Appellant wins on contract workers as employees for tax deduction but loses on staff welfare expenses.

The Court ruled in favor of the appellant regarding the deduction under Section 80-IA, allowing the claim for both units based on the inclusion of workers on contract services as employees. The Court held that workers under contract labor basis can be considered employees for the purpose of Section 80-IA. However, the Court sided with the Department on the disallowance of staff welfare expenditure, affirming the Tribunal's decision to disallow a portion of the expenses.

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Issues:
1. Disallowance of Deduction under Section 80 IA
2. Classification of workers as employees
3. Disallowance of Staff Welfare Expenditure

Analysis:

Issue 1: Disallowance of Deduction under Section 80 IA
The appellant filed an appeal against the Income Tax Appellate Tribunal's order denying the deduction under Section 80-IA for the assessment year 1997-98. The appellant, a company with two units, claimed the deduction for both units, but it was denied by the lower authorities due to the total number of employees being less than ten as required by Section 80-IA(10) of the Act. The appellant argued that the workers in the units were employed independently, but the Assessing Officer observed that the total number of workers was less than the statutory requirement. However, the CIT(A) noted that certain workers, including those on contract services, should be considered as employees for the purpose of Section 80-IA(2)(v). Citing relevant case laws, it was established that workers under contract labor basis can be counted towards the total number of employees. The Court held in favor of the appellant, allowing the deduction under Section 80-IA.

Issue 2: Classification of workers as employees
The Court analyzed the nature of workers employed by the appellant and their classification as employees for the purpose of Section 80-IA. The appellant had a total of fourteen staff members, including security guards and workers on contract basis. The CIT(A) excluded security guards from the count but considered the contract workers as employees since the appellant controlled the work and manner of work done by them. Relying on precedents, the Court emphasized that workers under contract, controlled by the appellant, should be counted as employees. Consequently, the appellant was deemed eligible for the deduction under Section 80-IA.

Issue 3: Disallowance of Staff Welfare Expenditure
Regarding the disallowance of staff welfare expenditure amounting to Rs. 5,000, the Assessing Officer had disallowed a portion of the expenses related to tea, coffee, cold drinks, and snacks under Section 37(2) of the Act. The Tribunal upheld the disallowance of Rs. 5,000 on an estimate basis, citing relevant case laws supporting such decisions. The Court affirmed the Tribunal's decision, stating that the relief granted on an estimate basis was a question of fact. Consequently, the Court ruled in favor of the Department on this issue.

In conclusion, the appellant's appeal was partly allowed, with the Court ruling in favor of the appellant on the deduction under Section 80-IA issues and in favor of the Department on the disallowance of staff welfare expenditure.

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