JUDGMENT
1. The Tribunal, Delhi, has referred the following question of law under Section 256(1) of the IT Act, 1961 ('the Act'), for opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee was not entitled to the relief under Section 80I ?"
2. Briefly stated, the facts giving rise to the present reference are as follows :
The applicant is an individual. He purchases yarn from the market and gives the same to the weavers to weave cloth as per his design. The cloth is then dyed and calendered. The applicant gets this work done on job basis from others. He does not have any factory or machinery of his own. During the asst. yrs. 1982-83 and 1983-84 he claimed deduction under Section 80I of the Act. The claim was rejected by the AO, which has been upheld by the AAC as also by the Tribunal. The Tribunal has held that admittedly, the applicant has no manufacturing activity wherein he might be carrying on any manufacturing process with the aid of power and wherein he might be engaging 10 or more workers. It was of the view that a small scale industrial undertaking to be taken under Section 80I of the Act, a person has to own plant and machinery or has to hire plant and machinery, the value of which should be Rs. 20 lakhs or less. The manufacturing process should be undertaken in the premises of the assessee's industrial undertaking and 10 or more persons should be employed.
3. We have heard Sri Vikram Gulati, learned counsel for the applicant, and Sri Shambhoo Chopra, learned standing counsel for the Revenue.
4. Learned counsel for the applicant submitted that the applicant was engaged in the manufacturing activities as he purchases yarn from the market and gives the same to the weavers to weave cloth which was subsequently dyed and calendered on jobwork basis. Thus, it is an industrial undertaking as he employed more than 10 persons in the process and entitled for deduction under Section 80I of the Act. In support of aforesaid submission he relied upon the following decisions :
1. Orient Longman Ltd. v. CIT (1981) 130 ITR 477 (Del);
2. CWT v. Radhey Mohan Narain (1982) 135 ITR 372 (All);
3. CIT v. Western Mechanical Industries (P) Ltd. (1991) 187 ITR 265 (Bom);
4. CIT v. U.P. State Agro Industrial Corporation Ltd. (1991) 188 ITR 370 (All);
5. CIT v. Penwalt India Ltd. (1992) 196 ITR 813 (Bom).
5. Shri Shambhoo Chopra, learned standing counsel, submitted that the applicant-unit cannot be said to be an industrial undertaking within the meaning of Section 80I of the Act. According to him the Expln. 3 to Section 80-I(2) of the Act gives the same meaning of small scale industrial undertaking which has been given in Clause (b) of the Explanation below Sub-section (8) of Section 80HHA of the Act. It provides that an industrial undertaking should employ 10 or more workers in a manufacturing process carried on with the aid of power, or employ 20 or more workers in a manufacturing process carried on without the aid of power. In support of the aforesaid plea he relied upon the following decisions :
1. CIT v. Sri Meenakshi Asphalts (2004) 266 ITR 626 (Mad);
2. CIT v. Vijay Granites (P) Ltd. (2004) 267 ITR 606 (Mad).
6. Having heard learned counsel for the parties we find that the applicant had no manufacturing unit. He purchases yarn and gives it to the weavers who weave cloth according to the design supplied by the applicant. Thereafter, the applicant gets it dyed and calendered on jobwork basis. For ready reference of Section 80-I(1), Clause (iv) of Section 80-I(2), Expln. 3 to Sub-section (2) of Section 80I and Clause (b) of Explanation below Sub-section (8) of Section 80HHA of the Act, are reproduced herein below :
"Section 80I. Deduction in respect of profits and gains from industrial undertaking 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 being substituted.
80-I(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :
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(iv) 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 powers.
Explanation 3 : For the purposes of this sub-section, "small scale industrial undertaking" shall have the same meaning as in Clause (b) of the Explanation below Sub-section (8) of Section 80HHA.
(b) an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year for the purposes of [the business of the undertaking does not exceed.--
(1) in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees;
(2) in a case where the previous year ends after the 31st day of July, 1980, but before the 18th day of March, 1985, twenty lakh rupees; and (3) in a case where the previous year ends after the 17th day of March, 1985, thirty-five lakh rupees.
and for this purpose the value of any machinery or plant shall be,--
(i) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and
(ii) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner or such machinery or plant."
Clause (iv) of Section 80-I(2) specifically provides that where the industrial undertaking manufactures or produces articles or things, the undertaking should employ 10 or more workers in a manufacturing process carried on with the aid of power, or employ 20 or more workers in a manufacturing process carried on without the aid of power. This is one of the conditions to be fulfilled by an industrial undertaking in order to claim the benefit of Section 80I of the Act. Clause (b) of the Explanation below Sub-section (8) of Section 80HHA of the Act, which has been made applicable by Expln. 3 to Sub-section (2) of Section 80I of the Act in respect of small scale industrial undertaking, specifically provides that in a case where the previous year ends after 31st day of July, 1980, but before the 18th day of March, 1985, the value of machinery and plant installed for the purpose of business of the undertaking should not exceed rupees twenty lakh and for this purpose the value of the machinery and plant in case of any machinery or plant owned by the assessee is treated the actual cost and where it is taken on hire the actual cost as in the case of owner of such machinery and plant. Thus, from the aforesaid provision it is absolutely clear that in order to claim the benefit of Section 80I of the Act the assessee should have to own plant and machinery as also to employ in the manufacturing process 10 or more persons, as the case may be.
7. In the case of Orient Longman Ltd. (supra), the Delhi High Court was considering the question as to whether the company which carries on business of publication, purchase and sale of books was an industrial company within the meaning of Section 2(6)(c) of the Finance Act, 1970, which defines the industrial company as follows : "The industrial company means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacturing or processing of goods or in making."
8. The Delhi High Court has held that books in the manufactured state which are sold to customers are goods and their manufacture or processing is, as in the case of other goods, the conversion of paper and the manuscript written by an author into a book. This certainly involves either manufacture or processing, and, there is no doubt that the assessee was engaged in the business of manufacturing or processing books and, therefore, the assessee was an industrial company.
9. In the case of Radhey Mohan Narain (supra), this Court was considering the question as to whether the firm engaged in trading in printed cloth, had no fixed assets of its own and was getting its trade requirements of goods from others on jobwork basis was an industrial undertaking within the meaning of Section 5(1)(xxxii) of the WT Act, 1957, or not. Taking into consideration the Explanation appended to Clause (xxi) which defines the term 'industrial undertaking1 to mean 'an undertaking engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining1, this Court had held that the methods or techniques adopted to convert the plain white cloth into printed dyed bed-spreads, scarves and garments entitles the business to be treated as an industrial undertaking belonging to the firm and, therefore, entitled to claim exemption.
The aforesaid decisions are of no help to the applicant as the definition of the small scale industrial undertaking as has been defined in Clause (iv) of Sub-section (2) of Section 80I of the Act is entirely different.
10. In the case of Western Mechanical Industries (P) Ltd. (supra), the Bombay High Court had held that the heavy duty cranes were manufactured by the assessee-company as per orders and specifications received from various persons is covered under industrial machinery as enumerated in item No. 8A of the Industries (Development and Regulation) Act and a liberal consideration should be given by Section 80I of the Act to priority industries in order to carry out the objects of the section.
The aforesaid decision is of no help to the applicant as even if a liberal consideration is given, the applicant is not fulfilling the conditions prescribed in Clause (iv) of Sub-section (2) of Section 80I of the Act as also the Explanation thereto.
11. In the case of U.P. State Agro Industrial Corporation Ltd. (supra), this Court has held that though the activity of the assessee was one of assembly of component parts of a tractor, it was not a case where a tractor was imported in a knocked-down condition and re-erected. A large number of parts were imported and they were first knit into 23 components, which, in turn, were fitted together to form a tractor. Therefore, the activity of the assessee amounted to manufacture or production of articles and it was entitled to the benefit of the provisions of Section 80I and Section 80J.
12. In the case of Penwalt India Ltd. (supra), the Bombay High Court has held that an assessee would be said to be engaged in manufacturing activity if he is doing a part of the manufacturing activity by himself and, for the rest of it, engages the services of somebody else on a contract other than a contract of purchases.
13. In the case of Sri Meenakshi Asphalts (supra), the Madras High Court has held that no new product emerged from the process employed where the assessee which was a small scale industrial undertaking made blown bitumen. What was bitumen continued to be bitumen, but with lesser quantity of oil and moisture. The purposes for which it could be used were only the purposes for which the use of bitumen was appropriate. Heating of the scrap bitumen in order to obtain solid bitumen, by causing the moisture and oil in the scrap bitumen to evaporate or separate, could not be compared to curing of coffee and the conversion of raw berry into the coffee beans, and the assessee was not entitled to special deduction under Sections. 80HHA and 80I of the Act.
14. In the case of Vijay Granites (P) Ltd. (supra), the Madras High Court has held that the act of cutting and polishing granite slabs before exporting them did not involve any process of manufacture or production and, therefore, deduction under Section 80I of the Act was not available.
The aforesaid decisions referred to by the learned counsel for the parties did not throw any light on the issues involved in the present reference.
15. On conjoint reading of Clause (iv) of Sub-section (2) of Section 80I of the Act and Expln. 3 to Sub-section (2) of Section 80I of the Act r/w Clause (b) of the Explanation below Sub-section (8) of Section 80HHA of the Act, we are of the considered opinion that for claiming deduction under Section 80I of the Act, the industrial undertaking should be involved in manufacturing or producing any article or thing by employing 10 or more workers with the aid of power or 20 or more workers in the manufacturing process carried on without the aid of power. Moreover, the industrial undertaking should also either own the plant and machinery or should have taken the plant and machinery on hire.
16. It may be mentioned that under Section 80I of the Act deduction is allowed in respect of profits and gains from industrial undertaking only. It is not available to all the activities of an assessee.
17. Thus, we are of the considered opinion that as the applicant neither owns any plant or machinery nor has employed 10 or more persons as required in such undertaking, the Tribunal "was justified in disallowing claim of exemption under Section 80I of the Act.
18. In view of the foregoing discussions, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee. However, there shall be no order as to costs.