2004 (8) TMI 62 - HC - Income Tax

1. Whether, the salary allowed to Yadav Kishan Goel was addable under section 40(b)? 2. Whether, Tribunal was right in holding that the assessee is not entitled for the claim under section 80HH? 3. Whether Tribunal was right in holding that the claim under section 80J was rightly disallowed to the assessee? 4. Whether, Tribunal was right in holding that the assessee-firm, while running the cold storage plant, was neither manufacturing nor producing any article? - We answer all the four questions in the affirmative, i.e., in favour of the Revenue and against the assessee.

Summary

Issues Involved:
1. Whether the salary allowed to a partner was addable under section 40(b) of the Income-tax Act, 1961.
2. Whether the assessee is entitled to the claim under section 80HH of the Income-tax Act, 1961.
3. Whether the claim under section 80J was rightly disallowed to the assessee.
4. Whether the assessee-firm, while running the cold storage plant, was neither manufacturing nor producing any article.

Detailed Analysis:

Issue 1: Salary Allowed to Partner under Section 40(b)
The applicant paid a salary of Rs. 12,000 to its partner, who was representing his Hindu undivided family (HUF) as a karta. The Income-tax Officer disallowed this salary under section 40(b) of the Act, which was upheld by the Commissioner of Income-tax (Appeals) and the Tribunal. The applicant argued that the salary was paid in his individual capacity, not as a representative of HUF, citing various judgments including *Dhirendra Mohan Gupta v. CIT* and *Brij Mohan Das Laxman Das v. CIT*. However, the court referred to the Supreme Court's decision in *Rashik Lal and Co. v. CIT* which held that a partner, even if representing HUF, is recognized individually and section 40(b) would apply. The court concluded that the salary paid to the partner was not deductible under section 40(b).

Issue 2: Claim under Section 80HH
The applicant claimed benefits under section 80HH, asserting it was an industrial undertaking in a backward area. The Income-tax Officer rejected the claim, stating that the applicant was not engaged in manufacturing articles. The Tribunal upheld this decision. The court referred to the Supreme Court's decision in *Delhi Cold Storage Pvt. Ltd. v. CIT*, which held that running a cold storage does not constitute an industrial undertaking. Consequently, the court ruled that the applicant was not entitled to the deduction under section 80HH.

Issue 3: Claim under Section 80J
For the assessment years 1977-78 and 1978-79, the applicant claimed benefits under section 80J for constructing two new cold storage chambers. The Tribunal found that the applicant did not employ the required number of workers in these chambers, thereby not fulfilling the conditions of section 80J(4). The court agreed with the Tribunal's findings and also cited *CIT v. Mahalaxmi Ice and Cold Storage*, which held that a cold storage is not entitled to deduction under section 80J. Therefore, the claim under section 80J was rightly disallowed.

Issue 4: Manufacturing or Producing Articles
The court examined whether the cold storage plant was involved in manufacturing or producing articles. Referring again to *Delhi Cold Storage Pvt. Ltd. v. CIT*, the court reiterated that running a cold storage does not involve manufacturing or producing articles. Therefore, the assessee-firm could not be considered as engaged in manufacturing or production for the purposes of tax benefits.

Conclusion:
The court answered all four questions in the affirmative, ruling in favor of the Revenue and against the assessee. The salary paid to the partner was not deductible under section 40(b), the applicant was not entitled to the benefits under sections 80HH and 80J, and the cold storage plant did not qualify as manufacturing or producing articles. Each party was ordered to bear their own costs.