Assessee's Industrial Status Affirmed, Deductions Denied under Sections 80J, 80HH

Talwar & Khullat (P.) Ltd. Versus Inspecting Assistant Commissioner.

Talwar & Khullat (P.) Ltd. Versus Inspecting Assistant Commissioner. - ITD 001, 1025, Issues Involved:
1. Whether the assessee should be treated as an industrial company for tax purposes.
2. Whether the assessee is entitled to deductions under sections 80J and 80HH of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Whether the assessee should be treated as an industrial company for tax purposes:

The assessee, a private limited company engaged in the manufacture and processing of brassware and E.P.N.S., claimed to be an industrial company. The Income Tax Officer (ITO) and the Commissioner (Appeals) had previously rejected this claim for the assessment year 1976-77. The Commissioner (Appeals) relied on the judgment in Addl. CIT v. Chillies Export House Ltd. [1978] 115 ITR 73 (Mad.) and noted that the assessee did not possess plant and machinery or any building for manufacturing work. The assessee argued that it was an industrial company based on a Tribunal order dated 12-11-1980 in IT Appeal No. 3609 (Delhi) of 1979 and cited various judgments, including Griffon Laboratories (P.) Ltd. v. CIT [1979] 119 ITR 145 (Cal.) and Orient Longman Ltd. v. CIT [1981] 130 ITR 477 (Delhi), which held that ownership of machinery or plant is not necessary for an entity to be considered an industrial company. The Tribunal, following its previous order, held that the assessee is an industrial company for the year in question as well, emphasizing that the word "processing" in the definition of "industrial company" includes the activities performed by the assessee.

2. Whether the assessee is entitled to deductions under sections 80J and 80HH of the Income Tax Act:

Section 80J:

The assessee claimed deductions under section 80J, which allows a deduction at the rate of 6% of the capital employed in the industrial undertaking. Section 80J(4) specifies conditions such as the industrial undertaking not being formed by splitting up or reconstruction of an existing business, not formed by the transfer of used machinery or plant, and employing a certain number of workers. The Tribunal noted that the assessee did not have its own building, machinery, or plant and did not employ the required number of workers directly. The Tribunal referred to the judgment in Chowgula & Co. (P.) Ltd. v. Union of India 1981 Tax LR 2929 (SC), which held that manufacturing requires the transformation of the original commodity into a new and distinct commodity. The Tribunal concluded that the assessee did not meet the conditions of section 80J as it did not carry out manufacturing activities itself, but rather through artisans without supervisory control. Therefore, the assessee was not entitled to the deduction under section 80J.

Section 80HH:

Section 80HH provides deductions for profits and gains from newly established industrial undertakings in backward areas. The conditions for deduction include the industrial undertaking beginning to manufacture or produce articles after 31st December 1970, not being formed by splitting up or reconstruction of an existing business, and employing a certain number of workers. The Tribunal found that the conditions under section 80HH are similar to those under section 80J. The Tribunal referred to the order in Marwell Sea Foods v. ITO [1981] 11 TTJ 22, which allowed deduction under section 80HH for the export of shrimps, but distinguished the present case as it did not involve a similar transformation of commodities. The Tribunal held that without investment in building, plant, and machinery, and without employing the required number of workers, the assessee did not meet the conditions for deduction under section 80HH. Consequently, the assessee's claim for deduction under section 80HH was also rejected.

Conclusion:
The appeal was partly allowed, with the Tribunal affirming the assessee's status as an industrial company but denying deductions under sections 80J and 80HH due to the failure to meet the specified conditions.