TaxTMI 
TaxTMI 
TaxTMI 
Section 80IA of the Income Tax Act, 1961 provides for deduction in respect of profit and gains from industrial undertakings or enterprises engaged in infrastructure development etc., Before 01.04.2000, Section 80IA (2) provides conditions for availing deduction under this Section. One among the conditions is provided in Section 80IA (2) (v). The said sub-clause provides that in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power or employs twenty or more workers in a manufacturing process carried on without the aid of the power.
The issue to be discussed in this article is whether the contract workers employed by the assessee are to be included in the definition of ‘workmen’ with reference to decided case laws.
In ‘Commissioner of Income Tax V. V.B. Narania and Co.,’ 2001 (8) TMI 104 - GUJARAT High Court the High Court observed that the persons doing the work on contract basis will have to be counted for the purpose of Section 80-IA(2)(v) for the reason that the assessee was controlling not only the work to be done by these persons but also the manner of doing the work.
In ‘Commissioner of Income Tax V.Prithviraj Bhoorchand’ – 2005 (9) TMI 28 - GUJARAT High Court it was held that the workers are engaged on contract labor basis can be said that the industrial undertaking of the assessee employs 20 or more workers in the manufacturing process carried on by it. The term ‘employed’ by the statute is ‘employs’ twenty or more workers. The plain dictionary meaning of the said term ‘employ’ is to use the services of a person in return for payment.
In ‘Sai Computers P. Limited V. Joint Commissioner of Income Tax’ – 2015 (2) TMI 502 - ALLAHABAD HIGH COURT the assessee company has two units, namely M/s Sai Electricals and M/s Sai Computer Consultancy. M/s Sai Electricals was engaged in the manufacturing and sale of transformers, electrical goods, job work etc., M/s Sai Computer Consultancy was engaged in the process of data feeding, accounts, reports, data processing etc., The said unit has three sub-units at Meerut, Lucknow and Ludhiana.
The assessee for the assessment year claimed the deduction under Section 80IA for both units. The claim of the assessee was denied by all the lower authorities and confirmed the deduction on the ground that the total number of employees was less than 10 as per Section 80-IA (10) of the Act. Therefore the assessee approached the High Court. The High Court found that the assessee has maintained separate books of account for both the units. The workers were also appointed independently in both the units. The Assessing Officer observed in his order that the assessee did not employ more than 10 works which is the requirement under Section 80-IA(2)(v). The claim is denied only for that reason.
The Commissioner of Income Tax (Appeals) observed that there were 14 workers employed with the assessee. Out of the 14, two were the security guards. The security guards cannot be considered as having been employed in connection with the business of the industrial undertaking, and therefore, they were excluded. Out of the remaining shall, six persons were employed on contract basis. These contract workmen cannot be counted as the employees of the assessee in terms of Section 80-IA (2)(v).
The High Court held that the assessee was a company and the total number of workers was fourteen, out of which two were the security guards. Thus 12 persons were engaged in the unit of the assessee out of which six were employed on contract basis but they were working for the assessee as per the direction of the assessee. The assessee was controlling not only the work to be done by these persons but also the manner of doing the work. Therefore these contract employees will have to be counted for the purpose of Section 80-IA(2)(v) of the Act. Therefore the assessee will get the benefit of deduction under Section 80-IA of the Act for the assessment year in consideration.