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. ... 'Whether Tribunal was justified in holding that deduction u/s 80-I, was allowable to the assessee-company even though the industrial undertaking was not run by the assessee itself?' – Held that If assessee-company does not carry on the manufacturing activities himself and leases out the factory to a third party and the third party carried on the manufacturing activity, the assessee is not entitled for deduction u/s 80-I - 'Whether, the Tribunal was justified in deleting addition made u/s 43B?' - in the case of Allied Motors P. Ltd. v. CIT it has been held that in case the payment is made though beyond the accounting year but within the period permissible under the Sales Tax Act, no addition should be made invoking the provisions of section 43B – Thus, additions were rightly deleted by tribunal 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.