TMI Blog2008 (6) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of 100 workers shall be additional wages. The AO further noted that 236 new regular workmen were employed by the assessee during the year under consideration. He, therefore, made deduction of 30 per cent of additional wages paid to 136 new workmen. 3. The matter was carried in appeal before the learned CIT(A). It was submitted that s. 80JJAA of the Act was inserted by the Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999 with an object to promote employment at a large scale and to provide tax incentives to the employers employing a large number of persons. The AO had also not disputed the eligibility of the assessee to claim deduction under s. 80JJAA of the Act. Out of Rs. 52,75,173, the amount of Rs. 7,69,770 relates to additional wages paid to the workmen employed in previous year relevant to asst. yr. 2001-02. As on 31st March, 2000, there were 961 regular workmen which increased to 1,160 as on 31st March, 2001. Thus, there was net increase in number of regular workmen to 207 giving increase of 21.54 per cent as against 10 per cent required under the law. The condition that the increase in number of regular workmen during the year should not be less than 10 per cent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a sum of Rs. 19,29,662 also. 5. Before us, the learned Authorised Representative of the assessee submitted that deduction under s. 80JJAA of the Act is available to an Indian company to the extent of 30 per cent of additional wages paid to new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to previous year in which such an employment is provided. The expressions "additional wages" and "regular workmen" have been defined in the Explanation to s. 80JJAA of the Act. The learned counsel for the assessee further submits that under proviso to cl. (i) of the Explanation in case of an existing undertaking additional wages will be nil if the increase in the number of regular workmen employed during the year is less than 10 per cent of the existing number of workmen employed in such undertaking as on the last day of the preceding year. Further, the regular workmen has been defined in cl. (ii) of the Explanation which does not mean a casual workman or a workman employed through contract labour or any other workman employed for a period of less than 300 days during the previous year. He further submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hundred workmen employed during the previous year: Provided that in the case of an existing undertaking, the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year; (ii) 'regular workman', does not include- (a) a casual workman; or (b) a workman employed through contract labour; or (c) any other workman employed for a period of less than three hundred days during the previous year; (iii) 'workman' shall have the meaning assigned to it in cl. (s) of s. 2 of the Industrial Disputes Act, 1947 (14 of 1947)." The language employed in the Explanation is plain and clear. For the purposes of s. 80JJAA, every employee is not a workman and every workman is not a regular workman. Clause (s) of s. 2 of the Industrial Disputes Act, 1947 defines the term 'workman' as below: "(s) 'workman' means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an industrial undertaking. Thus, for becoming eligible for deduction under s. 80JJAA, in case of a new industrial undertaking, there should be minimum 100 workmen employed during the previous year. The additional wages should be paid to the new regular workmen in excess of one hundred workmen so employed during the previous year. Proviso to cl. (i) of the Explanation carves out an exception that in the case of an existing undertaking the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than 10 per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year. In the proviso the expression "existing number of workmen employed" has been used and not the expression "existing number of regular workmen employed". Therefore, the percentage increase in the number of regular workmen has to be determined with reference to existing number of workmen employed in the undertaking. In other words, the increase in number of regular workmen falling in category (d) will be seen with reference to the workmen consisting of employees of categories (b), (c) and (d). 8. Now, we will explain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, set aside the matter to the file of the AO with the directions to compute deduction under s. 80JJAA of the Act discussed as above. 10. We may like to clarity that in a case if the assessee fulfils both the conditions that workmen employed during the year were 100 and percentage increase of regular workmen as compared to last day of preceding year is not less than 10 per cent, the assessee will be eligible for the benefit in excess Of 100 workmen employed. In other words, the law does not require that in every year the number of regular workmen appointed should be more than 100 and only excess of 100 regular workmen so employed will be eligible for benefit of s. 80JJAA of the Act. The learned CIT(A) as well as AO have gone wrong in excluding 100 regular workmen out of 236 workmen employed during previous year relevant to asst. yr. 2003-04. The AO will bear in mind this position of law while computing additional wages for the purposes of deduction under s. 80JJAA of the Act. 11. As regards the disallowance of additional wages in respect of new regular workmen employed in the previous year relevant to the asst. yr. 2001-02, Shri Salil Agarwal, the learned counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... col microspheres and the assessee had desired to have the technology assigned in its favour and to obtain the technology on exclusive basis for marketing worldwide for all possible formulations of the said product. In accordance with clause No. 4 of the said agreement the assessee company paid a sum of Rs. 20,00,000 to TRF as consideration for transfer of technology relating to tetanus toxoid vaccine as donation amount since the said foundation is a recognized trust and receipts form a part and parcel of donations to them. During the relevant asst. yr. 2003-04, the assessee has made the first instalment of payment to TRF amounting to Rs. 5,00,000. The assessee claimed weighted deduction of Rs. 6,25,000 under s. 35(1)(ii) of the Act on the ground that for claiming deduction under s. 35(1)(ii) the notification from the Central Government was mandatory. Since the institution was not notified the AO was not authorized by law to treat such expenditure incurred on scientific research and as such the deduction under s. 35(1)(ii) of the Act was not allowable. 15. Before the learned CIT(A), it was pleaded that TRF was recognized by the Department of Scientific and Industrial Research, Min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the expenditure of Rs. 5,00,000 towards scientific research under s. 35(1)(i) of the Act. It is undisputed that the payment of Rs. 5,00,000 made by the appellant company to M/s Talwar Research Foundation in respect of tetanus toxoid vaccine is in connection with scientific research and is related to its business and, thus, qualifies for deduction under s. 35(1)(i) of the IT Act. The appellant's case is covered by the ratio of the judgment in the case of Tata Chemicals Ltd. vs. CIT (1991) 96 CTR (Bom) 69 : (1992) 195 ITR 561 (Bom), wherein the Hon'ble Bombay High Court held that in case deduction is not allowed under s. 35(1)(ii), then it can be allowed to the assessee under s. 35(1)(i) in case the assessee satisfies all the conditions provided in s. 35(1)(i) of the Act. The words 'related to the business' as mentioned in s. 35(1)(i) cannot be said to mean that the research must be carried on by the assessee himself for claiming deduction under the said section. This view is supported by the judgments of the Hon'ble Bombay High Court in the cases of CIT vs. National Rayon Corporation Ltd. (1982) 26 CTR (Bom) 234 : (1983) 140 ITR 143 (Bom) and CIT vs. National Rayon Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entific and Industrial Research, Ministry of Science and Technology, Government of India for the period 1st April, 2001 to 31st March, 2004. Therefore, both the conditions are satisfied, namely, M/s TRF is engaged in scientific research and is notified by the Central Government in Official Gazette. The approval by CBDT is not a must. Since the TRF is approved by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India, for the relevant period and payment has been made for the purpose relating to business of the assessee, in our considered view, the learned CIT(A) was justified in allowing the claim. Accordingly, we do not find any infirmity in the order passed by him. 19. Next issue for consideration relates to disallowance of Rs. 7,72,25,725 in respect of claim under s. 35(2AB) of the Act. The assessee incurred an expenditure of Rs. 5,14,83,816 on account of scientific research and claimed weighted deduction @ 150 per cent of the expenditure incurred on in-house R D. The AO disallowed the claim of the assessee on the ground that the report in Form No. 3CL by the Secretary, DSIR was not submitted to the Director General of IT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of the accounts maintained by that facility; (f) That the appellant company has made an application with DSIR for certification of its research expenses incurred at Lalru, Punjab. It is stated that the appellant company has claimed expenses only in accordance with the guidelines issued by DSIR and in accordance with the allowances made by DSIR for asst. yr. 2002-03. A copy of application so filed with DSIR is also placed on record." 21. We have heard both the parties and perused the material available on record. The assessee had filed the copy of report of DSIR submitted to Director General of IT (Exemption) certifying the amount of Rs. 5,14,83,816 incurred by the assessee during the year on its own in-house R D centre. The learned CIT(A) has admitted the additional evidence after discussing the same in detail. The conditions specified for grant of deduction under s. 35(2AB) are as under: (a) The company must be engaged in the business of biotechnology or in the business of manufacture or production of drugs or pharmaceuticals, etc.; (b) It should have incurred expenditure on scientific research (both revenue and capital but excluding expenditure in the nature of cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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