TMI Blog2005 (4) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... t the factory premises of the assessee at Silvasa. On that day, he found that manufacturing of chemical products was completely stopped as per the statement of Sri H. Prajapathi, who was employed as chemist. According to him, Goodwill Industries had stopped manufacturing activities in the month of October, 1998. As the industry was not functioning, it was not possible for him (A.O.) to ascertain the number of workers working in the factory, he inspected salary register for the assessment year 1996-97 and found some discrepancies and observed as under : "1. Shri Kishore B. Patel who was a chemist- cum -plant operator, gets fixed salary of Rs. 2,100 pm. 2. Other names mentioned in the salary register are of workers who are hired on daily wages. 3. No designation of any person is mentioned in the salary register. 4. In the column of days present, Kishore B. Patel has worked at an average of 26 days per month throughout the year. 5. Number of days present in the case of workers is ranging from 2 days to 26 days. No bonus, PPF or ESIC has been provided to any of the workers of the chemists during the year. 6. In the month of April, 1996, as per the salary register, Kishore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Kishore B. the register the days in which Patel was (including industry functioned present chemist) April, 96 26 12+1 8+1 May, 96 26 13+1 6+1 June, 96 26 9+1 9+1 July, 96 27 14+1 6+1 August, 96 24 9+1 9+1 Sept., 96 25 9+1 5+1 Oct., 96 29 11+1 7+1 Nov., 96 22 13+1 6+1 Dec., 96 27 12+1 8+1 Jan., 97 27 19+1 8+1 Feb., 97 23 14+1 8+1 March, 97 27 16+1 8+1 Total 308 From the above table, he inferred that except the months of June and August, 1996 the number of workers employed fall below the requisite number. Before the CIT(A), the assessee repeated the same arguments as made before the Assessing Officer that it has substantially employed ten or more workers. Main arguments made before the CIT(A) are as under : "It is to submit that Shri Kishore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant financial year [para 2.14 of CIT(A) s order]. "This section does not put any restrictions on the number of days the unit should function other than pointing out that the appellant should have employed more than ten workers in case the unit is running with power and more than 20 workers in case the unit is running without the aid of power. There are case laws which state that, the unit must have substantially worked to get the benefit of deduction under the Income-tax Act. In the instant case, the appellant has set up a unit in a backward area, where the appellant has tried to produce an article or thing from out of the available resources in and around the area. The only benchmark that can be employed to ascertain how many workers had worked during the year is the number of days, the appellant had carried on the manufacturing activity, as per the Excise Register RG-I which shows the number of days the unit has produced an article or thing. As per this register the appellant has given the following table of workers attendance. Details of workers attendance for the year 1996-97 : Month Working Mandays Mandays as per No. o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l period other than strike, lock out etc. For this proposition, he relied on the decision in the case of CIT v. Abhirami Cotton Mills (P.) Ltd. [1996] 220 ITR 844 (AP). According to him, formula of man days as worked out by CIT(A) is not correct. According to the calculation as given by the Assessing Officer in his order, the number of workers were less than ten. No PF or insurance was deducted for these workers. The gist of arguments of the learned Departmental Representative is that the casual works should not be counted for deciding as to whether the concern had employed 10 or more workers and only those regularly employed by the concern on the main process should be considered for such counting. 5. The learned Authorised Representative of the assessee, on the other hand, argued that there is no requirement of the statute that only those who work regularly or those who are permanently employed should be considered for the purpose of section 80-IA. The excise register inspected by the Assessing Officer has been incorrectly not relied by the authorities. This register is regularly maintained by the assessee, inspected and verified by the excise authorities and therefore, N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employs twenty or more workers in a manufacturing process carried on without the aid of power." There are two limbs of this issue. The first one is who should be considered as employee in a manufacturing process carried on by the assessee, whether those who were employed in the main manufacturing process or also those who are employed for subsidiary process supporting the main manufacturing process. The other limb of the issue is, who should be counted as workers, whether those who are regularly/or permanently employed or in addition to regular and permanent, those who are casual workers employed by the assessee for carrying out manufacturing process whether employed in the main process and/or in supporting or subsidiary activities. Another supplementary issue for consideration is whether only substantial compliance of the condition is to be ensured or there should be a complete compliance in the sense that 10 or more workers should be employed throughout the year and if there is any fall below ten on any day of the year then it should be treated as non-compliance of the condition of section 80-IA(2)( v ). 9. There is no dispute that assessee is an industrial undertaking man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, it is not necessary that ten or more workers should be employed through out the year. What is necessary is that there should be substantial compliance of the provisions of section 80-IA(2)( v ). If for most of the period for which manufacturing process continued, the assessee has employed more than ten workers, may be in the main manufacturing process and/or in subsidiary process relating thereto, then, it is a substantial compliance of the provisions. This view is supported by ITAT, Cochin in Kanan Latex Industries (P.) Ltd. v. ITO in ITA No. 465/Cochin/84 reported in 29 TTJ 507. 11. According to us, a manufacturing process would start from storage of raw material till storage of finished goods. Thus, the workers involved in bringing raw material from storage to factory and those storing finished goods can also be said to be employed in the manufacturing process. Similar is view has been expressed by Hon ble Allahabad High Court in CIT v. Sultan Sons Rice Mills [2005] 272 ITR 181. "the expression of manufacturing process should be interpreted in its ordinary sense and should not be confined or restricted to the actual manufacturing alone. The processes whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether casual, temporary, ad hoc, or even employed by contract should also be considered for this purpose. For resolving this issue, we derive support from the decision of Hon ble Karnataka High Court given in the case of CIT v. K.G. Yediyurappa Co. [1985] 152 ITR 1529 wherein in the context of section 80H(2)( iv ) whose language is similar to section 80-IA(2)( v ), it was held that : "Section 80HH of the Income-tax Act, 1961, which provides for deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas, requires that the industrial undertaking should be employing ten or more workers in a manufacturing process carried on with the aid or power. All that the section states is that the assessee should employ ten or more workers in a manufacturing process. The wording of the section is unambiguous. In the absence of any definition of word "worker", the court has to take its ordinary meaning which may mean casual, permanent or temporary. There is, therefore, no reason why the word "worker" should not include all these three categories. Hence, even casual workers, should be counted to ascertain whether a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al if for some part of the financial year, the number is reduced below ten. 16. We find that the total number of workers as per RG-I register including the chemist worked for all the months of the year were more than ten as per the chart given by the CIT(A) and reproduced above. However, so far as presence of workers is concerned, we find from the order of CIT(A) that they were ten or more for more than half of the days during the period, when industry functioned except in the months of May, July and September, 1996. Thus, only in three months in the financial year, number of workers present for more than half of the days in which industry functioned were ten. However, as per RG-I register as observed above, number of workers were ten or more throughout the year. If we consider the excise register as such, then we do not find any fault in the claim of the assessee because nowhere they were less than ten at any time during the year. Even if we consider the number of workers present in the month then we find that more than ten were present for more than 50% of the days for nine months during which factory worked. Thus, they were ten or more workers present for substantial period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve employed ten or more workers substantially during period for which relief is claimed. There can be no hard and fast rule by which one can determine whether there has been substantial compliance. It is for the authority or the court to show decide based upon the facts. Accordingly, the assessee was entitled to relief under section 80J since it had employed more than ten workers for nine months of the accounting year and less than ten workers for the remaining three months." Hon ble Andhra Pradesh High Court in CIT v. Abhiram Cotton Mills (P.) Ltd. [1996] 220 ITR 84 was of the view that for the purposes of compliance of the condition that there should be ten or more workers employed during normal period could be considered and the period of absentism due to strike/lockout/temporary closure should be excluded. The employment test should be understood in the normal circumstances. In view of the above, we hold that if there were ten or more workers employed for substantial part of working period of factory carrying on manufacturing process, then it would be sufficient compliance of the condition laid down in section 80-IA(2)( v ). In the present case of the assessee, as found b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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