1993 (6) TMI 102 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee employed 20 or more workers to qualify for deduction under section 80-I of the Income-tax Act, 1961.
2. The interpretation of "employ" under section 80-I(2)(iv) of the Income-tax Act, 1961.
3. The relevance of employer-employee relationship in the context of section 80-I(2)(iv).
4. The applicability of definitions from the Factories Act, 1948, and the Employees Provident Fund & Misc. Provisions Act, 1952.

Issue-wise Detailed Analysis:

1. Employment of 20 or More Workers:
The primary issue was whether the assessee employed 20 or more workers in the manufacturing process without the aid of power, as required under section 80-I(2)(iv) of the Income-tax Act, 1961. The Commissioner of Income-tax (CIT) held that the assessee did not meet this requirement since the workers were employed through a contractor, and there was no direct employer-employee relationship. However, the assessee argued that the Act does not specify that workers must be employed directly by the assessee, only that 20 or more workers must be employed in the manufacturing process.

2. Interpretation of "Employ" Under Section 80-I(2)(iv):
The assessee's counsel contended that the term "employ" should be interpreted broadly to include workers employed through a contractor. They cited various judgments, including CBDT v. Aditya V. Birla and Chintaman Rao v. State of Madhya Pradesh, to support the argument that "employ" means using the services of any person, whether directly or indirectly. The Tribunal agreed, stating that the provision should not be interpreted narrowly to deprive the assessee of the benefit intended by the legislature.

3. Employer-Employee Relationship:
The CIT's decision was based on the lack of a direct employer-employee relationship between the assessee and the workers. The Tribunal, however, referred to the Supreme Court's judgment in Mangalore Ganesh Beedi Works v. Union of India and Husainbhai v. Alath Factory Tezhilali Union, which emphasized that the presence of intermediate contractors does not negate the employer's ultimate control over the workers. The Tribunal concluded that the assessee had economic control over the workers and was responsible for them, thus fulfilling the requirement.

4. Applicability of Definitions from Other Acts:
The Tribunal examined definitions from the Factories Act, 1948, and the Employees Provident Fund & Misc. Provisions Act, 1952. Both Acts include workers employed through contractors within their definitions of "worker" and "employee." The Tribunal found these definitions relevant, noting that the ultimate control over the workers and the responsibility for their welfare rested with the assessee. This supported the view that the assessee employed the required number of workers for the purposes of section 80-I(2)(iv).

Conclusion:
The Tribunal concluded that the assessee employed more than 20 workers through a contractor and had ultimate control over them. Therefore, the assessee was entitled to the deduction under section 80-I(2)(iv) of the Income-tax Act, 1961. The CIT's order was set aside, and the appeals for all three assessment years were allowed.