2009 (12) TMI 18 - HC - Income Tax

Industrial undertaking - claim u/s 80HH and 80I has been denied by the three authorities below on the ground that the condition of clause (iv) of Section 80-I is not fulfilled inasmuch as the workers employed through contractor are not to be treated as the workers employed in the Industrial Undertaking held that - The real test for deciding whether the contract is one of employment is to find out whether the agreement is for the personal labour of the person engaged, and if that is so, the contract is one of employment whether the work is time-work or piece-work, or whether the employee did the whole of the work himself, or whether he obtained the assistance of other persons also for the work. The question whether or not a person is an employee is a question of fact. - On the own showing of the assessee, it has employed with it only five workers. The other workers were employed by the contractor. The workforce employed by the contractor will not be counted for the purposes of afore stated clause in view of the words it employs .

Summary

Issues:
- Denial of deduction under section 80-HH and 80-I of the Income Tax Act.
- Interpretation of Clause(iv) of Section 80-I regarding the employment of workers in an industrial undertaking.

Analysis:
The judgment pertains to two appeals arising from a common order passed by the Income Tax Appellate Tribunal concerning the assessment years 1987-88 and 1988-1989. The appellant, a company engaged in manufacturing scooter seats, claimed deductions under sections 80-HH and 80-I of the Income Tax Act. However, the claim was denied by the authorities on the grounds that the condition of clause (iv) of Section 80-I was not fulfilled as the workers employed through a contractor were not considered workers of the industrial undertaking. The main questions of law raised in the appeals were related to the denial of these deductions based on the interpretation of the said clause.

The contention revolved around whether the workers employed through a contractor could be considered as employees of the industrial undertaking for the purpose of claiming deductions under the mentioned sections. The appellant argued that the workers employed through contractors should be included to meet the required number of workers for qualification as an industrial undertaking. However, the court analyzed the wording of clause(iv) of Section 80-HH, emphasizing that the term "it employs" implies a direct relationship between the assessee and the workers for the purpose of fulfilling the conditions of the provision. The court held that the workers employed by the contractor cannot be counted towards the required number of workers as per the clause.

In its analysis, the court referred to various legal precedents to interpret the term "worker" and the concept of employment under the Income Tax Act. The court cited cases such as Commissioner of Income Tax versus K.G.Yediyurappa & Co., Aditya V.Birla versus Central Board of Direct Taxes, and Commissioner of Income Tax versus V.B.Narania and Co. to support its conclusion. The court highlighted that the absence of a direct employment relationship between the assessee and the workers employed through a contractor disqualifies the appellant from being considered an industrial undertaking eligible for the deductions under sections 80-HH and 80-I.

Ultimately, the court found that the order of the Tribunal denying the deductions was justified as the appellant did not meet the requirement of employing ten or more workers directly in the manufacturing process. The court dismissed the appeals, emphasizing that the decision was based on factual findings and no error of law or fact was committed by the Tribunal.