2007 (7) TMI 15 - HC - Income Tax

Tax Law: Partnership's Shoe Manufacturing Firm, Cobblers' Status

The Tribunal considered whether a partnership firm engaged in shoe manufacturing qualified as an industrial undertaking under Section 80-I of the ... Deduction - Revenue contended that assessee is not entitle for deduction u/s 80-I on the ground that assessee getting goods manufactured by third party -No view on the subject has been has expressed by the SC or the jurisdictional HC Issues:1. Interpretation of Section 80-I of the Income-tax Act, 1961 regarding eligibility of an assessee as an industrial undertaking.2. Conflict of opinion between different High Courts on the interpretation of the law.3. Request for reference of a question of law to the High Court under Section 256(2) of the Act.Analysis:Issue 1: Interpretation of Section 80-I of the Income-tax ActThe assessee, a registered partnership firm engaged in the manufacture and sale of shoes, claimed a deduction under Section 80-I of the Income-tax Act. The Assistant Commissioner of Income-tax denied the claim, stating that the assessee did not qualify as an industrial undertaking under the conditions of Section 80-I. The Tribunal noted that the shoes were manufactured by cobblers on a piece-rate basis, who were not employees of the assessee. The crux of the issue revolved around whether the assessee could be considered an industrial undertaking under the Act.Issue 2: Conflict of Opinion Between High CourtsThe counsel for the assessee argued that the Madras High Court's judgments held that an assessee who outsources manufacturing would not qualify as an industrial undertaking under Section 80-I. In contrast, other High Courts, such as Bombay, Allahabad, Gujarat, and Madras, had taken a different view favoring the assessee's eligibility for the deduction. The absence of a clear directive from the Supreme Court or the jurisdictional High Court on this matter added to the conflicting interpretations.Issue 3: Request for Reference to High CourtThe assessee filed petitions under Section 256(2) of the Act, seeking a direction for the Tribunal to frame a statement of the case and refer the question of law to the High Court. The Court, after considering arguments from both parties, acknowledged the absence of a definitive stance from the higher courts on the issue. Consequently, the Court allowed the petitions, directing the Tribunal to refer the question of law to the High Court for resolution.In conclusion, the judgment highlighted the need for clarity on the interpretation of Section 80-I of the Income-tax Act, given the conflicting opinions among different High Courts. The Court's decision to refer the matter to the High Court for resolution underscores the significance of establishing a uniform understanding of the law to guide future assessments and determinations.