TaxTMI 
TaxTMI 
2013 (6) TMI 70
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....er Section 80-I of the Act. Whereas ITR No. 49-50/1996 relates to the assessment year 1991-92, ITA Nos.151/2002, 302/2002 and 480/2005 are with respect to previous years relevant to the assessment years 1992-93, 1993-94 and 1994-95 respectively. 2. In ITR 49-50/1996 the following questions were framed by the Tribunal and have been referred for our consideration:- "1. Whether on facts and in the circumstances of the case, the ITAT was right in holding that requisite conditions of sec. 80-I are to be satisfied not only in first or the initial year but in all the assessment years in which the deduction under sect. 80-I is claimed by the assessee?" "2. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that Unit Nos. 2 & 3 are industrial undertakings for purposes of Sec. 80-I of the IT Act, 1961?" Whereas the first question has been referred on behalf of the assessee. The second question has been referred at the instance of the revenue. 3. The questions framed in ITA no.151/2002 and ITA no.480/2005 are similarly worded. The question framed in the said two appeals is as under:- "Whether on the facts and in ....
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....8,45,800/- under Section 80-I of the Act for the assessment year 1989-90 with respect to Unit No. 2 as well as Unit No. 3 which was established in 1987 and housed in the building adjacent to the building where Unit No. 2 had been set up earlier. The return filed by the assessee was taken up for scrutiny and an assessment order dated 31.01.1991 was framed by the Assessing Officer allowing deduction under Section 80-I of the Act. 8. The assessee filed a return for the subsequent assessment year AY 1990- 91 wherein the assessee claimed a deduction of Rs. 38,02,747/- under Section 80-I with respect to the profits from Unit 2 & 3. The claim of the assessee was examined by the Assessing Officer who passed the assessment order dated 31.01.1992 allowing the deduction under Section 80-I of the Act, but computing the same at Rs. 37,82,816/-. The relevant extract from the assessment order dated 31.01.1992 is quoted below:- "The assessee has claimed a sum of Rs.38,02,747/- u/s 80-I of the I.T. Act. The deduction u/s 80-I has been claimed in r/o Unit-2 and Unit-3 receipts against which have been shown at Rs.1,54,96,624/- and Rs.1,33,04,340/-. After appropriating expenses under vario....
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....o to provide sheen to the ink. Unit No. 3 also consisted of several other machines like scanner, densitometer, metal halide unit to supplement the work of the offset printing press. 11. Both the Units, namely Unit Nos. 2 & 3 were established in Sahibabad in separate buildings situated adjacent to one another. The electricity connection, telephone connections as well as senior managerial staff were common for both the Units. The assessee contended that Unit Nos. 2 & 3 were independent printing houses and the income of these Units was accounted on the basis of printing done by them at specified rates. 12. The Assessing Officer framed an assessment order dated 25.03.1994 for the Assessment year 1991-92 wherein the claim of the assessee for deduction under Section 80-I of the Act with respect to Unit Nos. 2 & 3 was disallowed. The Assessing officer observed that printing machines were highly sophisticated and computerized and could be operated and managed without employing more than two or three persons. The expenses incurred by the assessee with regard to Unit Nos. 2 & 3 were mainly payments made for purchase of ink and consumables. The workers employed in operating Unit Nos. 2 ....
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.... in Unit Nos. 2 & 3, the CIT (Appeals) nonetheless upheld the decision of the Assessing Officer that deduction under Section 80-I of the Act was not allowable to the assessee as Unit Nos. 2 & 3 could not be construed as separate Units but were wholly dependent on Unit No. 1. The CIT(Appeals) upheld the decision of the Assessing Officer that Units Nos. 1, 2 & 3 were together engaged in publishing and printing and since the assessee company was more than 8 years old, deduction under Section 80-I of the Act would not be available to the assessee company. Whilst the CIT (Appeals) did not accept the contention of the assessee that Unit Nos. 2 and 3 were industrial undertakings independent of Unit No.1, the CIT(Appeals) accepted the contention that Unit Nos. 2 & 3 did produce Rs. articles' or Rs. things' as the printed material was different from the raw material used in producing them, namely, paper and ink. Thus, the condition that an industrial undertaking should manufacture or produce an article or thing was held to be satisfied. 14. The assessee preferred an appeal against the order dated 19.09.1994 passed by the CIT (Appeals) before the Income Tax Appellate Tribunal. Cross objec....
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.... the condition of Section 80-I in respect of carrying on manufacturing activity, was rejected by the Tribunal and the decision of the CIT (Appeals) in this respect was upheld. 17. In regard to the question of the number of workers employed by the Unit Nos. 2 or 3, the Tribunal accepted the contention of the assessee that employees of the sister concern M/s Vinapur (P) Ltd. who were directly employed in operating Units Nos.2 & 3 and were working permanently for carrying on the activities of Unit nos.2 and 3, were required to be taken into consideration as persons employed in the industrial undertaking for the purposes of qualifying for deduction under Section 80-I of the Act. However, since, there was no finding by the Assessing Officer in respect of the number of workers who were permanently employed in operating Unit Nos.2 and 3, the Tribunal remanded the matter to the Assessing Officer for the limited purposes of making the necessary enquiries to determine the number of persons who were directly employed in carrying on the activities of Unit Nos.2 and 3 irrespective of whether the workers were employees on the rolls of the assessee or on the rolls of M/s Vinapur (P) Ltd. 18....
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....ng did not alter the character of paper so as to constitute manufacture or production. In order to qualify for deduction under Section 80-I of the Act, it is necessary that the industrial undertaking "manufacture or produce any article or thing." According to Mr Sahni, the manufacturing activity was carried out by Unit No.1 who published the periodicals and newspapers which were the final products. It is contended that although periodicals could be stated to be manufactured by the assessee, the same were the products manufactured by the assessee as a cohesive Unit and not by Unit Nos.2 or 3. It was submitted that the magazines published by the assessee would be a new commodity distinct from the paper on which it was printed and this product could not be stated to be manufactured by Unit Nos.2 & 3 but by the assessee which included Unit No.1 also. It was strongly urged that Unit Nos.2 & 3 were merely printing paper and further activities such as binding and cutting were not carried out by Unit Nos.2 & 3 and hence Unit Nos. 2 or 3 could not be considered as manufacturing any article or thing. D. Unit No.1 was established much earlier and was engaged in publishing as well as ....
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....rom any printer but the printer is not the manufacturer but a mere contractor. The findings of the Tribunal in our opinion conclusively show that the assessee was carrying on the activity of manufacturing and also of processing of books which are also goods. 11. The argument, namely, that the assessee was not mainly carrying on manufacturing or processing activities in view of the Tribunal's finding that "the assessee's activity cannot be called purely a trading activity " does not appeal to us. The assessee did not purchase any books from market or sell them at a profit. The assessee published books and sold them in the market. We also agree with the finding of the Tribunal that the assessee was also carrying on the processing activity inasmuch as the assessee had to do many things as stated in its order." 24. Mr Sahni submitted, that since the publisher of books is held to be a manufacturer, the same would mean that the printer could not be considered to be a manufacturer. Since it is admitted that Unit Nos. 2 & 3 were only carrying on the job of printing, by this analogy they could not be considered to have satisfied the condition as specified in Sec....
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....mediatory products are manufactured or produced, qualify for deduction under Section 80-I of the Act. In support of this contention, the learned counsel for the assessee has cited the decision of full Bench of Kerala High Court in the case of Midas Polymar Compounds Pvt. Ltd. v. Assistant Commissioner of Income Tax: (2011) 331 ITR 68 (Ker) [FB]. 28. The learned counsel for the assessee has also cited the decisions in the cases of CIT v. Hindustan Times Ltd.: (2000) 241 ITR 509 (Del), CIT v. Balaji Hotels & Enterprises Ltd.: (2009) 311 ITR 389 (Mad), and Ajay Printers (supra). In support of the contention that an industrial undertaking carrying on printing activity would qualify as an industrial undertaking which "manufactures or produces any article or thing". 29. It was also contended on behalf of the assessee that Unit Nos. 2 & 3 were independent industrial undertakings. Whereas Unit No. 1 is a publishing house, Unit Nos. 2 & 3 were printing houses. It was further submitted that the contention on behalf of the revenue that Unit Nos. 2 & 3 had been formed by splitting up of businesses was erroneous and had not been urged before either the CIT(Appeals) or the Tribunal. It was....
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....fits and gains from industrial undertakings after a certain date, etc.- (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof: Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words "twenty per cent", the words "twenty-five per cent" had been substituted." xxxxx xxxxx xxxxx xxxxx "(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely: (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business ....
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....ct indicates that the qualification of employing of 10 or more workers is not used in the context of persons employed by an assessee but in the context of the manufacturing process. This clearly means that the manufacturing process, which is carried on by an industrial undertaking, with the aid of power, must employ 10 or more workers to carry on the manufacturing process. The word 'employs' has not been used in the context of an employer and employee relationship between the assessee and the workers carrying on the manufacturing process, but in the sense of quantifying the number of persons to be deployed in the manufacturing process. 37. The expression "workers" is not defined in the Act and there is no reason to limit the expression "workers" as occurring in section 80-I(2)(iv) of the Act to only mean such workers as are employed directly by the assessee and ignore the workers who are engaged in the manufacturing process carried on by the industrial undertaking albeit employed through another agency. In the case of Commissioner v. Nanda Mint and Pine Chemicals Ltd.: (2012) 345 ITR 60 (Del) this court has, while considering the question of qualification as to the number of wor....
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....Act merely because the persons who were deployed in carrying out the activities of Unit Nos. 2 & 3 were engaged through the sister concern of the assessee. 39. In our view, the Tribunal was correct in not accepting the contention of the revenue that the workers in an industrial undertaking must be on the rolls of assessee for availing the benefit under Section 80-I of the Act. 40. The next issue that needs to be considered is whether Unit Nos.2 & 3 are engaged in manufacture or production of an article or thing. The contention on behalf of the revenue is that Unit Nos.2 & 3 cannot be stated to manufacture or produce any article or thing as the said Units were completely dependent upon Unit No.1. It is further contended that printing carried on by Unit Nos.2 & 3 of the assessee company only amounted to processing and the same could not be equated to manufacturing as manufacturing required that the product of the manufacturing process be a marketable product distinct from the raw materials used. It is also contended on behalf of the revenue that Unit Nos.2 & 3 were involved merely in job work and this according to the counsel for the revenue, did not amount to manufacture. 4....
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....less it is plainly necessary to do so in order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute." 44. The rule of literal construction has been followed by courts in various decisions and the language of a section is the best guide for its interpretation. In the case of Assessing Authority-cum-Excise and Taxation Officer v. East India Cotton Mfg. Co. Ltd.: [1981] 48 STC 239, the Supreme Court held as under:- "A statute must be construed according to its plain language and neither should anything be added nor should anything be subtracted unless there are adequate grounds to justify the inference that the Legislature clearly so intended." 45. We are unable to read the condition that an industrial undertaking must not carry on the manufacturing process on job work basis in order to avail the benefit of section 80-I of the Act in the language of 80-I(2) of the Act. 46. The reliance placed by the revenue on the decision of the Calcutta High Court in the case of A. Mukherjee & Co. (supra) is also, in our view, misplaced. In the said case, the question before the Court was whether a....
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....s also that the assessee was doing these works on job basis for other undertakings, by getting the raw material from them. When the assessee was entitled to claim exemption in respect of income derived from such processes doing for itself, we do not see any reason as to why he would not be entitled to so merely because the raw material component was being supplied by other customers and for whom the assessee was doing the job. In fact, deduction under section 80IB is given on the profits derived from the manufacturing process, being undertaken by the assessee which qualify for deduction. 10. The heat treatment is one of the processes through which the forgings are given the desired temperature and then cooled in a different manner which results in changing the mechanical properties desired by the customers. We are given to understand that there are various industrial undertakings which are specialized only in the heat treatment processes. Learned counsel for the assessee informed us, without refutation from the Revenue, that the forging involves heating to a desired temperature and then soaking the material at that temperature until the structure become uniform throughout ....
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.... activity" entitling it to claim "investment allowance" under section 32A." (emphasis supplied) 48. In the case of Midas Polymer Compounds P. Ltd. (supra) a full bench of the Kerala High Court held that an assessee who was engaged in mixing rubber with chemicals, process oil etc. to make compound rubber for tyre manufacturing companies on job work basis was entitled to deduction under section 80-IB of the Act. 49. The idea that carrying on job work necessarily excludes carrying on an activity of manufacture or production is in our view without any basis. The ratio of the decision in the case of Forging Ltd. (supra) is applicable to the facts of the present case and we accordingly hold that carrying on job work does not disentitle Unit Nos.2 & 3 from being considered as industrial undertaking for the purposes of section 80-I of the Act. 50. The next aspect which has been addressed at length by the counsel for the parties is whether Unit Nos.2 & 3 would fulfill the conditions as specified in Section 80-I(2)(iii) of the Act. It has been contended on behalf of the revenue that printing does not alter the character of raw materials and cannot constitute manufacture. It....
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....name, character or use. 52. In the present case, Unit Nos.2 & 3 are engaged in printing. The raw materials used are paper, ink and other consumables which are completely distinct from the printed paper that results from the activity on in Unit Nos.2 & 3. We are unable to accept the contention that the printing does not alter the character of the paper used and there is no distinction between the raw paper and the resultant product. The purpose and usage of a blank paper is completely different from the use and purpose of a printed magazine or periodical. Once the blank paper undergoes a process of printing, the character of blank paper changes completely and the content of the printed material now becomes the identity of a printed paper. No one can say that blank paper and printed article are one and the same and in our opinion it can hardly be said that printing carried out in an industrial undertaking would not amount to manufacturing. A printed magazine or periodical even if it is not bound has a definite identity and its usage is completely different from a blank paper on which it is printed. 53. Having stated above we must add that the expression used in Section 80-I (2)....
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....glish Dictionary includes "an inanimate material object", "a material substance", "That which one possesses: property, wealth". 56. It is apparent that the expression "article or thing" is extremely wide. The question thus arises is whether the printed paper which is produced in Unit Nos.2 & 3 falls within the sweep of the expression 'article' or 'thing'. We are unable to think of any reason to exclude the printed paper produced by the assessee in Unit Nos.2 & 3 from the ambit of the expression 'article' or 'thing'. The language of Section 80-I (2)(iii) of the Act, thus clearly, indicates that Unit Nos.2 & 3 do "manufacture or produce an article or thing". 57. The Supreme Court in the case of Commissioner of Income Tax v. SESA Goa Limited: (2004) 271 ITR 331 (SC) considered the question whether extraction and processing of iron ore amounted to manufacture or not in the context of availability of investment allowance under section 32(A) of the Act in respect of machinery used in the mining activity. In that case, revenue contended that processing of iron ore did not produce any new product and thus the benefit of Section 32(A) of the Act was not available to th....
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....he Act would include it within its ambit. 58. The decision of the Supreme Court in the case of N. C. Budharaja & Co. (supra) and Sesa Goa Limited (supra) have been followed by the Supreme Court in the later decision of India Cine Agencies v. Commissioner of Income Tax: (2009) 308 ITR 98. In this case the Supreme Court accepted that the meaning of the word "production" or "produce" was wide enough to include conversion of jumbo rolls of photographic films into small flats and rolls in the desired sizes and held that the benefits of section 80-I of the Act would be available in respect of an industrial undertaking engaged in such activity. 59. We, accordingly, reject the contention of the revenue that Unit Nos.2 & 3 fail to fulfill the conditions as specified in Section 80-I(2)(iii) of the Act. 60. The next issue which has been raised on behalf of the revenue is that the benefit of Section 80-I of the Act should be denied to the assessee as Unit Nos.2 & 3 have been formed by splitting up of the business of the assessee and thus, the condition under Section 80-I(2)(i) of the Act has not been met. 61. The contention that Unit Nos.2 & 3 do not qualify the condition under Sec....
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.... addition to the existing Unit and were not formed by transfer of any asset from Unit No.1. Unit Nos.2 & 3 contained highly sophisticated machines capable of carrying on printing at enormous speeds. This facility of high speed printing of the quality and the kind of which Unit Nos.2 & 3 are capable of were not available in Unit No.1. Unit No. 1was mainly engaged in publication and also carried on the job of composing, processing and printing of sheet fed presses. Merely, because the activity of printing was carried on by Unit No.1 also and the Unit No.1 was utilising the capabilities of Unit Nos.2 & 3 by getting job work done from them does not lead to the conclusion that Unit Nos.2 & 3 had been formed by splitting of the business of Unit No.1. The test whether industrial undertaking fulfills the condition as imposed under Section 80-I(2)(i)of the Act is not whether some part of the business of an assessee is carried on by the newly established undertaking but whether the newly established undertakings are formed by splitting up or reconstruction of the business of the existing Unit. 64. In the case of Textile Machinery Corporation Ltd. (supra), the Supreme Court held that the a....
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....ial undertakings independent from the existing one inasmuch as they can independently stand and function as separate Units. The relevant extract from the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. (supra) is quoted below:- "Section 15-C partially exempts from tax a new industrial Unit which is separate physically from the old one, the capital of which and the profits thereon are ascertainable. There is no difficulty to hold that Section 15-C is applicable to an absolutely new undertaking for the first time started by an assessee. The cases which give rise to controversy are those where the old business is being carried on by the assessee and a new activity is launched by him by establishing new plants and machinery by investing substantial funds. The new activity may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new under-taking must be an integrated Unit by itself wherein articles are produced an....
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.... Unit No. 1 to Unit Nos.2 & 3. 68. In order to qualify under Section 80-I(2)(i) of the Act, the newly established industrial undertaking should not be formed by splitting, or reconstruction of a business already in existence. The key word in the condition imposed under section 80-I(2)(i) of the Act is "formed". Thus, what is to be considered is whether formation of new industrial undertaking was a result of splitting up of business. We are unable to agree that a new undertaking would be disqualified under section 80-I(2)(i) of the Act simply for the reason that the activity carried on in a new undertaking was of a similar nature to one of the activities being carried on in the existing undertaking even though the new industrial undertaking is established in addition to the existing one without transfer of any assets to the newly formed undertaking. In our view, the test to be applied is whether the new undertaking has been formed as an undertaking independent of the existing undertaking and is capable of carrying on its activity independent of the existing Unit. In this regard, we agree with the view taken by the Tribunal that the test of whether Unit Nos.2 & 3 were independent ....
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....aw that the principles of res judicata do not apply to income tax proceedings and assessment for each year is an independent proceeding. It is now equally well established that issues that have been settled and accepted over a period of time should not be revisited in subsequent assessment years in absence of any material change which would justify the change in view. 71. The Supreme Court in the case of Radhasoami Satsang (supra) has held that unless there is a material change in justifying the revenue to take a different view the earlier view which has been settled and accepted of a several years should not be disturbed. The relevant extract from the said judgment is quoted below:- "We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a Unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in....
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....sessment year 1973-74. The assessee was denied that claim by the Assessing Officer. For this reason, the Assessing Officer denied the claim in this assessment year as well, taking note of the fact that the matter pertaining to 1973-74 was pending before the Income Tax Tribunal. It is a matter of record that the appeal filed by the assessee for the assessment year 1973-74 was allowed by the Income Tax Appellate Tribunal. The effect thereof was that the assessee was granted the requisite deduction under Section 80J of the Act for the assessment year 1973-74. The Department has sought reference under Section 256(1) of the Act which reference application was also rejected by the Tribunal. Likewise, for the assessment years 1974-75 and 1975-76, the claims of the assessee were allowed. The assessee, once given the deduction under Section 80J of the Act is entitled to such a deduction for a period of 5 years. If the assessee has been allowed the benefit of Section 80J in the last three preceding years, there is no reason to deny the same for the instant assessment year. We, therefore, answer this issue also in favour of the assessee and against the revenue." 74. In the present....
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....ly succeeding the initial assessment year. Surely in cases where an assessee is held to be eligible for deduction in the initial assessment year, the same cannot be denied in the subsequent assessment years on the ground of ineligibility since the set of facts which enable an assessee to claim to be eligible for deduction under section 80-I of the Act occur in the previous year relevant to the initial assessment year and have to be examined in the initial assessment year. In such cases, where the facts on the basis of which the deductions are claimed are subject matter of an earlier assessment year and do not arise in the current assessment year, it would not be possible for an Assessing Officer to take a different view in the current assessment year without altering or reopening the assessment proceedings in which the eligibility to claim the deduction has been established. 76. In cases where deduction is granted under Section 80-I of the Act, the applicability of the Section is determined in the year in which the new industrial undertaking is established. The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Ac....