Income Tax Appellate Tribunal - Delhi
Nanda Mint & Pine Chemicals Ltd., New ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL,
NEW DELHI, BENCH 'E '
BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER
AND SHRI K. D. RANJAN, ACCOUTANT MEMBER
ITA No. 2148 /Del/2010
(Assessment Year 2006-07)
DCIT, Circle 13(1), Vs. Nanda Mint & Pine Chemicals Ltd.,
New Delhi. Munshi Niketan, 1/10, Asaf Ali Rd.,
New Delhi.
(Appellants) (Respondents)
PAN / GIR No. AACCN0965G
Appellant by: Ms. Sangeeta Gupta, CIT DR
Respondent by: Shri K Sampath, adv.
ORDER
PER K. D. RANJAN, AM:
1. This appeal of the Revenue for the Assessment Year 2006-07 arises out of the order of Ld. CIT(A) XVI, New Delhi. The grounds of appeal raised by the Revenue are as under:
"1) That on ht facts and circumstances of the case and in law the Ld. CIT(A) erred in allowing claim of deduction under section 80IB of the Act, of ` 6,75,41,495/- disallowed by the A.O.
2) That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in considering the contractual workers also for the purpose of fulfillment of the condition of minimum number of workers prescribed under the provisions of section 80IB of the Act."
2. The only issue for consideration in this appeal relates to disallowance of claim for deduction u/s 80IB of ` 6,75,41,495/-. The facts of the case stated in brief are that the assessee company during the year under consideration was engaged in the business of manufacturing of essential oil, menthol solution, DMD and Menthol from its industrial undertaking at Jammu. The A.O. in order to examine the claim for deduction u/s 80IB asked the assessee to furnish the details. Since the conditions for allowability of deduction 2 u/s 80IB of the Act inter-alia includes that the industrial undertaking should employ 10 or more workers in a manufacturing process carried on with the aid of power or employ 20 or more workers in a manufacturing process carried on without the aid of power. Since the assessee was carrying on manufacturing process with the aid of power and therefore, it was required to employ 10 or more workers in its manufacturing process. As per the salary register produced by the assessee the number of workers employed were 8 or 9. The assessee was asked to explain as to why the claim for deduction u/s 80IB should not be disallowed. It was submitted by the assessee that there were certain casual workers employed in the manufacturing process. It was also submitted that the word 'worker' includes 'casual, permanent, temporary worker'. Therefore, the requirement of law was completed. However, this contention of the assessee was rejected by the A.O. by holding that the condition of employing minimum number of workers was not satisfied.
3. On appeal, before CIT(A), it was submitted that the A.O. has ignored the number of persons employed in buying of raw material as well as contract labour engaged by it. The assessee has employed contract labour also through one Shri Chaudhary Avrim Sobat who was registered for this purpose with the State Government Authorities. Salary sheets along with the relevant register were also produced for verification. As per the detailed chart submitted by the assessee, it was explained that the number of persons engaged in manufacturing process were ranging form 6 - 12; casual and contracted workers were 8 to 9; 2 persons were assisting for purchase at Barabanki. Further, 3 directors were also engaged in the manufacturing activity. Ld CIT(A) after considering the submissions of the assessee, observed that as per salary register as well as certificate of the contractor clearly indicated that in each of the months starting form July 2005 to March 2006, the 3 contactor provided workers between 8 to 9 every month to the assessee for various purposes like loading of trucks carrying raw material, putting in godowns etc. verification/checking of date of such drums, collecting samples form each drum, loading of raw material in chilling unit/tank from the drums with the help of motor/ after filtration, sponging/cleaning of the drums, transferring the manufactured goods from process tanks to storage tanks kept for each finished goods, cleaning and painting of drums, transferring the finished goods to drums etc. The A.O. had not disputed these facts. The only ground for disallowing was whether contract labour provided by the contractor and the workers engaged in the purchase of raw material were to be counted for the purpose of Section 80IB(2)(iv) of the Act or not. The CIT(A) further noted that manufacturing process should be interpreted in ordinary sense and should not be restricted to the actual manufacturing alone. The process, which intimately connected with the actual manufacturing process would also be admitted within expression. Employing 10 or more workers in manufacturing process normally would cover the entire process carried out by the industrial undertaking of converting the raw material to finished goods. The work of 10 or more persons employed in the manufacturing process should be integrally connected with the manufacturing process. The work should be reasonably connected and be part of manufacturing process. The various processes starting from purchase of raw material and sale of finished goods form integral part of manufacturing process and the workers or labour employed in these processes were workers employed in the manufacturing process. He placed reliance on the decision of Hon'ble Supreme Court in the case of J K Cotton Printing & Weaving Mills Co. Ltd. 16 STC 563 wherein it has been held that the expression 'in the manufacturing of goods' in Section 8(3)(b) of the Central Sales Tax Act normally encompasses the entire process carried on by the dealer of converting the raw material into finished goods. He further noted 4 that though this decision was rendered in the context of Central Sales Tax Act interpretation can also be put to expression 'employing 10 or more workers in the manufacturing process'. Ld. CIT(A) accordingly held that manufacturing process should be construed as expression of procurement of raw material, processing thereof and generation of finished goods and the persons involved in all these three processes have to be treated as employed in the manufacturing process. Ld. CIT(A) referred to the decision of Madras High Court in the case of Soft Beverages P. Ltd. Vs ESI Corporation (2001) (002) LLJ-0701-MAD categorically held that "..... of course, the period of employment may be short or it may be on daily wages but still, there is no fetter calling the person engaged as employee especially when the engagement is in connection with the manufacturing process or procedure which are integral and incidental to the employment." He also referred to the decision in the case of Shri Par Fragrance P. Ltd. Vs I.T.O. 20 SOT 440 in which ITAT Mumbai Bench deliberated on the issue of 'person engaged in manufacturing process' in context of section 80IB of the Act and it was held that "the worker in the context of Section 80-IB of the I. T. Act, 1961 would include all persons engaged in the manufacturing process. This would include factory manager and his assistants for computing the number of workers employed. However, the persons employed in accounting and administrative functions would not be so included". Ld. CIT(A) referred to the decision of Hon'ble High Court of Allahabad in the case of Sultan & Sons Rice Mills 272 ITR 181 (Alld.) wherein it has been held manufacturing process includes purchase of raw material to be filled in plant till the sale of finished goods which may be acceptable. The various process starting from purchase of raw material and sale of finished goods form the integral part of manufacturing process and work of labour employed in these processes were workers employed in manufacturing processes within the meaning of Section 80J and 80HH.
54. Ld CIT(A) in view of the above facts was of the opinion that the A.O. was not justified in disallowing the claim of the assessee. He was of the opinion that number of worker engaged on casual basis through contractor as well as person employed by the assessee for purchase of raw material at Barabanki in U.P. were required to be considered. He accordingly allowed the appeal in favour of the assessee.
5. Before us, Ld. CIT DR submitted that for any deduction under Chapter VIA, the requirement of provisions of law should be fulfilled. As per law where manufacturing process is carried with the help of electricity/power and number of workers employed should be 10 or more. The contractual workers were not employed with the assessee and therefore, there was no employer employee relationship between the contractual workers and the assessee. Therefore, condition of Section 80IB(2)(iv) is not satisfied. On the other hand, Ld. A.R. supported the order of Ld. CIT(A). It has been submitted that entire process of manufacturing should be taken into consideration for computation of number of workers engaged in the manufacturing processes. He placed reliance on the decisions of Hon'ble High Court of Allahabad in the case of Sultan & Sons Rice Mills (supra); CIT Vs Hanuman Rice Mills 275 ITSDR 79, CIT Vs Prithviraj Bhoorchand 280 ITR 94 (Guj.) and ACIT Vs Prithviraj Bhoorchand 310 ITR 88 (Guj.).
5. We have heard both the parties and gone through the material available on record. Section 80IB(2)(iv) states that where industrial undertaking manufactures or produces articles or things, the industrial undertaking should employ 10 or more workers in manufacturing process carried on with the help of power or 20 or more workers in a manufacturing process carried on without the aid of power. In the case before us, the assessee had engaged contractual labour as well as the staff employed for purchase of raw 6 material. The manufacturing or processing of an article or thing as held by various courts would include the process from purchase of raw material till the final product is derived. In the case before us, the assessee has engaged 10 or more workers in the months of August, October & November and March. In July, Sep. and December, number of regular employees are less than 10. In addition to regular workers casual/contract workers were engaged 9 each in the months of July and Augusts and 8 each in the other months. In addition to this, 2 persons were regularly employed for purchase of raw material at Barabanki. Therefore the requirement of 10 workers is fulfilled in all the months and therefore, in our considered opinion, Ld. CIT(A) was justified in allowing the claim of the assessee. As per the decision of Hon'ble Supreme Court in the case of J K Spinning & Weaving Mills, the manufacturing of goods would include; all the processes which are directly related to actual production. Accordingly, in our considered opinion, Ld .CIT(A) is justified in deleting the addition.
6. In the result, the appeal of the Revenue stands dismissed.
7. Pronounced in the open court on 18th Feb., 2011.
Sd./- Sd./- (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:18th Feb., 2011 Sp. Copy forwarded to 1. Appellant 2. Respondent 3. CIT True copy: By order 4. CIT(A) 5. DR Dy. Registrar, ITAT, New Delhi