Project also has commercial shops, it is entitled to Sec 80IB(10) benefits

 

Income tax - Whether when project also has commercial shops, it is entitled to Sec 80IB(10) benefits if it was commenced prior to amendment in Sec 80IB from April 1, 2005 - Yes, rules ITAT

PUNE, JULY 15, 2011: THE question before the Tribunal is - Whether when the project has also commercial shops, it is entitled to deduction u/s 80IB(10) if it was commenced prior to the amendment brought into section 80IB(10) w.e.f. 1st April, 2005. Yes is the Tribunal's answer.

Facts of the case

AO denied deduction claimed u/s. 80 IB(10) on the basis that section 80IB was not applicable to a project which contained shop/commercial establishment and it did not remain a `Housing Project' - the assessee had constructed 66 shops being commercial premises included in the project admeasuring 9404 sq. ft. which was as per the assessee was about 11.88% but as AO about 12.41%.

CIT (A) confirmed the disallowance observing that the commercial construction was more than 5% or 2000 sq.ft. as per the amended provisions of Sec. 80IB (10) w.e.f. 1.4.2005. In A.Y. 2005-06, the amended provision was very much in operation.

Assessee contended that prior to the amendment in Section 80 IB(10) w.e.f. 1.4.2005, there was no restriction on the area for commercial purpses. By Finance Act 2004, the Legislature provided a ceiling of 2000 sq.ft. or 5% of the total area whichever is less. Hence, if a project was commenced prior to A.Y. 2005-06, there was no limit prescribed and accordingly, the assessee's project had satisfied all the conditions laid down in Sec. 80 IB (10). Sec. 80IB(10) states that the profit derived from the "housing project" is entitled to deduction. However, the words "housing project" is not defined in the Section. Therefore, the definition had to be considered in its general meaning and as understood in common parlance.

Further contended that CBDT vide its clarifications dt. 4th May 2001, clarified that in "housing project" certain shopping or commercial area would be mandatory – any project which was approved as a housing project by local authority would be eligible. When the assesees started the project, the old provisions of Section 80 IB(10) were on the Statute in which there was no ceiling on the portion of the commercial area – the housing project could include the commercial portion along with the residential portion. Hence, in view of the decision of the Special Bench in the case of Bramha Associates (2009-TIOL-218-ITAT-PUNE-SB), the assessees were entitled to deduction u/s. 80 IB (10).

Regarding applicability of amended provision to those projects where the project was started and completed before 1.4.2005, the assessee contended that the issue was directly covered by the decision of Mumbai Bench of the Tribunal in the case of Hiranandani Akruti J.V. v/s. DCIT, ITA No. 5416/Mum/2009 (A.Y. 2006-07) wherein it was held that the amended Section would apply to the projects started after 1.4.2005. If the project was commenced earlier, the assessee had not known that the Legislature would put such a restriction in future – the assessees were given an assurance by the Legislature that the profits from the project would be eligible for deduction even if, the project contained commercial portion and the approval was obtained before 1.4.2005 – the deduction had to be given on the basis of promissory estoppal also – it was further contended that if the assessee had followed the WIP method, the income from the project would had been taxable in the earlier years as the project was completed earlier to the amendment and in that case, as per the old provision, the assessee would had been eligible for the deduction. But, just because the assessee has followed the "Project Completion Method "in these cases, the deduction is being denied because it falls in A.Y. 2005-06.

Without prejudice it was contended that on the portion of commercial area exceeding limit under Clause (d), the deduction u/s. 80 IB(10) might not be granted but on the balance project, the deduction should be allowed.

Revenue contended that the amended provisions refer to all projects approved before 31.3.2007 and does not differentiate between Housing Project approved before 2004 or 2003. Had the Legislature wanted to make a distinction between projects commenced prior to 1.4.2005 and completed after the amendment by introducing clause (d) to Sec. 80IB(10) then the Legislature would have said so in clear terms.

In rejoinder the assessee contended that the deduction was continued and extended to the new project by extending the time limit for approval of the projects itself indicates that there was no intention to withdraw or cancel the deduction u/s. 80 IB(10).

After hearing both the parties, the ITAT held that,

++ by applying the principle of harmonious construction to interpret the provisions under Sub-section (10) to Section 80IB as amended w.e.f. 1.4.2005 the legislature always intended that the project must be approved by the local authority, thus in those approved projects where construction has been started much earlier than 1.4.2005, the assessees are required to complete the plan as it has been approved. As putting such assessees to complete the plan meeting out condition under clause (d) of the subsection would lead into absurdity and impossibility for the assessee and in contradiction to the provisions u/s. 80 IB(10) as prevailed at the time of approval and commencement of the construction of the project well before 1.4.2005;

++ in the case of Hiranandani Akruti J.V V/s. DCIT, the Mumbai Bench held that the law as existed when the assessee submitted its proposal and permission for carrying out the development was accorded and when the assessee commenced development is to be applied. In the present cases, in the case of Opel Shelter the project was commenced on 23.2.2001 and even completed on 14.5.2004, similarly in the case of D.S. Kulkarni and Associates, the project was commenced on 12.4.2001 and completed in the month of November 2003. Thus, the assessees were supposed to complete the projects as per the law as existed in the A.Y. 2001-02 in the case of Opel Shelters and in the A.Y. 2002-03 in the case of D.S. Kulkarni and Associates. Thus following the decision in the case of Hiranandani Akruti JV V/s. DCIT it is held that amended provisions under Section 80 IB(10) w.e.f. 1.4.2005 are not applicable in the present case, hence assessees are eligible for the claimed deduction u/s. 80 IB (10) of the Act.

Whether services like repair and maintenance constitute an integral part o

 

Whether services like repair and maintenance constitute an integral part of manufacturing of Industrial Undertaking as per Sec 80IB - NO, rules ITAT SB

KOLKATA, AUG 18, 2011: THE issues before the Special Bench are - Whether services like repair and maintenance constitute an integral part of manufacturing of industrial undertaking - Whether any income derived from such jobwork of repair and maintenance is also eligible for Sec 80IB benefits and whether such income has any direct nexus with the main activity of the industrial activity. And the verdict has gone against the assessee.

Facts of the case

Assessee is a manufacturer of moulds for ball pen and mould parts. Revenue issued notices u/s 143(2) and 142(1). Assessee stated that it was a manufacturing unit and claimed deduction u/s. 80-IB of the Act but it failed to produce details due to fire break-out in the office premises of M/s Today's Writing Product Ltd and all the records were destroyed. Assessee HUF through Karta Shri `R' was one of the promoters/directors of `TWPL'. AO made assessment u/s 144 stating that assessee was selling as well as providing services to `TWPL' and another group concern `PWP' by way of repair and maintenance of moulds sold to them. Deduction claimed u/s 80IB in respect of repair and maintenance was disallowed stating that it provided only services for repairing and maintenance of moulds which did not constitute manufacturing activity and no new article or thing came into existence. CIT (A) allowed the appeal of the assessee following the order of the ITAT in preceding years.

In appeal, the Revenue contended that the repair and maintenance was not an ancillary activity of the assessee and once assessee did not file details and did not produce books of account, it was not possible to know the exact nature of `job work charges' on which assessee claimed deduction u/s 80IB. It was further contended that the Tribunal heavily relied upon erroneous interpretation of "job work charges". In the preceding year also nature of "job work charges" remained vague, unclear and liable to be misinterpreted by CIT(A) as well as Tribunal. The job work was nothing but repairing and maintenance of the mould which had been sold by the assessee earlier. Due to repairs and maintenance of old moulds, their life might be renewed and they might become useful for further use. But, the activity of repairing and maintenance brings no new article or thing, therefore, assessee was not eligible for deduction U/s 80IB of the Act on such job charges. Reliance was placed on the judgement of Apex Court in the case of Liberty India v CIT (2009-TIOL-100-SC-IT), wherein it was held that the words "derived from" are narrower in connotation as compared to the words "attributable to" and that by using the expression "derived from" the Parliament intended to cover sources not beyond the first degree and also that the source of receipts must be manufacture and production of an article. Deduction U/s.801B of the Act will be available to assessee only if a new article comes into existence as a result of manufacture or production but in the present case, assessee was doing only repairs and maintenance of old moulds which were sold by him earlier in the garb of so-called job charges. As a result of repairs and maintenance, no new articles came into existence. Accordingly, it was urged that the order of CIT(A) be reversed and that of the AO be restored.

On the order hand, the assessee contended that it was a manufacturer of moulds for ball pen and mould parts and these moulds were hollow design of ball pen parts which were manufactured with the help of Injection moulding machines. Mould manufactured consisted of the parts punches, pin point, guide pins, guide/degree bush, hanging pin/link rode, ejector bush and cavities which were also manufactured by the assessee itself. Manufacture of these parts with its own material as well as steel supplied by customers and sale of moulds as well as supply of mould parts manufactured qualifies for deduction u/s 80-IB of the Act, whether manufactured on its own material or on job work basis. It was further contended that supplying of manufactured parts in the course of after sales service s very much manufacturing activity. Assessee provided after sales service to its valued customers, which was essential for selling moulds. After sales service was an exclusive service to its own customers and it was not that assessee carried on the business of doing repair. It was an indispensable part of manufacturing, almost universally, undertaken by manufacturers to maintain confidence and dependence of the users and to retain market of manufactured items.

It was further contended by the assessee that until recently nowhere in Section 80 IA or 80 IB of the Act, no definition of the word `manufacture' was available. The absence of definition of the word was not by chance but by design to leave the word to its widest amplitude possible consonant with incentive nature of benefits of deduction/exemption under various sections hinging on manufacture as the central condition precedent. Under Export Import Policy 2002 to 2007, the word `Manufacture' is defined as "Manufacture means to make, produce, fabricate, assemble, process or drawing into existence by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, polishing, blending, reconditioning, repair, refurbishing, testing calibration, reengineering. "Manufacture" for the purpose of this policy shall also include agriculture, aquaculture, animal husbandry, floriculture, pisci-culture, poultry, sericulture, viti-culture and mining." which is inserted in Explanation 1 below sub section 9 of section 10AA by insertion of clause (c) of Schedule of the SEZ Act where the said definition is lifted. The work relating to "repair" finds place in definition of "manufacture" as adopted for the purpose of Section 10AA of the Act and it is for the first time that a definition of the word "manufacture" is available in the Act. Logic for calling into aid the definition in section 10AA of the Act is straightforward and forthright and provisions of deduction in Section 80-IB of the Act are undisputedly meant to encourage entrepreneurs to set up manufacturing undertakings in identified backward areas. This section gives entrepreneurs reward for undergoing hardihood in venturing out in such areas and contributing towards nation's strife for even growth of the industry nationwide. So, it is essentially an incentive provision and a relief provision as well. This needs a purposive approach while giving the word "manufacture" its connotation. It was further contended that since definition of "manufacture" in Section 10AA of the Act includes repair as one of the parameters of the expression "manufacture", it is only fair, reasonable and irresistible that repair should also be taken as a parameter of "manufacture" for the purpose of Section 80-IB of the Act. There is nothing in the object of Section 80-IB of the Act, which can be said to be repugnant to the object of Section 10AA of the Act. Both provisions stand on equation in regard to the basic nature of the objects, i.e., growth of industry - one, for the purpose of export development and the other for the purpose of removing the pockets of industrial backwardness of the national economy. Further in case of doubts the construction most beneficial or favourable to assessee should be adopted even if it results in his obtaining a double advantage and if it is a case of considering respective hardships or inconveniences of revenue and assessee, the court should lean in favour of assessee.

After hearing both the parties, the Special Bench, ITAT held that,

++ the expression used in section 80-IB of the Act is "where the gross total income of an assessee includes any profits and gains derived from any eligible business 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….", it means that the purpose for providing deduction from business profits u/s. 80-IB of the Act was to encourage industrial activity in India and it is inconceivable that deductions should be made available in respect to profits and gains which are not derived from an activity having a direct nexus to the industrial activity as contemplated in this section. The entire section has to be read as a whole and interpretation placed thereon has to fit the overall scheme of the provision, which is to encourage industrial activity in India and if the interpretation sought to be placed by the assessee is accepted, then it might possibly lead to a situation where profits from repairs and maintenance apart from job work for which industrial undertaking has been set up for manufacturing may undertake very little manufacturing in an assessment year but assessee yet claimed deduction from the profits and gains of business including repairs and maintenance;

++ service and maintenance is not an integral part of manufacturing activity of industrial undertaking and as is clear from the opening word of section 80-IB of the Act that deduction in respect of profits and gains from certain industrial undertaking is to be allowed under the provisions of section 80-IB of the Act while computing taxable income in respect of profits derived from an industrial undertaking and not from any other activity which has no immediate or direct nexus to the essential activity of the industrial undertaking. Section 80-IB of the Act uses the opening word that where the gross total income of assessee includes any profits and gains derived from any business and the deduction under this provision be allowed in computing the total income of the assessee from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. The Apex Court has also drawn a distinction between the expression `derived from' and `attributable to' in the case of Cambay Electric Supply Co. Ltd Vs. CIT (2002-TIOL-76-SC-IT), wherein it is held that the expression `attributable to' was wider in import than the expression `derived from'. But in the present case, the assessee's source of income is from repairs and maintenance i.e. after sale services and it may have commercial connection between the profits earned and the industrial undertaking but industrial undertaking itself is not the source of this profit. This profit from repair and maintenance earned by assessee is not a direct yield from industrial undertaking as the word used in section 80-IB of the Act of profits and gains derived from;

++ the provisions of section 10AA(9) and explanation (1) below section 10AA(9) of the Act is for the purpose of this section only and it cannot be enlarged to other chapters of this Act as section 10AA is a code in itself and it gives complete exemption to the income earned by units in SEZs. The income earned from units in SEZs do not form part of total income u/s. 10AA of the Act, whereas u/s. 80-IB of the Act the deduction is to be allowed where gross total income of assessee includes any profits and gains derived from business profits of industrial undertaking while computing the total income of the assessee. Inclusion of the definition of `manufacture' as assigned in clause (r) of section 2 of the SEZ Act, 2005 in section 10AA of the Act, will not apply to other provisions of the Act, particularly section 80-IB of the Act in view of specific mention in Explanation (1) that these definitions are for the purposes of this section i.e. sec. 10AA of the Act. There is marked difference between the provisions of section 10AA of the Act that is meant for exemption of income from the total income of the Assessee, whereas section 80-IB of the Act grants deduction to the assessee from the profits and gains derived from its industrial undertaking and that also from the business of the industrial undertaking that had directly yielded that profit;

++ there is no quarrel over the proposition and in case the assessee is selling moulds manufactured by it and spare parts of moulds also sold for doing repairs and maintenance, qua sale of moulds and spare parts of moulds assessee is entitled for deduction u/s. 80-IB of the Act. But in respect to repair of moulds, it charges two types of receipts i.e. receipt on account of sale of spare parts as well as repairs and maintenance charges, in case of sale of spare parts assessee is entitled for deduction u/s. 80-IB of the Act but in respect to repairs and maintenance charges it is not entitled for deduction in view of clear provisions of section 80-IB of the Act, because that receipt has no immediate or direct nexus with the industrial undertaking and that is not the source of profit of industrial undertaking. Since there was a major fire broke out and as such entire record of the assessee was destroyed and it would not be possible to furnish books of account and other documents to AO instead of restoring the matter to AO and with a view to finally decide the issue it will be reasonable to consider 50% of the receipt as job work charges on which assessee will be entitled to get deduction u/s. 80-IB of the Act and the balance 50% is the receipt on account of repair and maintenance charges on which the assessee will not be entitled to get deduction u/s. 80-IB of the act.

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

ORDER

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:

Held

(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:

"Held

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).

Conclusion

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.

Profits & gains from industrial undertakings [Section 80-IB] - Acti

Income-tax : Profits & gains from industrial undertakings [Section 80-IB] - Activity of mixing rubber with chemicals, process oil, etc., for making compound rubber by an industrial unit is covered by section 80-IB

l Compound rubber produced by the assessee on job work for the tyre manufacturing companies is an intermediary from which tyre is manufactured; if processing of iron ore which is only raw material for producing iron therefrom, amounts to manufacture or production of any article or thing then there is no reason why compound rubber cannot be treated as an article produced by the assessee though for the tyre manufacturing company under contract meaning thereby that there is nothing in the section 80-IB to indicate that article or thing produced or manufactured should be final product in itself. - [2011] 9 taxmann.com 264 (Ker.)