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2019 (10) TMI 1192 - AT - Income TaxDeduction u/s.80JJAA - Deduction in respect of employment of new workmen - whether manufacture of computer software tantamount to manufacture of an article or thing ? - whether persons working in software industry can be said to be Workmen for the purpose of Sec.80JJAA? - according to the Assessee it had paid additional wages to new regular workmen employed by the Assessee in the relevant previous year and that it satisfies all the other conditions laid down in the provisions of Sec.80JJA - According to the AO in normal parlance manufacture of computer software is not akin to manufacture of an article or thing and that is the reason why a specific provision has been made in Sec.10B, Sec.10(15) and 72A of the Act - HELD THAT - Assessee has to be regarded as an Industrial Undertaking engaged in manufacture of article or thing, even going by the reasoning given by the AO. We are also of the view that the term Industrial Undertaking having been defined in the Act, though for a different statutory provision, can be a guiding factor to the intention of the legislature to apply that definition to statutory provision in which the said term has not been defined. In the absence of any contrary intention emanating from attending circumstances or for any other reasons, adopting the definition given in the Act, would be more appropriate. Whether the employees employed in software industry can be said to be Workmen , the Bangalore Bench of ITAT has already settled this issue in the case of Texas Instruments (India) Pvt.Ltd. 2006 (12) TMI 405 - ITAT BANGALORE held that Software Industry has also been notified as Industry for the purpose of Industrial Disputes Act, 1947 by the State of Karnataka and that the employees employed in software development industry render technical services and not services in the nature of supervisory or management character Whether there is any distinction between salary and wages and whether monies paid to a person working in software industry cannot be termed as Wages ? - There is no distinction sought to be made in the provisions of Sec.80JJAA of the Act and the reason assigned by the AO for considering remuneration received by a person employed in software industry as Salary and not Wages , is without any basis. In our view such distinction sought to be made by the revenue authorities for denying the claim of the Assessee for deduction u/s.80JJAA of the Act is unsustainable. Assessee should be allowed deduction u/s.80JJAA of the Act, subject to quantification of the sum to be allowed as deduction by the AO after due opportunity to the Assessee.- Decided in favour of assessee.
Issues Involved:
1. Whether the assessee qualifies as an industrial undertaking. 2. Whether the development of computer software constitutes the manufacture or production of an article or thing under section 80JJAA. 3. Whether the employees of the company qualify as workmen under section 80JJAA of the IT Act. 4. Whether payments made by the assessee to employees are in the nature of salary or wages. Detailed Analysis: 1. Qualification as an Industrial Undertaking: The primary issue examined was whether the assessee qualifies as an industrial undertaking under Section 80JJAA of the Income Tax Act, 1961. The Assessing Officer (AO) noted that the term "industrial undertaking" is not defined for the purpose of Sec.80JJAA. However, it is defined for Sec.10(15) and Sec.72A of the Act as an industrial undertaking engaged in the manufacture of computer software. The AO referred to the definition under The Industries (Development & Regulation) Act, 1951, and the Factories Act, 1948, concluding that the manufacture of computer software does not qualify as a manufacturing process. The Tribunal, however, relied on the Hon’ble Bombay High Court’s decision in ESI Vs. Reliable Software Systems Pvt. Ltd., which held that computer software development falls within the definition of manufacturing process under the Factories Act, 1948. Thus, the Tribunal concluded that the assessee qualifies as an industrial undertaking engaged in the manufacture of an article or thing. 2. Development of Computer Software as Manufacture or Production: The AO argued that the development of computer software is not akin to the manufacture of an article or thing, primarily because it is subject to Service Tax rather than Value Added Tax. The AO also referenced the amendment to Sec.80JJAA effective from 1.4.2014, which specifies that the provision applies to the manufacture of goods in a factory. The Tribunal, however, dismissed this reasoning, reiterating the Bombay High Court’s interpretation that software development is a manufacturing process. Therefore, the development of computer software does constitute the manufacture of an article or thing under Section 80JJAA. 3. Definition of Workmen: The AO contended that software professionals are highly skilled workers and do not fit the definition of "workmen" under Sec.2(s) of the Industrial Disputes Act, 1947. The Tribunal referred to the ITAT Bangalore Bench decision in the case of Texas Instruments (I) Pvt. Ltd., which held that employees in the software industry render technical services and are covered under the Industrial Disputes Act, 1947. The Tribunal concluded that employees in the software industry qualify as workmen for the purposes of Sec.80JJAA. 4. Nature of Payments to Employees: The AO argued that payments to software professionals are in the nature of salary, not wages, and referenced the amended provisions of Sec.80JJAA effective from 1.4.2016, which introduced a salary ceiling of ?25,000 per month. The Tribunal found no basis for distinguishing between salary and wages in the context of Sec.80JJAA and concluded that remuneration to software industry employees can be termed as wages. Thus, the payments made by the assessee to its employees qualify as wages under Sec.80JJAA. Conclusion: The Tribunal allowed the assessee's appeal, directing the AO to quantify the sum to be allowed as a deduction under Sec.80JJAA after providing due opportunity to the assessee. The Tribunal concluded that the assessee qualifies as an industrial undertaking engaged in the manufacture of an article or thing, its employees qualify as workmen, and the payments made to them qualify as wages. The appeal was pronounced in the open court on the 23rd of October, 2019.
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