2015 (1) TMI 614 - HC - Income Tax

Deduction under Section 80IA - Disallowance on the ground that the printing work of various type is not a manufacturing activity, eligible for deduction u/S 80IA and that the assessee employed lesser number of workers than required as per the provisions of Section 80IA(2)(v) - Held that - Tribunal was right in law in holding that the business activity of the assessee was manufacturing within the meaning of Section 80IA(2)(iii) of the I.T.Act. The assessee had complied substantial compliance with the provisions of Section 80IA(2)(v) of the Income Tax Act. Therefore, considering the facts of the case and the principle laid down in the case of Harit Synthetic Fabrics Pvt. Ltd. (1985 (10) TMI 69 - BOMBAY High Court) and Bajaj Tempo Ltd. (1992 (4) TMI 4 - SUPREME Court), we are of the opinion that the present appeal deserves to be allowed. Therefore, we hold that the Tribunal was not right in holding that that the assessee had not fulfilled the condition of 10 or more workers stated in Section 80IA(2)(v) of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of whether the business activity qualifies as manufacturing under Section 80IA(2)(iii) of the Income Tax Act.
2. Determination of compliance with the condition of employing 10 or more workers under Section 80IA(2)(v) of the Income Tax Act.

Analysis:

Issue 1: Interpretation of Manufacturing Activity
The case involved appeals by both the revenue and the assessee challenging the judgment of the Income Tax Appellate Tribunal regarding the eligibility of the business for deduction under Section 80IA of the Income Tax Act. The Tribunal had dismissed both appeals, leading to the filing of Tax Appeal No.1852 of 2006 by the revenue and Tax Appeal No.1261 of 2006 by the assessee. The primary contention was whether the business activity of the assessee, engaged in offset cutting and printing, constituted manufacturing under Section 80IA(2)(iii) of the Act. The Court examined the nature of the raw materials used and the resulting products to determine if the process amounted to manufacturing. Relying on precedents and the transformation of raw materials into distinct commercial products, the Court concluded that the business activity qualified as manufacturing. The Court emphasized that the essence of manufacturing is the creation of a new product with unique characteristics, irrespective of whether the process involves job-work of printed material. Consequently, Tax Appeal No.1852 of 2006 was dismissed in favor of the assessee, affirming that the business activity constituted manufacturing under Section 80IA(2)(iii).

Issue 2: Compliance with Worker Requirement
Regarding the second issue, the Court delved into the condition stipulated in Section 80IA(2)(v) of the Income Tax Act, which mandates the employment of ten or more workers in a manufacturing process. The assessee had employed varying numbers of workers during different periods, with the manufacturing process commencing on a specific date. Drawing from the decision of the Bombay High Court and the Supreme Court in relevant cases, the Court emphasized the importance of substantial compliance with statutory provisions, especially in incentivizing economic growth. Considering the facts of the case and legal principles, the Court found that the assessee had substantially complied with the worker requirement under Section 80IA(2)(v). Consequently, Tax Appeal No.1261 of 2006 was allowed in favor of the assessee, rejecting the Tribunal's finding that the worker condition was not met. The judgment highlighted the need for a liberal interpretation of provisions promoting economic development to advance their objectives effectively.

In conclusion, the High Court dismissed Tax Appeal No.1852 of 2006 while allowing Tax Appeal No.1261 of 2006, addressing the issues of manufacturing activity qualification and compliance with the worker requirement under Section 80IA of the Income Tax Act.