2003 (4) TMI 8 - HC - Income Tax

Court rules against assessee on section 80-I deduction but in favor on section 43B addition.

The court ruled in favor of the Revenue and against the assessee concerning the deduction under section 80-I for the assessment years 1983-84 to 1985-86. ... Eligibility for deduction under section 80-I - Requirement that the assessee itself carry on manufacturing activity - Interpretation of clause (iv) of sub section (2) of section 80 I - Allowability of deduction where industrial undertaking is leased out - Application of section 43B where payment is made within period permissible under Sales Tax lawEligibility for deduction under section 80-I - Requirement that the assessee itself carry on manufacturing activity - Interpretation of clause (iv) of sub section (2) of section 80 I - Allowability of deduction where industrial undertaking is leased out - Deduction under section 80 I is not allowable to an assessee who has leased out the entire industrial undertaking and does not itself carry on manufacturing activity. - HELD THAT: - Clause (iv) of sub section (2) of section 80 I requires that, where the industrial undertaking manufactures or produces articles or things, the undertaking employ the statutory minimum number of workers; the employees are employed by the employer (the assessee) and not by the industry. A plain reading of clause (iv) therefore contemplates manufacturing by the assessee itself with employees engaged by the assessee. Where the assessee has leased out the whole factory and does not itself carry on manufacturing, the statutory condition of manufacture by the assessee is not satisfied and entitlement to deduction under section 80 I does not arise. The Tribunal's reliance on authorities holding that income 'derived' from an undertaking may qualify does not displace the specific mandatory conditions of sub section (2); accordingly the Tribunal erred in allowing the deduction to an assessee who merely leases out the industrial undertaking.Question answered against the assessee; deduction under section 80 I denied where the assessee did not itself carry on manufacturing but had leased out the undertaking.Application of section 43B where payment is made within period permissible under Sales Tax law - Deletion of addition made under section 43B in assessment year 1985 86 is justified where payment, though made after the accounting year, was made within the period permissible under the Sales Tax Act. - HELD THAT: - The question on section 43B was concluded by the Supreme Court in Allied Motors P. Ltd. v. CIT, holding that if payment is made beyond the accounting year but within the period allowed under the Sales Tax law, section 43B does not require disallowance. Applying that principle, the deletion of the addition under section 43B for 1985 86 is sustained in favour of the assessee.Question answered in favour of the assessee; addition under section 43B deleted as payment was within the permissible period under the Sales Tax Act.Final Conclusion: Reference answered: (1) For assessment years 1983 84 to 1985 86, deduction under section 80 I disallowed where the assessee leased out the industrial undertaking and did not itself manufacture; (2) for 1985 86, the deletion of the addition under section 43B is upheld as payment was made within the period permissible under the Sales Tax law. Issues:1. Deduction under section 80-I of the Income-tax Act, 1961 for assessment years 1983-84 to 1985-86.2. Deletion of addition made under section 43B for the assessment year 1985-86.Analysis:Issue 1: Deduction under section 80-IThe Tribunal referred questions regarding the allowance of deduction under section 80-I for the assessment years 1983-84 to 1985-86. The assessee had leased out the factory premises and machinery to another company, not engaging in manufacturing activities itself. The Assessing Officer rejected the claim for deduction under section 80-I. The Commissioner of Income-tax (Appeals) also dismissed the appeal. The Tribunal, however, relied on precedents from the Madras and Calcutta High Courts, stating that manufacturing activity need not be carried out by the assessee itself to claim the deduction. Arguments were presented citing various High Court decisions, emphasizing the mandatory conditions under section 80-I. The court noted that the provision requires manufacturing or production of articles or things by the assessee itself, with a specified number of employees. It concluded that if the assessee does not engage in manufacturing activities but leases out the factory to a third party for manufacturing, the deduction under section 80-I is not applicable.Issue 2: Deletion of addition made under section 43BIn the assessment year 1985-86, the issue of deletion of addition under section 43B was raised. The court referred to the decision in Allied Motors P. Ltd. v. CIT, where it was held that if payments are made within the period permissible under the Sales Tax Act, no addition should be made under section 43B. The court ruled in favor of the assessee on this additional issue for the year 1985-86.In conclusion, the court answered the common question related to deduction under section 80-I for the three years in favor of the Revenue and against the assessee. The additional question regarding the deletion of addition under section 43B for the year 1985-86 was answered in favor of the assessee and against the Revenue, disposing of the reference accordingly.