assessee was getting books manufactured by getting the manuscript, designing, finishing, etc., done by others on job basis and yet it was held by their Lordships of the Hon'ble Delhi High Court that the entire work undertaken by the assessee-company was of an industrial nature and that the assessee-company was an industrial company entitled to concessional rate of tax in terms of section 2(6)(c) of the Finance Act, 1970. On the analogy of the aforesaid two cases, it was urged by the assessee in the present case that the assessee was also industrial undertaking inasmuch as from the stage of yarn till the stage of finished product in the form of dyed and calendered cloth, the cloth was being got manufactured by the assessee and so the assessee was a manufacturer ever though he was getting that work done by others and not in his own manufactory through the labour force employed by himself with the help of his own machinery. In view of this, according to the assessee, the relief under section 80-I ought to be given to the assessee as he owned an industrial undertaking which manufactured (sic) cloth to the assessee. Turning to the requirement contained in clause (iv) of sub-section (2) of section 80-I regarding the employment of 10 or more workers in a manufacturing process if the assessee was using power, the assessee pleaded that even this condition was met in his case because the assessee was getting the manufacturing done by more than 10 persons and so it had to be said that he was employing 10 persons in the manufacturing process, which was being done with the aid of power. In support of the above plea, the assessee relied upon the decision of the Tribunal Delhi Bench 'D' in ABC (P.) Ltd. v. ITO [1980] 3 Taxman 191, a copy of which has been placed on record. It has been held in that case in the context of section 80J that "for the purposes of section 80J(4), the word 'employs' does not indicate that there should be a relationship of master and servant. The assessee way employ workers in its own factory or may resort to job work which goes to indicate that the assessee employs the necessary number of workers in the manufacturing activities..." Reference is also made to the Special Bench decision in the Tribunal in the case of Kapri International (P.) Ltd. v. ITO [1985] 4 SOT 458 (Delhi) wherein according to the assessee, similar views as expressed by the Delhi Bench 'D' above have been expressed. On the basis of the aforesaid submissions, it is pleaded by the assessee's learned counsel that we should reverse the order of the learned AAC and hold that the assessee was entitled to relief under section 80-I.

4. On behalf of the revenue, the aforesaid submissions were stoutly opposed and it was pleaded that reading the various clauses of section 80-I together, it could not be said that the employment of 10 or more persons by the assessee himself in his own factory using his own machines, etc., was not the prerequisite of the relief under section 80-I. In this connection, the learned departmental representative drew our attention in particular to the provisions of sub-clauses (ii) and (iv) of sub-section (2) of section 80-I and the provisions of the second proviso thereto read with Explanation 3 to sub-section (2). It is the contention of the learned departmental representative that whatever might have been the position under section 80J of the Act, the provisions of section 80-I applied only if the industrial undertaking in question undertook the manufacturing with the help of its own machines in its own factory and if it employed 10 or more persons in the manufacturing process if the machinery was being run with the aid of power. Referring to the case relied upon by the assessee, namely, Orient Longman Ltd.'s case and Radhey Mohan Narain's case, the learned departmental representative pointed out that the said two decisions could not throw any light on the scope and sweep of section 80-I for their Lordships in those cases were not required to examine any provision, similar to that contained in clauses (ii) and (iv) of sub-section (2) of section 80-I, read with the second proviso and Explanation 3 thereto Radhey Mohan Narain's case concerned itself with the definition of 'industrial undertaking' as given in Explanation to clause (xxxi) of sub-section (1) of section 5 of the Wealth-tax Act whereas Orient Longman Ltd.'s case concerned itself with the definition of 'industrial company' as given in section 2(6)(c) of the Finance Act, 1970. In none of the aforesaid provisions, there was any clause similar to clauses (ii) and (iv) of sub-section (2) of section 80-I, read with second proviso and Explanation 3 thereto.

5. We have given careful consideration to the facts of the case and the rival submissions. Admittedly, the assessee has no manufactory wherein he might be carrying on any manufacturing process with the aid of power and wherein he might be engaging 10 or more workers. The crucial question, therefore, is whether the above facts would disentitle the assessee from the relief under section 80-I.

6. For resolving this controversy, let us look at the relevant provisions as they apply to the facts of the present case. Sub-section (2) of section 80-I so far as it is relevant for our purpose, reads as below :

"80-I.

(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :---

(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;

(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of nine years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;

(iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power :

Provided further that the condition in clause (iii) shall, in relation to a small scale industrial undertaking, apply as if the words 'not being any article or thing specified in the list in the Eleventh Schedule' had been omitted.

Explanation 3 : For the purposes of this sub-section, 'small scale industrial undertaking' shall have the same meaning as in clause (b) of the Explanation below sub-section (8) of section 80HHA."

Clause (ii) refers to the transfer of machinery or plant. Clause (iii) refers to the manufacturing or producing an article or thing and clause (iv) stipulates that the undertaking should employ 10 or more workers in a manufacturing process carried on with the aid of power. Second proviso clarifies that in relation to a small-scale industrial undertaking, the requirement of clause (iii) of sub-section (2) of not manufacturing any article or thing specified in the list in the Eleventh Schedule would not apply. Small-scale industrial undertaking has been defined by Explanation 3 in the same sense in which the said term has been defined in clause (b) of the Explanation below sub-section (8) of section 80HHA of the Act. The said clause (b) reads, inter alia, as below :

"Explanation : For the purposes of this section :---

(a)

(b) an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant... installed, as on the last day of the previous year, for the purposes of the business of undertaking does not exceed,---

(1)

(2) in a case where previous year ends after the 31st day of July, 1980 but before the 18th day of March, 1985, twenty lakh rupees; and

(3)

and for this purpose, the value of any machinery or plant shall be,---

(i) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and

(ii) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant." It is, thus, clear that in order to be a small-scale industrial undertaking, a person has to own plant and machinery or has to hire plant and machinery, the value of which should be Rs. 20 lakhs or less. If this be the position, then the person would be said to be having a small-scale industrial undertaking and in the case of such a person it is not necessary that manufacturing or production of an article or thing mentioned in Eleventh Schedule cannot be undertaken. Such a person can manufacture anything including the articles mentioned in Eleventh Schedule and get the benefit of section 80-I. It is only those industrial undertakings which are not small-scale industrial undertakings in whose case, there is a bar regarding the manufacturing of goods mentioned in Eleventh Schedule.

7. The overall context of section 80-I, therefore, is clearly suggestive of the fact that the person who wants to claim relief under section 80-I, should be having an industrial undertaking which has its own manufactory wherein there are machines installed either owned by the assessee himself or taken on hire by him and manufacturing process should be undertaken in the premises of the assessee's own industrial undertaking and in the process of such manufacturing, there should be employment of 10 or more persons if the factory is being run with the aid of power. If a person does not own factory it is obvious he would not be in a position to claim relief under section 80-I. We are reinforced in this interpretation on account of the clarifications given in the second proviso to sub-section (2) of section 80-I, read with Explanation 3 thereof. It would be difficult to accept the interpretation that section 80-I would apply more stringently in the case of small industrial undertakings who are required to have their own machines having the value not exceeding Rs. 20 lakhs than to non-small scale industrial undertakings in whose case, according to the assessee's interpretation, there would be no need for having their own or hired plant and machinery and factory. If a small-scale industrial undertaking has to have plant and machinery either its own or on hire and the industrial manufactory, the non-small scale industrial undertaking will also need one.

8. It is interesting to note that the provisions similar to those contained in the first proviso to sub-section (2) of section 80-I and Explanation 3 to the said sub-section were not obtaining in section 80J. The provisions of section 80-I are, therefore, to this extent different from the provisions of section 80J and whatever might have been the doubts in the context of section 80J with regard to the employment of 10 or more workers in the manufacturing process in the assessee's own manufactory where manufacturing should be done with the assistance of the assessee's own plant and machinery, it is not possible to entertain any such doubt in the context of section 80-I. Even in the context of section 80J, we find that the opinion of the learned author, A. Sampath Iyengar of the Law of Income-tax, 1983 end., with regard to condition No. (iv) of section 80J which is more or less akin to the condition No. (iv) of section 80-I(2), was to the following effect :

"Number of employees.---Where the industrial undertaking manufactures or produces articles, it should employ ten or more workers where the manufacturing process is carried on with the aid of power, and twenty or more workers, where it is carried on without the aid of power..." [Emphasis supplied]

The learned author Chaturvedi and Pithisaria mentioned the eligibility conditions for relief under section 80J at p. 1225 of their book Income-tax Law, Second edn. and that is how they mentioned, condition No. (iv) :

"(iv) manufactory, if it is one, employs---

(a) ten or more workers in manufacturing process carried on with the aid of power, or

(b) twenty or more workers in a manufacturing process carried on without the aid of power."

The existence of a manufactory would be necessary only in the case of manufacturing and production of an article, and not with regard to the cold storage, and that is why the parenthetical clause 'if it is one' has been used in the above commentary by the learned authors. Their Lordships of the Hon'ble Bombay High Court considered the rationale of the condition in clause (iv) of section 80J(4) in the case of CIT v. Sawyer's Asia Ltd. [1980] 122 ITR 259 wherein they expressed themselves as below :

"... The condition appears to us to be imposed to enable the assessees who establish new undertakings to get relief provided they satisfy certain requirements, and the specific requirement is aimed at making a small dent in the huge army of unemployed persons which exists in our country. The requirement then is that the assessee which as established a new industrial undertaking must employ 10 persons or more in the manufacturing process...." [Emphasis supplied] According to the above rationale, the employment of the workers must be by the assessee himself. If he gives the work to existing contractors, who are already having their independent business of doing such job works, the rationale of clause (iv) of section 80J(4) would not be fulfilled, for the employees employed by the said contractor will not be employed by the assessee. They have been employed by the contractors not because of the assessee but de hors him. Inasmuch as clause (iv) of sub-section (2) of section 80-I is on similar lines, the rationale of it would be the same and it cannot be said that the said rationale is fulfilled if we adopt the reasoning of the assessee's learned counsel.

9. It is possible to conceive that the employment of 10 persons or more may not be on wage basis in the assessee's manufactory and that the persons may be employed on contract basis to do specified jobs and to be paid accordingly. In such a case there may not be any employer-employee relationship between the assessee and the said workers. But such employment must be in the assessee's manufactory in the course of manufacturing process carried on with the assistance of the plant and machinery either owned by the assessee or hired by the assessee. If the above would not be the position, relief under section 80-I would not be available to the assessee, as the workers have not been employed by his undertaking; their employment by the contractor is unrelated to the assessee's industrial undertaking, in the course of contractor's own business.

10. The contention of the assessee that he is owning an industrial undertaking insofar as he manufactures cloth; may be correct, and we hold that it is correct, but the requirement of section 80-I is not merely that a person should be owning an industrial undertaking and getting manufacturing done, but it further stipulates that in the course of such manufacturing process it should employ 10 or more persons, if the manufacturing is done with the aid of power, and that there should be plant and machinery of the assessee either owned by him or hired by him with the help of which the manufacturing process is being done. The above was not the requirement either in section 2(6)(c) of the Finance Act, 1970 or of Explanation to clause (xxxi) of sub-section (1) of section 5 of the Wealth-tax Act. Those case laws will, therefore, not help the assessee. The Full Bench of the Tribunal has not expressed any opinion either way. They left the matter entirely open and, therefore, we derive no assistance from the same. So far as the decision of the Delhi Bench 'D' of the Tribunal is concerned, it has proceeded on the footing that the assessee did employ 10 or more persons in its manufacturing process for the purpose of section 80J. We are unable to record such a finding in the present case in the context of section 80-I. The employment of workers must be by the industrial undertaking of the assessee and not by anybody else. When a work is got done by the assessee in somebody else's factory, the labour employed by the said manufacturer in his factory is his labour. That cannot be said to be the labour employed by the assessee, whatever be the sense in which we may use the term 'employ'. Even if master-servant relationship is not necessary and even if payment of wages be not the essence of employment, there should be direct relationship in the assessee's industrial undertaking and the employment of the labourers. Their employment must be because of the industrial undertaking and not irrespective of it. In the present case, the assessee did not employ any worker in his manufacturing process. He gave the manufacturing work to an existing industrialist for undertaking a specific job which he carried out in his own manufactory. The said industrialist cannot be regarded as the worker, who has been employed by the assessee in the process of manufacturing which is being done by him with the aid of power.

11. For the reasons given above, we hold that the finding of the authorities below in the present case was correct and we, accordingly, confirm their order and dismiss the assessee's appeals. No other pleas were agitated before us.

 

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