TMI Blog2013 (6) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of Unit No.1. The test whether industrial undertaking fulfills the condition as imposed under Section 80-I(2)(i) is not whether some part of the business of an assessee is carried on by the newly established undertaking but whether the newly established undertakings are formed by splitting up or reconstruction of the business of the existing Unit. Considering the case of Textile Machinery Corporation Ltd [1977 (1) TMI 3 - SUPREME Court] & Indian Aluminium Company Limited [1977 (1) TMI 5 - SUPREME Court] unable to find any material from the records to support the contention that Unit Nos.2 & 3 have been formed by splitting up of the business of the assessee and thus, the condition under Section 80-I(2)(i) has not been met. Admittedly, the activities being carried on by the assessee in Unit No.1 have not been discontinued and the Unit Nos.2 & 3 were established in addition to Unit No.1. It has been admitted that neither any machinery nor any equipment were transferred from Unit No. 1 to Unit Nos.2 & 3. Thus not inclined to entertain the contention of revenue that Unit Nos.2 & 3 fail to fulfill the condition under Section 80-I(2)(i). Whether it was open for AO to deny th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requisite conditions of sec. 80-I are to be satisfied not only in first or the initial year but in all the assessment years in which the deduction under sect. 80-I is claimed by the assessee? 2. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that Unit Nos. 2 3 are industrial undertakings for purposes of Sec. 80-I of the IT Act, 1961? Whereas the first question has been referred on behalf of the assessee. The second question has been referred at the instance of the revenue. 3. The questions framed in ITA no.151/2002 and ITA no.480/2005 are similarly worded. The question framed in the said two appeals is as under:- Whether on the facts and in the circumstances of the case the Tribunal was correct in law in holding that the activity of printing carried out by the assessee in its Units no.2 3 constituted profits and gains derived by the assessee from an industrial undertaking within the meaning of section 80-I of the Income Tax Act, 1961? 4. The question framed in ITA No. 302/2004 also relates to the question whether the assessee is entitled to the deduction under Section 80-I of the Act and is to the same effect as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY 1990- 91 wherein the assessee claimed a deduction of Rs. 38,02,747/- under Section 80-I with respect to the profits from Unit 2 3. The claim of the assessee was examined by the Assessing Officer who passed the assessment order dated 31.01.1992 allowing the deduction under Section 80-I of the Act, but computing the same at Rs. 37,82,816/-. The relevant extract from the assessment order dated 31.01.1992 is quoted below:- The assessee has claimed a sum of Rs.38,02,747/- u/s 80-I of the I.T. Act. The deduction u/s 80-I has been claimed in r/o Unit-2 and Unit-3 receipts against which have been shown at Rs.1,54,96,624/- and Rs.1,33,04,340/-. After appropriating expenses under various heads profits from these Units has been shown at Rs.1,31,77,889/- and Rs.20,33,099/- respectively. The receipts from these two Units do not include interest income or misc. Income. However, the assessee has not appropriated expenses such as paper, printing and binding, magazine contribution, postage and forwarding charges , contribution to Provident Fund etc. The assessee has vide its letter dt. 31.1.91 submitted that Unit-I in r/o of which deduction u/s 80-I is not allowable, is mainly engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the income of these Units was accounted on the basis of printing done by them at specified rates. 12. The Assessing Officer framed an assessment order dated 25.03.1994 for the Assessment year 1991-92 wherein the claim of the assessee for deduction under Section 80-I of the Act with respect to Unit Nos. 2 3 was disallowed. The Assessing officer observed that printing machines were highly sophisticated and computerized and could be operated and managed without employing more than two or three persons. The expenses incurred by the assessee with regard to Unit Nos. 2 3 were mainly payments made for purchase of ink and consumables. The workers employed in operating Unit Nos. 2 3 were employees of another company Vinapur (P) Ltd. which was a sister concern of the assessee company. Vinapur (P) Ltd. did not carry on any other business but was involved solely in engaging workers for the assessee. The Assessing Officer concluded that the assessee company did not qualify for a deduction under Section 80-I of the Act with respect to Unit Nos. 2 3 for the following reasons:- (A) Unit Nos. 2 3 did not employ any person in the manufacturing process as the persons engaged in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company. Whilst the CIT (Appeals) did not accept the contention of the assessee that Unit Nos. 2 and 3 were industrial undertakings independent of Unit No.1, the CIT(Appeals) accepted the contention that Unit Nos. 2 3 did produce Rs. articles or Rs. things as the printed material was different from the raw material used in producing them, namely, paper and ink. Thus, the condition that an industrial undertaking should manufacture or produce an article or thing was held to be satisfied. 14. The assessee preferred an appeal against the order dated 19.09.1994 passed by the CIT (Appeals) before the Income Tax Appellate Tribunal. Cross objections were also filed on behalf of the revenue against the finding of the CIT (Appeals) that Unit Nos.2 3 of the assessee company satisfied the condition of manufacturing an article or thing. The assessee also urged before the Tribunal that the question relating to the satisfaction of the conditions of section 80-I of the Act were to be examined in the initial year and once the claim of the assessee under Section 80-I of the Act has been examined and allowed, it would not be open for the Assessing Officer to revisit the same during the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration as persons employed in the industrial undertaking for the purposes of qualifying for deduction under Section 80-I of the Act. However, since, there was no finding by the Assessing Officer in respect of the number of workers who were permanently employed in operating Unit Nos.2 and 3, the Tribunal remanded the matter to the Assessing Officer for the limited purposes of making the necessary enquiries to determine the number of persons who were directly employed in carrying on the activities of Unit Nos.2 and 3 irrespective of whether the workers were employees on the rolls of the assessee or on the rolls of M/s Vinapur (P) Ltd. 18. Pursuant to the directions of the Tribunal, the Assessing Officer made the necessary enquiries as to the number of workers employed in Unit Nos.2 3 for the purpose of Section 80-I of the Act and concluded that more than 10 workers were engaged in Unit Nos.2 3 of the assessee. Accordingly, the Assessing Officer passed an order dated 29.12.1995 under Section 254 of the Act recomputing the taxable income and allowing the assessee, deduction under Section 80-I of the Act in respect of profits of Unit Nos. 2 3. 19. The question whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not by Unit Nos.2 or 3. It was submitted that the magazines published by the assessee would be a new commodity distinct from the paper on which it was printed and this product could not be stated to be manufactured by Unit Nos.2 3 but by the assessee which included Unit No.1 also. It was strongly urged that Unit Nos.2 3 were merely printing paper and further activities such as binding and cutting were not carried out by Unit Nos.2 3 and hence Unit Nos. 2 or 3 could not be considered as manufacturing any article or thing. D. Unit No.1 was established much earlier and was engaged in publishing as well as printing periodicals in the portfolio of the assessee. It is contended that as Unit Nos.2 3 carried on the same activity which is performed by Unit No.1, the same would amount to splitting up of the existing business of the assessee and thus would disqualify the assessee from claiming any benefit under Section 80-I of the Act in respect of Unit nos.2 3. 21. Mr Sahni has relied on the judgment of the Supreme Court in the case of Union of India v. Delhi Cloth General Mills : 1963 SCR Supplementary (1) 586. Mr Sahni has drawn our attention to page No.596 wherein it had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee published books and sold them in the market. We also agree with the finding of the Tribunal that the assessee was also carrying on the processing activity inasmuch as the assessee had to do many things as stated in its order. 24. Mr Sahni submitted, that since the publisher of books is held to be a manufacturer, the same would mean that the printer could not be considered to be a manufacturer. Since it is admitted that Unit Nos. 2 3 were only carrying on the job of printing, by this analogy they could not be considered to have satisfied the condition as specified in Section 80-I (2)(iii) of the Act. 25. Mr Dua appearing on behalf of the assessee has contested the contentions raised on behalf of the revenue. It has been argued on behalf of the assessee that there is now no dispute that the number of workers employed in Unit 2 3 exceed 10 and thus the condition as laid down in Section 80-I of the Act is met. Section 80-I(2)(iv) of the Act does not specify whether the workers to be employed in industrial undertaking must necessarily be on the rolls of the assessee. 26. It is also contended on behalf of the assessee, printing activity carried on in Unit Nos.2 3 does p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an industrial undertaking carrying on printing activity would qualify as an industrial undertaking which manufactures or produces any article or thing . 29. It was also contended on behalf of the assessee that Unit Nos. 2 3 were independent industrial undertakings. Whereas Unit No. 1 is a publishing house, Unit Nos. 2 3 were printing houses. It was further submitted that the contention on behalf of the revenue that Unit Nos. 2 3 had been formed by splitting up of businesses was erroneous and had not been urged before either the CIT(Appeals) or the Tribunal. It was pointed out that it is an admitted case that no machinery or equipment had been transferred from Unit nos. 1 to Unit Nos.2 3. Unit Nos. 2 3 had been established by importing new machinery from overseas and were in addition to the facilities already existing in Unit No.1. The learned counsel for the assessee relied on the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT: (1977) 107 ITR 195 (SC) in support of his contention that in order for a new industrial undertaking to be established, there must be an emergence of a physically separate industrial Unit which may exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 been substituted." xxxxx xxxxx xxxxx xxxxx "(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely: (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces 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, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of ten years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking; (iv) in a case where the industrial undertaking ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Act and there is no reason to limit the expression workers as occurring in section 80-I(2)(iv) of the Act to only mean such workers as are employed directly by the assessee and ignore the workers who are engaged in the manufacturing process carried on by the industrial undertaking albeit employed through another agency. In the case of Commissioner v. Nanda Mint and Pine Chemicals Ltd.: (2012) 345 ITR 60 (Del) this court has, while considering the question of qualification as to the number of workers to be employed for availing deduction under section 80-IB of the Act, held that casual and contractual workers are to be included while calculating the number of employees who are engaged in an Industrial undertaking. While deciding the controversy, this court adopted the reasoning of the Bombay High Court in the case of CIT v. Jyoti Plastic Works Pvt. Ltd.: (2011) 339 ITR 491 (Bom) and reproduced the following passage from the said decision. "The expression 'worker' is neither defined under section 2 of the Act nor under section 80-IB(2)(iv) of the Act. As per Black's Law Dictionary, the expression 'worker' means a person employed to do work for another. Under section 2(l) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting carried on by Unit Nos.2 3 of the assessee company only amounted to processing and the same could not be equated to manufacturing as manufacturing required that the product of the manufacturing process be a marketable product distinct from the raw materials used. It is also contended on behalf of the revenue that Unit Nos.2 3 were involved merely in job work and this according to the counsel for the revenue, did not amount to manufacture. 41. The arguments urged on behalf of the revenue with regard to Unit Nos.2 3 fulfilling the condition as specified in Section 80-I(2)(iii) of the Act are twofold. The first contention being that Unit Nos.2 3 are involved in job work and, therefore, the said Units cannot be considered as industrial undertakings which are involved in manufacture or production of articles or things. The second aspect is that the resultant printed material is required to be subjected to further process of binding in order for the same to be marketed and sold and, therefore, the printing process does not amount to manufacture as contemplated in section 80-I(2)(iii) of the Act. 42. We are unable to appreciate the contention that the industrial undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to read the condition that an industrial undertaking must not carry on the manufacturing process on job work basis in order to avail the benefit of section 80-I of the Act in the language of 80-I(2) of the Act. 46. The reliance placed by the revenue on the decision of the Calcutta High Court in the case of A. Mukherjee Co. (supra) is also, in our view, misplaced. In the said case, the question before the Court was whether a publisher was carrying on manufacturing activity. In that case, it was contended on behalf of the revenue that the assessee did not own a printing press and the job of printing had been outsourced, the job of binding the books was also outsourced to a third party and therefore a publisher would not qualify as a manufacturer. The Court analyzed the business carried on by the assessee which included getting the manuscript for publication, deciding on a suitable format for the book for printing and thereafter, sell the publication in the market. The assessee played an active role in coordinating all activities from the stage of the acquisition of the manuscript to the stage of marketing the books. The Court held that the activities of the assessee amounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mechanical properties desired by the customers. We are given to understand that there are various industrial undertakings which are specialized only in the heat treatment processes. Learned counsel for the assessee informed us, without refutation from the Revenue, that the forging involves heating to a desired temperature and then soaking the material at that temperature until the structure become uniform throughout the section and then cooled in a different manner to achieve the desired mechanical and molecular bonding properties. The cooling of the material at some predetermined rates causes the formation of desired structure within the metal for the desired properties with the aim (i) to improve the mechanical property such as tensile strength, hardness, deductibility, shock resistance, etc., (ii) improve machinability, (iii) increase resistance to heat and corrosion (iv) relieve stresses developed due to hot and cold working, (v) modify electrical, magnetic and molecular bonding properties, etc. The heat treatment toughens the forged part for being used as automobile parts. The process of heat treatment is absolutely essential for rendering them marketable. Without the heat tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as industrial undertaking for the purposes of section 80-I of the Act. 50. The next aspect which has been addressed at length by the counsel for the parties is whether Unit Nos.2 3 would fulfill the conditions as specified in Section 80-I(2)(iii) of the Act. It has been contended on behalf of the revenue that printing does not alter the character of raw materials and cannot constitute manufacture. It has been further contended that as the printed material which results from the activities carried on in Unit Nos. 2 and 3 is also not known to the market as a distinct product as the same cannot be dealt with without subjecting the printed material to a binding process which is not carried on by Unit Nos.2 3. 51. Mr Sahni has relied strongly on the decision of the Supreme Court in the case of Delhi Cloth General Mills (supra) in support of his contention. We do not think that the decision is of much assistance in the facts of the present case. In that case, the respondents were engaged in manufacturing vanaspati and had challenged the levy of excise duty on the manufacture of vanaspati from raw oil. The Excise Authorities had levied excise on manufacture of vanaspati as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le are one and the same and in our opinion it can hardly be said that printing carried out in an industrial undertaking would not amount to manufacturing. A printed magazine or periodical even if it is not bound has a definite identity and its usage is completely different from a blank paper on which it is printed. 53. Having stated above we must add that the expression used in Section 80-I (2)(iii) of the Act is manufacture or produce any article or thing . The word produce has wider meaning than the word manufacture . The meaning of the word produce is similar to the word production and it has been held by the Supreme Court in the case of CIT v. N.C. Budharaja Co.: (1993) 204 ITR 412 (SC) that while every manufacture can be characterized as production, every production need not amount to manufacture. The quoted passage from the said decision of the Supreme Court is as under: The word production has a wider connotation than the word manufacture . While every manufacture can be characterized as production, every production need not amount to manufacture .. The word production or produce when used in juxtaposition with the word manufacture takes in bringin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and processing of iron ore amounted to manufacture or not in the context of availability of investment allowance under section 32(A) of the Act in respect of machinery used in the mining activity. In that case, revenue contended that processing of iron ore did not produce any new product and thus the benefit of Section 32(A) of the Act was not available to the assessee. As per section 32(A)(2)(b)(iii) of the Act, deduction on account of investment allowance is available to the assessee in respect of a plant owned by the assessee which is wholly used for the purpose of assessee s business in an industrial undertaking for the purposes of the business of construction or manufacture or production of any article or thing . The Supreme Court noted that the meaning of the word production was defined only in the Oxford English Dictionary as amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort and this definition has been accepted by the Supreme Court in an earlier decision in the case of Chrestian Mica Industries Ltd. v. State of Bihar: [1961] 12 STC 150. The Court further held that the def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been raised on behalf of the revenue is that the benefit of Section 80-I of the Act should be denied to the assessee as Unit Nos.2 3 have been formed by splitting up of the business of the assessee and thus, the condition under Section 80-I(2)(i) of the Act has not been met. 61. The contention that Unit Nos.2 3 do not qualify the condition under Section 80-I(2)(i) of the Act has not been urged before any of the authorities and has been argued for the first time before us. However, we find that before the CIT (Appeals) and the Tribunal it was urged on behalf of the revenue that Unit Nos.2 3 were not independent Units and were functioning cohesively with the Unit No. 1 as the raw material of paper was procured by Unit No.1 which was given on job work to Unit Nos.2 3 for carrying on the printing activity. The other activities were carried on by Unit No.1 and the binding of periodicals was outsourced to another concern. On the basis of this it was contended on behalf of the revenue that Unit Nos.2 3 could not be considered as industrial undertakings on account of the interdependence on Unit No.1. 62. Mr Sahni has cited the decision of this Court in the case of Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i)of the Act is not whether some part of the business of an assessee is carried on by the newly established undertaking but whether the newly established undertakings are formed by splitting up or reconstruction of the business of the existing Unit. 64. In the case of Textile Machinery Corporation Ltd. (supra), the Supreme Court held that the answer whether a new industrial undertaking was stated to be formed by splitting up or reconstruction of the existing business would depend upon the facts of each case. In that case, the Supreme Court was considering the exemption from tax liabilities as available to an assessee under Section 15C of the Income Tax Act, 1922. The condition imposed under Section 15C(2)(i) of the Income Tax Act, 1922 is similar to the language of Section 80-I2(i) of the Act. The Section 15C of the Income Tax Act, 1922, inter alia, applied to industrial undertakings which were not formed by splitting up, or reconstruction of, business already in existence or by transfer to a new business of building, machinery of plant previously used in any other business . In the said case the Supreme Court has held as under:- There is great scope for expansion of trade a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new under-taking must be an integrated Unit by itself wherein articles are produced and at least" a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognisable Unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of Section 15-C the industrial Unite set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. 66. In the case of Indian Aluminium Co. Ltd. (supra), the Supreme court was considering the case of an assessee who was engaged in producing aluminum ingots from ore at four different manufacturing centres. During the relevant previous year, the assessee establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view, the test to be applied is whether the new undertaking has been formed as an undertaking independent of the existing undertaking and is capable of carrying on its activity independent of the existing Unit. In this regard, we agree with the view taken by the Tribunal that the test of whether Unit Nos.2 3 were independent undertakings or not is not to be adjudged on the basis whether the said Units were carrying on printing work for Unit No.1 but whether the Units were capable of independently carrying on the business for which they were formed. The assessee had contended that whereas Unit No.1 was publishing house Unit Nos.2 3 were printing houses and the work of printing carried out by through high speed printing machines was a business which could be carried out independent of Unit No.1. The assessee had also been given examples of entities who were engaged in carrying on the printing activity on a standalone basis and were not involved in publication. Indisputably, printing activity can be carried out by an entity for any person who may have a requirement for the same and it is not necessary that every person who engages in the business of printing should necessarily al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under ss. 11 and 12 of the Income Tax Act of 1961. 72. The decision of the Supreme Court in the case Radhasoami Satsang (supra) was on the facts where the question as to the entitlement for exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of 5 years. If the assessee has been allowed the benefit of Section 80J in the last three preceding years, there is no reason to deny the same for the instant assessment year. We, therefore, answer this issue also in favour of the assessee and against the revenue. 74. In the present case, the claim of the assessee under section 80-I of the Act was examined and allowed by the Assessing officer for three years preceding the assessment year 1991-1992. It is relevant to note that assessments in the earlier years i.e relating to assessment years 1988-89, 1989-1990 and 1990-1991 has not been disturbed by the Assessing Officer and there has been no change that could justify the Assessing officer adopting a different view in the assessment years 1991-92 and thereafter. As stated hereinbefore, in certain cases where the issues involved have attained finality on account of the subject matter of dispute having been finally adjudicated, the question of reopening and revisiting the same issue again in subsequent years would not arise. This is based on the principle that there should be finality in all legal proceedings. The Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s granted under Section 80-I of the Act, the applicability of the Section is determined in the year in which the new industrial undertaking is established. The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Act has to be determined in the year in which the new industrial undertaking is established. Although the deduction under Section 80-I of the Act is available for the assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the assessment year in which the new undertaking was formed. In such circumstances, it would not be possible for an Assessing Officer to reject the claim of an assessee for deduction under Section 80-I of the Act on the ground that the industrial undertaking in respect of which deduction is claimed did not fulfill the conditions as specified in Section 80-I(2) of the Act, without undermining the basis on which the deduction was granted to the assessee in the initial assessment year. This in our view would not be permissible unless the past assessments are also disturbed. 77. The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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