TaxTMI 
TaxTMI 
2013 (6) TMI 70
X X X X Extracts X X X X
X X X X Extracts X X X X
....51/2002, 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 the circumstances of the case the Tribunal was correct in law in holding that the activity of printing carried out by the assessee in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 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 various heads profits from these Units has been shown at Rs.1,31,77,889/- and Rs.20,33,099/- respectively. The receipts from these two Units do not include interest ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 & 3 were employees of another company Vinapur (P) Ltd. which was a sister concern of the assessee company. Vinapur (P) Ltd. did not carry on any other business but was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....strued 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 objections were also filed on behalf of the revenue against the finding of the CIT (Appeals) that Unit Nos.2 & 3 of the assessee company satisfied the condition of manufacturing an article or thing. The assessee also ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mber 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. Pursuant to the directions of the Tribunal, the Assessing Officer made the necessary enquiries as to the number of workers employed in Unit Nos.2 & 3 for the purpose of Section 80-I of the Act and concluded that more t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccording 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 printing periodicals in the portfolio of the assessee. It is contended that as Unit Nos.2 & 3 carried on the same activity which is performed by Unit No.1, the same would amount to splitting up of the existing business of the assessee and thus would disqua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gument, 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 Section 80-I (2)(iii) of the Act. 25. Mr Dua appearing on behalf of the assessee has contested the contentions raised on behalf of the revenue. It has been argued on behalf of the assessee that there is now no dispute that the number of workers employed in Unit 2 & 3 exceed 10 and thus the conditi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 pointed out that it is an admitted case that no machinery or equipment had been transferred from Unit nos. 1 to Unit Nos.2 & 3. Unit Nos. 2 & 3 had been established by importing new machinery from overseas and were in addition to the facilities already existing in Unit No.1. The learned counsel for the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as 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 workers to be employed for availing deduction under section 80-IB of the Act, held that casual and contractual workers are to be included while calculating the number of employees who are engaged in an Industrial undertaking. While deciding the controversy, this court adopted the reasoning of the Bombay High Court in the case of CIT v. Jyoti Plastic Works Pvt. Ltd.: (2011) 339 ITR 491 (Bom) and rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....& 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. 41. The arguments urged on behalf of the revenue with regard to Unit Nos.2 & 3 fulfilling the condition as specified in Section 80-I(2)(iii) of the Act are twofold. The first contention being that Unit Nos.2 & 3 are involved in job work and, therefore, the said Units cannot be considered as industrial undertakings which are involved in manufacture or production of articles or things. The second aspect is that the resultant printed material is required to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 publisher was carrying on manufacturing activity. In that case, it was contended on behalf of the revenue that the assessee did not own a printing press and the job of printing had been outsourced, the job of binding the books was also outsourced to a third party and therefore a publisher would not qualify as a manufacturer. The Court analyzed the business carried on by the assessee which included getting the manuscript for publication, deciding on a suitable format for the boo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the section and then cooled in a different manner to achieve the desired mechanical and molecular bonding properties. The cooling of the material at some predetermined rates causes the formation of desired structure within the metal for the desired properties with the aim (i) to improve the mechanical property such as tensile strength, hardness, deductibility, shock resistance, etc., (ii) improve machinability, (iii) increase resistance to heat and corrosion (iv) relieve stresses developed due to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 has been further contended that as the printed material which results from the activities carried on in Unit Nos. 2 and 3 is also not known to the market as a distinct product as the same cannot be dealt with without subjecting the printed material to a binding process which is not carried on by Unit Nos.2 & 3. 51. Mr Sahni has relied strongly on the decision of the Supreme Court in the case of Delhi Cloth & General Mills (supra) in support of his contention. We do not think that the decision is of much assis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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)(iii) of the Act is "manufacture or produce any article or thing". The word 'produce' has wider meaning than the word "manufacture". The meaning of the word 'produce' is similar to the word "production" and it has been held by the Supreme Court in the case of CIT v. N.C. Budharaja & Co.: (1993) 204 ITR 412 (SC) that while every manufacture can be characterized as production, every production need not amount to manufacture. The quoted passage from the said decision of the Supreme Court is as under: "The word 'production' has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the assessee. As per section 32(A)(2)(b)(iii) of the Act, deduction on account of investment allowance is available to the assessee in respect of a plant owned by the assessee which is wholly used for the purpose of assessee's business in an industrial undertaking for the purposes of the business of "construction or manufacture or production of any article or thing". The Supreme Court noted that the meaning of the word production was defined only in the Oxford English Dictionary as "amongst other things that which is produced; a thing that results from any action, p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Section 80-I(2)(i) of the Act has not been urged before any of the authorities and has been argued for the first time before us. However, we find that before the CIT (Appeals) and the Tribunal it was urged on behalf of the revenue that Unit Nos.2 & 3 were not independent Units and were functioning cohesively with the Unit No. 1 as the raw material of paper was procured by Unit No.1 which was given on job work to Unit Nos.2 & 3 for carrying on the printing activity. The other activities were carried on by Unit No.1 and the binding of periodicals was outsourced to another conc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 answer whether a new industrial undertaking was stated to be formed by splitting up or reconstruction of the existing business would depend upon the facts of each case. In that case, the Supreme Court was considering the exemption from tax liabilities as available to an assessee under Section 15C of the Income Tax Act, 1922. The condition imposed under Section 15C(2)(i) of the Income Tax Act, 1922 is similar to the language of Section 80-I2(i) of the Act. The Section 15C of the Income Tax Act, 1922, inter alia, applied to industrial undertakings which were "not formed by splitting up, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 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 and at least" a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognisable Unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of Section 15-C the industrial Unite set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities." 66. In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 undertakings or not is not to be adjudged on the basis whether the said Units were carrying on printing work for Unit No.1 but whether the Units were capable of independently carrying on the business for which they were formed. The assessee had contended that whereas Unit No.1 was publishing house Unit Nos.2 & 3 were printing houses and the work of printing carried out by through high speed printing machines was a business which could be carried out independent of Unit No.1. The assessee had also been given examples of entities who were engaged in carrying on the printing activity on a standalone basis and w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Rad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 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 case, the claim of the assessee under section 80-I of the Act was examined and allowed by the Assessing officer for three years preceding the assessment year 1991-1992. It is relevant to note that assessments in the earlier years i.e relating to assessment years 1988-89, 1989-1990 and 1990-1991 has not been disturbed by the Assessing Officer and there has been no change that could justify the Assessing officer adopting a different view in the assessment years 1991-92 and thereafter. As stated hereinbefore, in certain cases where the issues involved have attained finality on account of the subject matter of dispute having been finally adjudicated, the questio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le 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 Act has to be determined in the year in which the new industrial undertaking is established. Although the deduction under Section 80-I of the Act is available for the assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the assessment year in which the new undertaking was formed. In such circumstances, it would not be possible for an Assessing Officer to reject the claim of an assessee for deduction under Section 80-I of the Act on the ground that the industrial undertaking in respect of which deduction is claimed did not fulfill the conditions as specified in Section 80-....