2005 (9) TMI 274 - AT - Income Tax

Deduction claim u/s 80HH and 80-I both or not - Backward Area - In respect of manufacturer of power generation - employment of the requisite number of employees - HELD THAT - We find that section 80HH was primarily enacted to promote industrial undertaking in backward areas. The benefit of the section is available on the manufacturing and production of article. This section was effective from 31-12-1970 to 31-3-1990. Thereafter section 80-I was made operative from 1-4-1990 to 1-4-1991. Thereafter section 80-IA was introduced by the Finance (No. 2) Act 1991 with effect from 1-4-1991. In this section Legislature included generation of power or transmission or distribution of power also. If generation of power could be placed within the ambit of the term article there was no necessity of specifying separately the same in the section. This clearly manifest the intent of the Legislature that the word article used in section 80HH(2) does not include within its ambit power generation. Regarding the requisite number of employees we find that Assessing Officer has given a categorical finding in the order that the assessee was entrusted the management of looking after the wind mills to its associate-company Pandian Chemicals. Assessee did not directly employ the requisite number of workers. In fact the assessee did not employ any worker. The assessee only shared the cost of employees with Pandian Chemicals and another concern Metal Powder Co. Ltd. As such it is abundantly clear that the assessee did not satisfy the condition as regards the requisite number of workers. Coming now to the last issue we find that law is clear. The Hon ble Supreme Court has laid down in the case of Motilal Persticides (I.) (P.) Ltd. v. CIT 2000 (2) TMI 9 - SUPREME COURT that special deduction is to be allowed only on net income and not on gross income. Adverting to the objection of the learned counsel for the assessee that deduction was allowed in the initial year of assessment therefore it cannot be withdrawn in later year we find that there is no merit in this contention. The claim is not maintainable under the law. As a general rule the principle of res judicata is not applicable to decisions of income-lax authorities. An assessment for a particular year is final and conclusive between the parties only in relation to that year. Decisions given in an assessment order for an earlier year are not binding either on the assessee or on the department in a subsequent year. The assessment and the facts found are conclusive only in the year of assessment; the findings on question of fact may be good and cogent evidence in subsequent year when the same question falls to be determined in another year but they are not binding and conclusive. We therefore decide this issue in favour of the revenue and against the assessee. In the result appeal of the assessee stands dismissed.

Summary

Issues:
1. Claim of deduction under sections 80HH and 80-I for power generation.
2. Compliance with conditions under sections 80HH and 80-I regarding employment of requisite number of employees.
3. Interpretation of section 80AB for considering income from windmill in quantifying deductions under sections 80HH and 80-I.

Issue 1 - Deduction under Sections 80HH and 80-I:
The appeal concerned the eligibility of the assessee to claim deductions under sections 80HH and 80-I of the Income-tax Act, 1961 for power generation. The Tribunal clarified that the claim under section 80-I was not valid based on a previous decision. The discussion focused on whether power generation could be considered an 'industrial undertaking' for section 80HH. The Tribunal analyzed the statutory requirements and concluded that power generation did not fall within the definition of 'articles' essential for the deduction under section 80HH. Reference was made to legal interpretations and precedents to support this conclusion.

Issue 2 - Compliance with Employment Conditions:
Regarding the employment conditions under sections 80HH and 80-I, it was found that the assessee did not directly employ the requisite number of workers. The management of the wind mills was outsourced to another company, and the assessee did not have any direct employees. The Tribunal determined that the condition regarding the employment of the necessary number of workers was not met, as the assessee shared the cost of employees with other entities, indicating a lack of direct employment.

Issue 3 - Interpretation of Section 80AB:
The Tribunal examined the application of section 80AB concerning the consideration of income generated from the windmill for quantifying deductions under sections 80HH and 80-I. The discussion highlighted the legislative intent behind section 80HH, emphasizing that the term 'article' did not encompass power generation. The Tribunal analyzed the evolution of relevant tax provisions to support the conclusion that power generation was not included within the scope of 'article' as intended by the legislature. Additionally, the Tribunal referred to legal principles to assert that special deductions should be allowed only on net income, not on gross income.

In conclusion, the Tribunal dismissed the appeal of the assessee based on the findings related to the issues of deduction eligibility, compliance with employment conditions, and the interpretation of relevant tax provisions. The decision was grounded in a thorough analysis of statutory requirements, legal interpretations, precedents, and the legislative intent behind the applicable sections of the Income-tax Act, 1961.