Income Tax Appellate Tribunal - Delhi
Prem Rice And Gen. Mills vs Income-Tax Officer on 18 September, 1990
Equivalent citations: [1991]38ITD585(DELHI)
ORDER
F.C. Rustagi, Judicial Member
1. Since a common dispute is raised in all these appeals, pertaining to assessment years 1979-80, 1981-82 and 1982-83, whether assessee's claim regarding deductions under sections 80HH and 80J could be allowed when ten or more persons did not work throughout the year all these appeals were heard together and are disposed of by this consolidated order for the sake of convenience.
2. There is no dispute about the fact that the assessee which is a registered partnership firm, is engaged in the manufacture/production of rice and for the industry as such deduction is admissible. The only dispute is whether required number of labourers were working in the manufacturing concern of the assessee. For the assessment year 1979-80 when the assessee's claim was not allowed by the ITO, the matter came before the AAC. The AAC allowed the assessee's claim for that year. Then the Revenue came before the Tribunal. The Tribunal set aside the matter to the file of the AAC with a direction to him to readjudicate the issue of allowability of deduction under sections 80HH and 80J after hearing the assessee and the Assessing Officer. The AAC in set aside proceedings for assessment year 1979-80 and in first appeal of the assessee for assessment years 1981-82 and 1982-83 rejected the assessee's claim regarding deduction under sections 80HH and 80J.
3. The learned counsel for the assessee for all these three years submitted that manufacturing of rice is a seasonal activity and whenever the manufacturing was on, assessee had more than ten employees engaged in the process. He drew our attention to pages 18and 19 of the assessee's compilation in which 17 persons were reflected in the month of January; 18 persons were reflected in February; and 19 persons were reflected in March. He submitted that in earlier period some time the number was less than ten. Similarly for assessment year 1982-83 he submitted that there were more than ten employees engaged in the activities of manufacture of rice and therefore the assessee was entitled to the said deduction. He submitted even in assessment year 1980-81 there were more than ten people and drew our attention to page 27 of the paper book in which 16 persons were shown to have been engaged in the months of April, May, June and July. He pointed out that for assessment years 1979-80 and 1982-83 there is no dispute that for months together when process of manufacturing was there, there were more than ten persons engaged althrough. However, during lean period or period when manufacture is not on, there are less number of people. He was fair enough to inform that verification regarding number of employees for assessment year 1981-82 was not done by the AAC as the details were not filed. He submitted that in light of decisions in CIT v. Sawyer's Asia Ltd. [1980] 122 ITR 259 (Bom.); CIT v. Ormerods (I.) (P.) Ltd. [1989] 176 ITR 470/42 Taxman 81 (Bom.) and CIT v. Harit Synthetic Fabrics (P.) Ltd. [1986] 162 ITR 640/26 Taxman 540 (Bom.), assessee's claim deserves to be allowed. He submitted, so far assessee's claim on merit that manufacturing of rice is an industry and assessee is an industrial undertaking is concerned, it is supported by the decision of the Tribunal in Bangaru Manikayam v. ITO [1987] 21 ITD 329 (Hyd.).
4. The learned D.R. mainly relied on the order of the lower authorities and submitted that the assessee is not registered as factory.
5. After taking into consideration the rival submissions we are unable to confirm the finding of the AAC for assessment years 1979-80 and 1982-83, because we find it as a fact that during the manufacturing period running into several months in each of the two years, assessee had labour numbers 16,17 and 18 etc. However, for assessment year 1981-82 the verification of number was since not placed before the two lower authorities we will prefer to restore back that appeal for 1981-82 to the AAC with a direction to him to allow assessee's claim after giving an opportunity to the ITO for verification that during manufacturing period assessee had labours as reflected in pages 23 & 24 of the assessee's paper book. For computation of number of labourers we have relied on Bombay High Court decision with which we are dealing hereafter. Their Lordships of Bombay High Court in case of Sawyer's Asia Ltd. (supra), while dealing with Section 84(2)(iv) which are identical to the present section came to enunciate the principle in the following words :-
It is true that the words 'throughout the year' which are employed in Section 80H and in the second proviso to Section 37(4) are absent in Section 84(2)(iv) but from the non-user of such language the conclusion which the Tribunal has indicated would not appear to us to be warranted. It is possible to conceive of a number of different situations. In a given case, the number of workers employed in the manufacturing process may be ten or more on just one or few days only. There may be another case in which the number of workers engaged in the manufacturing process is ten or more substantially throughout the period for which relief is claimed. In these two cases, it is fairly easy to determine whether or not the assessee is entitled to relief under Section 84 (provided other requirements are satisfied). In the former case, it is clear that the condition prescribed by Section 84(2)(iv) has not been complied with and the assessee must be denied relief. In the latter case, however, in the absence of the words 'throughout the year' the assessee must be deemed to have substantially complied with the requirement of Section 84(2)(iv) and cannot be denied relief merely because on a few occasions in the relevant period being considered the quota of workers employed in the manufacturing process falls below ten.In between these two cases, however, there may exist several different situations and whether or not the condition can be said to have been complied with or violated would depend upon various circumstances which may be indicated. First and foremost condition will have to be afforded to the number of days on which the quota of workers employed in the manufacturing process is ten or more. If on a fair appraisal it could be said that the assessee employed the prescribed number of workers substantially throughout the period for which relief is claimed, then the condition prescribed in Section 84(2)(iv) must be held to have been complied with.
This very case came to be followed again by Bombay High Court in case of Harit Synthetic Fabrics (P.) Ltd. (supra), wherein finding that more than ten people worked from August 1969 till December 31,1969, there was substantial compliance with the provisions of Section 80J(4)(iv) in the following words:-
that the factory of the assessee had commenced working in the previous year with a smaller number of workmen and as the manufacturing process gathered momentum, more workmen were employed. Since ten or more workmen were employed from August 1969, till December 31,1969, when the previous year ended, there was substantial compliance with the provisions of Section 80J(4)(iv) and the assessee was entitled to relief under the section.
Their Lordships in the said case came to observe that it is enough if the undertaking employes ten or more labourers substantially during the period in which the relief has been claimed. There cannot be any hard and fast rule by which it can be determined whether there has been substantial compliance.
5.1 Again Bombay High Court in case of Ormerods (I.)(P.) Ltd. (supra) had occasion to deal with identical issue and applied Harit Synthetic Fabrics (P.) Ltd.'s case (supra) and Sawyer's Asia Ltd.'s case (supra) and while accepting assessee's claim in the said case made the following observation:-
Where the Tribunal found that though the number of workers at a certain period was reduced to six, on an average there had been 10 workers employed in the undertaking and this was sufficient and that the assessee was entitled to the relief under Section 84 of the Income-tax Act, 1961 5.2 The Tribunal's decision in case of Bangaru Manikayam (supra) was cited, but that issue is not in dispute before us.
6. The assessee's claim, therefore, for assessment years 1979-80 and 1982-83 is allowed, whereas for assessment year 1981-82the appeal is restored back to the AAC who is directed to readjudicate the issue de novo after verifying the number of labourers engaged by the assessee during manufacturing season in the light of principles enunciated above. To clarify we are restoring back the issue only for Verification of number of employees because otherwise the assessee is entitled to the said deductions.
Appeals for 1980 and 1982-83 are allowed and that for 1981-82 is allowed for statistical purpose.