Sunday, July 17, 2011

80-IB. Not employed requisite no of people

(2010) 34 (II) ITCL 511 (Chenn `A'-Trib)

Chiranjjeevi Wind Energy Ltd. v. ACIT

Counsel: Shri Saroj Kumar, for the Appellant q Shaji P Jacob, for the Respondent


This appeal by the assessee is directed against the order dated 16-2-2007 of Commissioner of Income Tax (Appeals)-I, Coimbatore for the assessment year 2004-05

2. The assessee has raised various grounds in this appeal. However, the only issues that arises is whether the Commissioner of Income Tax (Appeals) is justified in confirming the denial of claim of deduction u/s 80IB on the ground that the assessee has not complied with clause (iv) of sub-section (2) of section 80IB as the assessee has not employed the requisite number of workers.

3. We have heard the learned A.R. as well as the learned departmental Representative and considered the relevant records. At the outset, we note that this issue has already been considered and adjudicated by this Tribunal vide order dated 27.11.2009 in assessee's own case in I.T.A. Nos. 900, 901 & 902/Mds/2009 for the assessment years 2001-02, 2002-03 & 2006-07 in para Nos. 4 to 18 as under:

"4. We have heard the rival submissions and have carefully perused the Tribunal order vis-à-vis the facts of the case. At first site, we were of the opinion that the issue involved in all these appeals is squarely covered by the Tribunal order(supra) in assessee's own case and so it is an open and shut case. But the ld.AR pleaded for our indulgence by polemically submitting that he too relies on the same Tribunal order and even by following the finding given by the Hon'ble Tribunal the assessee is bound to succeed. It was argued that the Hon'ble Tribunal has held in its order dated 7-12-2007 on which the ld. Commissioner (Appeals) has relied, that the activity carried on by the assessee is only of assembling wind operated electricity generator and erection thereof in the place of customers and the same cannot be construed as a manufacturing activity entitling the assessee-company for the relief u/s 80IB. According to the ld.AR after the date of this order the following decisions have brought the activities of assembling also within the purview of manufacturing/production. The decisions on which the ld.AR has heavily relied on are as under:

CIT v. Shri Mahesh Chandra Sharma, (2009) 25 (I) ITCL 492 (P&H-HC) : (2009) 308 ITR 222 (P&H) – Judgment dated 31.10.2008

India Cine Agencies v. CIT, (2009) 26 (I) ITCL 81 (SC) : (2009) 308 ITR 98 (SC) Judgment dated 12.11.2008

Vijay Ship Breaking Corpn. & Ors v. CIT (2009) 25 (I) ITCL 101 (SC) : (2009) 314 ITR 309 (SC)– Judgment dated 01.10.2008

CIT v. Anand Affiliates, (2010) 321 ITR 431 (P&H) : (2010) 229 CTR (P&H) 167 – Judgment dated 9.12.2008

CIT v. Perfect Liners (1983) 142 ITR 654 (Mad)

5. It was argued in the light of the above decisions that these are the later decisions and the Tribunal is bound to follow them now as these decisions were not available on 7-12-2007 when the Tribunal passed its order.

6. Per contra, the leared DR has relied on the Tribunal order and has further submitted that the assessee only assembles the wind mill and this would neither amount to production nor manufacturing activity.

7. After considering the rival submissions, we are of the considered opinion that the later judgments rendered subsequent to the Tribunal order have to be followed in their letters and spirit. There is a force in the submission of the ld.AR that the Tribunal has held that the assessee-company only `assembles' wind mills at its factory and put them at site of the customers. When the Tribunal rendered its decision in assessee-company's own case the `assembling activity' was not treated as a manufacturing/production activity. The fact found by the Tribunal in assessee-company's own case in assessment year 2003-04 have to be treated as correct until there is a change. The Tribunal has categorically held in its order relied on by the ld. Commissioner (Appeals) that the assessee is assembling wind operated electricity generator. The relevant portion of the Tribunal order is being extracted verbatim, herein as below:

"In view of this, the activity carried on by the assessee is only assembling wind operated electricity generator (emphasis supplied by us) and erection in the place of custom and that can not be construed as manufacturing activity and accordingly relief u/s 80IB can not be allowed.

Regarding the finding that the assessee has not employed more than 10 persons, the assessee has not placed any evidence to controvert the finding of the assessing officer. Further the basic condition that the assessee should manufacture or produce 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 has not been complied with by the assessee. Hence the question of probing into number of workers is only academic and does not require any adjudication."

8. Thus, it cannot be disputed that the assessee has been held to be carrying on the activity of `assembling' wind mills. This is also the admitted case of the revenue. The Hon'ble P&H High Court in the case of Shri Mahesh Chandra Sharma (supra) has categorically held on 31-10-2008 that `assembling' of wheels using different components amounts to `manufacture'. In that case the assessee was assembling wheels from rim, tyre, tube, bearing, drum, spoke, nipple and collar. This `assembling' has been held to be a `manufacturing' activity as under:

"In the absence of any definition in the Income-Tax Act, 1961 the word "manufacture" used in section 80-IB has to be given its ordinary meaning. The expression "manufacture" has been understood to mean transformation of goods into a new commodity commercially distinct and separate having its own character, use and name whether it be the result of one or several processes.

The assessee claimed deduction under section 80-IB which was disallowed by the of the Act on the ground that the assembling/job work done by the assessee did not amount to manufacturing activity, which was a condition for claiming deduction under section 80-IB of the Act. The Commissioner (Appeals) upheld the claim of the assessee and this was affirmed by the Income Tax Appellate Tribunal. On appeal to the High Court:


(i) that if a claim falls under section 80-IB of the Act, it could not be disallowed on the ground that the Tribunal erroneously made reference to section 80-IA.

(ii) That the assessee assembled the wheels from the raw material/components which were rim, tyre, tube, bearing, drum, spoke, nipple and collar by different processes.

The "wheel" was certainly a different item from the components which were used in the process. The assessee was entitled to special deduction under section 80-IB."

9. Again the Hon'ble P&H High Court in the case of Anand Affiliates (supra) has held `assembling' as `manufacturing' activity.

10. The Hon'ble Supreme Court in the case of Vijay Ship Breaking Corpn & Others v. CIT (supra) has elaborately given the definition of the word "production" as under:

"The important test which distinguishes the word `production' from `manufacture' is that the word `production' is wider than the word `manufacture'. Further, it is true that the Budharaja's case, the Division Bench has used the word `new article'. However, what the Division Bench meant was that a distinct article emerges when the process of ship breaking is undertaken. Further, the legislature has used the words `manufacture' or `production'. Therefore, the word `production' cannot derive its colour from the word `manufacture'. Further, even according to the dictionary meaning the word `production', the word `produce' is defined as something which is brought forth or yielded either naturally or as a result of effort and work. It is important to note that the word `new' is not used in the definition of the word `produce. Tribunal in the present case was right in allowing the deduction under sections 80HH and 80-I to the assessee holding that the ship-breaking activity gave rise to the production of a distinct and different article – CIT v. Vijay Ship Breaking Corpn & Ors (2003) 181 CTR (Guj) 134 set aside, CIT v. N.C. Budharaja & Co. & anr. (1993) 114 CTR (SC) 420: (1993) 204 ITR 412 (S.C) and CIT v. Sesa Goa Ltd (2004) 192 CTR (S.C) 577: (2004) 271 ITR 331(S.C.) relied on: Ship Scrap Traders & Ors. v. CIT (2001) 168 CTR (Bom) 489: (2001) 251 ITR 806 (Bom) approved."

11. Likewise, the Hon'ble Apex court has held in the case of India Cine Agencies as under:

"The assessee converted jumbo rolls of photographic films into small flats and rolls in the desired sizes. It claimed that the same amounted to manufacture/production for the purpose of allowances under sections 32AB, 80HH and 80-I of the Income-Tax Act, 1961. The High Court held that it did not. The assessee appealed to the Supreme Court:

Held: reversing the decisions of the High Court, that the assessee was entitled to the allowance under sections 32AB, 80HH and 80-I.

The word "production" or "produce" when used in juxtaposition with the word "manufacture" takes in bringing into existence new goods by a process, which may or many not amount to manufacture. It also takes in all the by-products, intermediate products and residual products, which emerge in the course of manufacture of goods."

12. The Hon'ble Madras High Court in the case of Perfect Liners has held as under:


The word "manufacture" has to be understood in a wide sense. After the rough castings are polished, the product is a new product which is utilized as component in internal combustion engines. The Tribunal has found that component parts are essential parts for internal combustion engines. Hence the Tribunal was right in law in holding that the assessee was entitled to higher development rebate at 35% under section33(1)(b)(B)(i).


The process of polishing rough casting which ae used as component in internal combustion engines, being a manufacturing activity the assessee is entitled to higher rate of development rebate under item (24) of Sch.V.

13. It was argued by the ld.AR that the Tribunal has not considered the term "production" and hence, the decision is per incuriam; and that in the light of the definition of the term "production" given by the Hon'ble Supreme Court as above, the activity of the assessee would not only amount to "production" but also to "manufacture".

14. We are in agreement with the ld.AR that even by following the Tribunal order supra, the assembling is also now to be held as a manufacturing activity in view of the subsequent decision of Hon'ble High Court. Thus,by following the Tribunal order on facts, we are of the considered opinion that the interpretation of law as laid down by the Hon'ble High Court and Hon'ble Supreme Court brings the assembling activities of the assessee under the definition of "manufacture" and "production". We cannot ignore the subsequent legal position which holds even the assembling activity as a manufacturing activity, rather we are bound to follow the same. The revenue could not successfully controvert the above recent legal position on the subject and the ld.DR only relied on other decisions from which only it could be inferred that if the assessee undertaking has been carrying on manufacturing/production activities, only then it is eligible for such a deduction. We are in agreement with the ld.DR to that extent. Moreover, it is nobody's case otherwise. But if we apply the latest case law to the facts established by the Tribunal in assessee's own case in assessment year 2003-04, the assessee-company becomes eligible for this deduction. Therefore, by accepting the factual position as culled out by the Tribunal in its order dated 7.12.2007 and by applying the latest legal position, we are bound to hold that the activities of the assessee is a `manufacturing/production' activity. Hence, we hold accordingly.15. The other important condition for claiming deduction u/s 80-IB is as detailed in the earlier part of this order.

As per the assessing officer, the assessee did not fulfill the condition Nos(iii) and (iv). Since now we have held that condition No.(iii) is also fulfilled by the assessee-company, now it remains to be examined whether condition No.(iv) is fulfilled or not. This condition says that

"in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power."

16. In this regard, the Tribunal in its order dated 7-12-2007 has not adjudicated upon and has left it open. The assessee claims that it has fulfilled this condition also, but the ld.DR says that this condition has not been fulfilled.

17. The second reason given by the assessing officer for denying 80-IB deduction is that the factory has not employed the minimum number of employees required for claiming this deduction. The assessing officer has mainly relied in this regard, on the statement of Shri Mani recorded on 5.1.2006 in which he has stated that he was only a permanent employee at the factory and that the assessee-company had not done any manufacturing activity in the factory but only wind mills are being `assembled' there. The argument as advanced by the ld.AR is that if the statement of Shri Mani is considered in toto in the light of other available evidences, it would be established that more than 12 employees were employed to carry out the assembling of the wind mills. It is not the requirement of the law whether these employees ought to be permanent, temporary or daily wager, as per ld.AR. He has shown us the copies of muster rolls of such employees and has also relied on certain case laws in support of his contention.

18. We have carefully treaded through the statement of Shri Mani. He has nowhere stated that except him no other worker was employed by the company. What, in content, he has stated is that he is only the permanent employee at the factory. He has confirmed the activities of assembling of wind mills. Actually section 80IB(2)(iv) says that such undertaking should employ ten or more `workers' if this activity is done with the help and aid of power. This section talks of workers and not of employees – whether permanent or temporary etc. The Hon'ble Mumbai Bench `D' of the ITAT in the case of ACIT v. Ms. Richa Chadha (2005) 3 SOT 55 (Mum-Trib) : (2005) 96 ITD 325 (Mum-Trib) has held that "All workers whether permanent or casual, employed by the assessee in the manufacturing process as well as in subsidiary activities are to be counted for determining compliance with the requirement of the Act, if ten or more workers were employed for substantial part of the working period of factory, it would be sufficient compliance of the condition". Copies of wage registers maintained during the relevant period have been produced before us and these were also produced before the assessing officer, but the assessing officer chose to rely on a statement of Shri Mani, an employee, that too by tearing it out of context of sworn statements of Shri R. Ramesh and of Shri R. Mani. These statements support the case of the assessee-company. There is force in the submission of the ld.AR that such huge activity cannot be carried on without the help of more than 10 workers. Although this issue could be restored to the file of the assessing officer, but it would amount to futile exercise given the fact that entire facts of this issue are available before us. Hence, we are of the opinion that the assessee-company fulfills all the eligibility criterion for deduction u/s 80IB. We order accordingly and allow all the appeals of the assessee for assessment years 2001-02, 2002-03 and 2006-07.

4. Following the earlier order of this Tribunal, we decide this issue in favour of the assessee and against the revenue.

5. In the result, this appeal filed by the assessee is allowed.

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