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TMI Blog2019 (10) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided. (2) No deduction under sub-section (1) shall be allowed- (a) if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking; (b) unless the assessee furnishes along with the return of income the report of the accountant, as defined in the Explanation below sub-section (2) of section 288 giving such particulars in the report as may be prescribed. Explanation.-For the purposes of this section, the expressions,- (i) "additional wages" means the wages paid to the new regular workmen in excess of one hundred workmen employed during the previous year : Provided that in the case of an existing 56a[undertaking], the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than ten per cent of existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries (Development & Regulation) Act, 1951 as a scheduled industry carried on in one or more factories. The term "Factory" has been defined in the Factories Act, 1948 as any premises where ten or more workmen work where "manufacturing process" is carried on. The term manufacturing process as defined under the Factories Act, 1948 does not include manufacture of computer software and therefore the Assessee was not an Industrial Undertaking for the purpose of Sec.80JJAA of the Act. 6. On the question whether manufacture of computer software tantamount to manufacture of an article or thing, the AO held that the said activity is not subject to Value Added Tax but only Service tax and therefore the manufacture of computer software is not manufacture of an article or thing. The AO also made a reference to the fact that w.e.f.1.4.2014 Sec.80JJAA of the Act was amended to make it clear that the said provisions applies only to profits and gains derived from the manufacture of goods in a factory. According to the AO the aforesaid amendment is clarificatory and hence applicable even for AY 2012-13. 7. On the question whether persons working in software industry can be said to be "Workmen" for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether employees employed in software development service industry could be said to be engaged in the process of manufacture and hence the provisions of the employees State Insurance Act, 1948 are applicable to them. The Hon'ble Bombay High Court held that computer software development falls within the definition of manufacturing process as defined in Sec.2(k) of the Factories Act, 1948. The learned DR relied on the order of the revenue authorities. 11. We have given a careful consideration to the rival submissions. The question to be decided is as to whether the Assessee can be said to be "Industrial Undertaking engaged in the manufacture or production of article or thing". The revenue authorities have proceeded to deny the claim of the deduction only on the ground that the Assessee is not an "Industrial Undertaking engaged in the manufacture or production of article or thing". No other reasons have been assigned for denying the claim of the Assessee for deduction. 12. The first aspect to be examined is as to whether the Assessee can be said to be Industrial Undertaking engaged in the manufacture of article or thing. The term "Industrial undertaking" has not been defined for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to clarify that merely because a computer or computers are installed, the place will not be treated as a factory if otherwise no manufacturing process is carried on. 19. Significantly, the definition of "factory" in Factories Act and E.S.I. Act are not the same. Explanation II of Section 2(m) of the Factories Act is inserted in the Factories Act and not in the E.S.I. Act. It marks difference in its interpretation and application. In the definition of "factory" under Factories Act the words "worker working" are used, while in the E.S.I. Act, in the section defining "factory", the term "person employed for wages" are used. A difference in these two definition of one word "factory" can be explained by example. A clerk or staff in the premises is not- covered under the definition of "worker" under the Factories Act, however, under the ESI Act, the word "worker" is not used but the legislature chose the word "person" and for "working", the word "employed" is used. Thus, the premises where person is employed for a clerical work is covered under the definition "factory" under the E.S.I. Act. Therefore, definition of "factory" has wider meaning under the ESI Act than the Factories Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated under Section 2(12) of the E.S.I. Act, then that particular unit cannot be made an exception to the application of the E.S.I. Act. To borrow the meaning from the provision of Explanation II of Section 2(m) of the Factories Act, will be a mayopic view defeating the object and spirit of the E.S.I. Act. The meaning of the term "factory" for the purpose of E.S.I. Act is not to be understood in the context of Explanation II of Section 2(m) of the Factories Act. This is not a harmonious construction of the Statute. Application of E.S.I. Act is not a regressive but a progressive step and to think that if E.S.L Act is made applicable then it will affect LT. industry adversely is a futile fear." 13. Therefore, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kers employed in assessment year 2000-01 cannot be considered for relief under section 80JJAA in the assessment year 2001-02. As such the appellant will be entitled for relief under section 80JJAA of Rs. 1,09,52,012 being 30 per cent of the additional wages of Rs. 3,65,06,707 (Rs. 8,52,70,736 - Rs. 4,87,64,029) in respect of the new workmen employed during the previous year relevant to the assessment year 2001-02. Similarly, for assessment year 2002-03 the appellant has claimed deduction of Rs. 4,78,05,176 being 30 per cent of the wages of Rs. 1,59,30,588 which also included the wages of Rs. 4,38,68,182 pertaining to the new workers employed in the previous year 1999-2000. For the reasons mentioned above the appellant is not entitled for relief under section 80JJAA in respect of the wages pertaining to the workers employed in the previous year 1999-2000. As such the appellant would be eligible for relief of Rs. 3,46,44,722 being 30 per cent of the additional wages of Rs. 11,54,82,406 (Rs. 15,93,50,588 - Rs. 4,38,68,182) in respect of the workmen employed in previous years 2000- 01 and 2001-02. The learned Authorised Representatives of the appellant vide order-sheet noting dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CITDepartmental Representative could not assail the finding reached by the learned CIT(A) by bringing in any valid materials. The order of the CIT(A) is confirmed. It is ordered accordingly." 15. The only other aspect that remains to be considered is 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". In our view 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. 16. We are of the view that in the given facts and circumstances of the case, the 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. We hold and direct accordingly. 17. In the result, the appeal by the Assessee is allowed. Pronounc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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