2011 (11) TMI 32 - HC - Income Tax

Deduction u/s 80IB - manufacture or producing an article or thing - whether workers supplied by the contractor are also to be treated as workers employed by the assessee - The fact that the employer employee relationship between the workers employed by the assessee differs cannot be a ground to deny deduction under Section 80IB of the Act, so long as the workers employed by the assessee in aggregate exceed ten in number. - since the actual number of workers employed in the manufacturing process exceeded ten in number, the Tribunal was justified in holding that the condition of Section 80IB(2)(iv) have been fulfilled. - Decision in in the case of Commissioner of Income Tax V/s. Sawyer s Asia Limited (1979 -TMI - 37005 - BOMBAY High Court) - Decided in favor of assessee.

Summary

Issues:
1. Eligibility for deduction under Section 80IB of the Income Tax Act, 1961 based on manufacturing activity.
2. Treatment of workers supplied by a contractor as workers employed by the assessee for the purposes of Section 80IB(2)(iv) of the Income Tax Act, 1961.

Analysis:
1. The case involved the eligibility of the assessee, engaged in manufacturing plastic parts, for deduction under Section 80IB of the Income Tax Act, 1961 for AY 1999-2000. Initially, the deduction was denied by the assessing officer due to goods being manufactured at job workers' premises and the total number of permanent employees being less than ten. However, the Commissioner of Income Tax (Appeals) and the Tribunal allowed the claim based on uncontroverted facts establishing manufacturing activity at the assessee's factory premises. The Tribunal's decision was upheld, emphasizing the assessee's ownership of plant and machinery, payment of excise duty, and other manufacturing-related expenses, confirming eligibility for the deduction.

2. The second issue revolved around whether workers supplied by a contractor could be treated as workers employed by the assessee for the purpose of Section 80IB(2)(iv) of the Act. The Tribunal held that the total number of workers employed by the assessee directly or through a contractor exceeded ten, fulfilling the condition. The interpretation of the term "worker" was crucial, and the absence of a specific definition led to a reasonable understanding that workers included those employed directly or through a contractor. Citing a Bombay High Court decision, it was clarified that the condition of employing ten or more workers in the manufacturing process was met, irrespective of the mode of employment. The Tribunal's decision was supported, distinguishing it from a previous Allahabad High Court ruling and emphasizing the aggregate number of workers employed in the manufacturing process.

3. The judgment concluded that the assessee had employed more than ten workers for manufacturing, satisfying the conditions of Section 80IB(2)(iv). The Tribunal's decision was upheld, and the questions regarding the treatment of specific roles as workers under the Act were left for future cases. The appeal was disposed of in favor of the assessee, with no costs awarded.