Section 80IB deduction hinges on actual manufacturing and worker count; contractor-supplied workers may be included.

For deduction under Section 80IB, the manufacturing test turns on whether the assessee actually carried on manufacture or production in its own industrial set-up; records showing raw material purchase, finished goods, excise compliance, CENVAT credit, owned plant and machinery, SSI registration, and substantial power and maintenance expenses supported that conclusion. The section 80IB(2)(iv) worker threshold is satisfied by the actual number of persons engaged in the manufacturing process, and workers supplied through a contractor may be counted if they work in the assessee's manufacturing activity. On those principles, the deduction is available where the undertaking meets the manufacturing and worker conditions.

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Issues: (i) Whether the assessee was engaged in the manufacture or production of an article or thing and was entitled to deduction under Section 80IB of the Income-tax Act, 1961; (ii) Whether workers supplied through a contractor could be treated as workers employed by the assessee for the purpose of Section 80IB(2)(iv) of the Income-tax Act, 1961.

Issue (i): Whether the assessee was engaged in the manufacture or production of an article or thing and was entitled to deduction under Section 80IB of the Income-tax Act, 1961.

Analysis: The assessee's records showed purchase of raw materials, manufacture of finished goods in its own factory, payment of central excise duty and availment of CENVAT credit, ownership of plant and machinery, holding of an SSI certificate for manufacture of plastic goods, and substantial expenditure on electricity and machinery maintenance. The payment of comparatively small job-work charges did not displace the finding that the manufacturing activity was carried on by the assessee in its own factory.

Conclusion: The assessee was engaged in manufacture or production and was entitled to deduction under Section 80IB.

Issue (ii): Whether workers supplied through a contractor could be treated as workers employed by the assessee for the purpose of Section 80IB(2)(iv) of the Income-tax Act, 1961.

Analysis: The expression "worker" is not defined in Section 80IB, and the meaning adopted from the Factories Act supports inclusion of persons employed directly or through an agency in the manufacturing process. The relevant test is the actual number of workers engaged in manufacture, not the technical mode of engagement. Since the total workers engaged in the assessee's manufacturing activity exceeded ten, the statutory condition was satisfied.

Conclusion: Workers engaged through a contractor could be counted, and the condition in Section 80IB(2)(iv) was fulfilled.

Final Conclusion: The appeal failed on both substantial questions of law, and the assessee's entitlement to deduction under Section 80IB was sustained.

Ratio Decidendi: For the purpose of Section 80IB(2)(iv), the requirement is that the industrial undertaking must employ the prescribed minimum number of workers in the manufacturing process, and workers engaged through a contractor may be counted if they actually work in the assessee's manufacturing activity.

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