Oral Judgment: (B.P. Dharmadhikari, J.)
1. This Reference on an application under Section 256[1] of the Income Tax Act, 1961 at the instance of assess refers following two questions:
â1. Whether on the facts and in the circumstances of the case, the Assessee is entitled to a deduction under Section 80-I of the Income Tax Act, 1961?
2. Whether on the facts and in the circumstances of the case and construction of provision of Section 80-I and 263 the Tribunal is right in sustaining the action of the C.I.T. U/s. 263?â
2. According to Shri Dewani, learned Counsel for the assessee, question no.2 must be first looked into and answered. He urges that if question no.2 is answered in favour of the assessee, answer to question no.1 may not be very relevant.
3. Shri Parchure, learned counsel for Revenue, however, submits that as both the questions are referred, both need to be appreciated and answered independently. According to him, effort of assessee to have answer to only question no.2 is erroneous.
4. Facts show that the assessee M/s. Vijay Udyog, is admittedly a partnership firm carrying on business in the manufacture of Pulses. It has engaged M/s. Vijay Dal Mills for crushing of the raw material at a fixed rate per quintal. It is not in dispute that the assessee makes payment of all the wages of the labourers, cartage and transportation expenses and has undertaken the liability towards various Labour Act, Factories Act and responsibility to repair machineries. It claimed deduction of Rs. 39,926/- under Section 80-I of the Income Tax Act. The Assessing Officer allowed it. C.I.T. invoked Section 263[1], and issued show cause notice to assessee proposing to set it aside on the ground that the assessee was not owner of a new industrial unit, and therefore, not entitled to claim deduction. It was found that the assessee had taken new unit on hire basis. Thereafter, the Commissioner passed order and enhanced the amount of income by Rs. 39,926/-. Assessee questioned it before ITAT. ITAT considered both the questions raised by the assessee and held that the acceptance of two opinions on any dispute would deny the lower authorities access to Section 154, but, it cannot stop the CIT from invoking the provisions of Section 263 of the Income Tax Act. It is in this background, that the above mentioned two questions have been referred.
5. Shri Dewani, learned counsel has relied upon four judgments to submit that when two views on any dispute exists, adoption of one view by the assessing officer cannot be faulted with under Section 263 of the Income Tax Act, and CIT does not get jurisdiction to take recourse to that provision.
Those four judgments are:
(1) (2007) 295 ITR 282 (SC) CIT .vrs. Max India Ltd.
(2) ITA No.604/2011 dated 12.09.2014 (Bombay High Court) CIT .vrs. LIC Housing Finance Ltd.
(3) (2010) 321 ITR 92 Grassim Industries Ltd. .vrs. CIT
(4) (1993) 203 ITR 108 (Bom) CIT .vrs. Gabrial India Ltd.
6. In order to show that the provisions of Section 80-I does not prohibit the assessee from taking machinery or plant on hire for the purpose of his manufacturing activity, he has relied upon the following three judgments.
(1) (1979) 119 ITR 145 (Cal). Griffon laboratories (P) Ltd. .vrs. CIT.
(2) (1978) 113 ITR 718 (Cal). Addl. CIT .vrs. A. Mukherjee and Co. (P) Ltd.
(3) (1996) 220 ITR 530 (Gau). Bezbaruah Tea Co. (P) Ltd. .vrs. CIT.
7. Attention is also invited to an unreported judgment of this Court in Income Tax Appeal No. 540/2012 dated 25.06.2014 in case of Commissioner of Income Tax-II, Mumbai .vrs. Shri Jyoti Prakash Dutta.
8. In the background of the judgments which hold that when two opinions or views are available and one of the possible view is reached by the Assessing Officer, recourse to Section 263 of the Income Tax Act is not open, Shri Parchure, learned counsel appearing on behalf of revenue prefers not to dispute this. He however, attempted to demonstrate that in the present facts, such two opinions were never possible. He contends that bare looking at Section 80-I, shows that it has been inserted in the statute book with a particular object. The incentive or inducement to new unit envisaged thereby would get defeated if such arrangement is accepted. In order to show this intention of legislature, he has relied upon Section 80-I(2)(i) to (iv). He submits that composite reading of all these provisions show that the unit with the manufacturer must be a new unit, and therefore, of his own. He submits that otherwise the conditions imposed by Section 80-I(2) will be frustrated. He also draws support from the observations contained in the order of CIT under Section 263 and in orders of ITAT.
9. Attention has also been drawn to the agreement between the assessee and the other person owning Dal Mill namely â M/s. Vijay Dal Mills, Akola. At one stage, learned counsel also attempted to show that in agreement except for vague description of two artificial persons as parties, other details are not given.
10. In reply argument, Shri Dewani, learned counsel has pointed out that this Court is required to decide the questions placed before it by way of reference, and in admitted facts. He submits that effort of Shri Parchure, learned counsel for revenue is to widen the scope by commenting upon the agreement is beyond the scope of present matter. He also states that this was neither the case of the revenue either before the assessing officer or then before other authorities.
11. As the law on scope of interference under Section 263 appears to be well settled and 4 judgments pressed into service by Shri Dewani squarely bring it out, we find that Shri Parchure, learned counsel has fairly refused to comment upon it. He has only exerted himself to show that two views are not possible in present facts.
12. In view of this position, question no.2 placed for consideration before us needs to be answered in favour of the assessee and against the revenue. However, that by itself cannot and does not put an end to these proceedings. Question no.1 is also referred to us and hence, it needs to be answered. In order to decide whether two view on Section 80-I are possible, in so far as present facts are concerned, we have to look into the express language of Section 80-I. Said section is on the subject of deduction in respect of profit and gains derived from an industrial undertaking, after certain date etc. It's sub-section [1] is about profits derived from an industrial undertaking. If the gross total income of assessee includes such profits, deduction therefrom of an amount equal to 20% thereof is permitted. The proviso in sub-section [2] stipulate that Section 80-I applies to any industrial undertaking which fulfills conditions which are stipulated in sub-sections (i) to (iv), sub-section [i] does not permit benefit of deduction to be taken if the industrial undertaking is formed by splitting up or reconstruction of a business, already in existence. Clause (ii) does not allow benefit to be taken if such undertaking is formed by transfer to a new business, machinery or plant previously used for any purpose. Clause (iii) again creates a bar if the industrial undertaking manufactures any article or thing, which is not specified in the 11th Schedule. By Clause (iv), the ceiling on number of workers has been provided. Thus, none of these clauses prohibit the assessee from taking other industrial undertaking on hire and use it for the purpose of his manufacturing activity.
13. Provision in Section 80-I(1) along with sub-section (2) to which our attention has been invited, are contained in Taxing Law and while interpreting its scope and extent, the words need to be strictly understood and it calls falls for interpretation which is in consonance with such words. The logic on lines behind enacting such a provision as urged by Shri Parchure does not figure anywhere therein.
14. Judgment in Calcutta High Court in case of Griffon laboratories (P) Ltd. .vrs. CIT. (supra), to which ITAT has made reference in the statement of case in paragraph nos. 11 and 12 considers the issue. It is observed that the manufacturer may hire a plant and machinery and employ, hired labour and manufacture goods. That High Court in case of Addl. CIT .vrs. A. Mukherjee and Co. (P) Ltd. (supra), has also found that the publisher of book is a manufacturer though he may get the books printed from a printer, bound under his supervision from other person.
15. Gauhati High Court has in similar circumstances considered case of a Tea Manufacturers who was getting tea processed for it by its sister concern and found it entitled to deduction under Section 80-I. Division Bench of this Court in a case reported at (1992) 196 ITR 813 (Bom) (CIT .vrs. Penwalt India Ltd.), has considered a finding by the Tribunal of absence of factory for manufacturing facility of its own, where assessee company utilizes facilities of others on payment, and found assessee entitled to relief as contemplated under Section 80-I of the Income Tax Act, upholding those findings. Other judgment of this Court reported at (1991) 191 ITR 92 (bom) (Cit .vrs. Anglo French Drug Co. (Eastern) Ltd), again shows a finding that the manufacturing company need not manufacture the goods by its own plant and machinery, at its own factory. There while recording these findings in paragraph no.2, the Division Bench has also noted that CBDT had accepted the correctness of the judgment of Calcutta High Court in a case Addl. CIT .vrs. A. Mukherjee and Co. (P) Ltd. (supra), in its Circular No. 347 dated 07.07.1982. Third judgment of this Court reported at (1982) 137 ITR 879 (Bom) (CIT .vrs. Neo Pharma Pvt Ltd.), finds the assessee engaged in the business of manufacture and processing of pharmaceuticals, entitled to benefit of deduction, though the activity was being done through machinery belonging to other company on hire, under direct supervision of own staff and under own quality control of assessee.
16. In unreported judgment dated 25.06.2014 in Income Tax Appeal No.540/2012, the revenue in appeal had stated that the assessee had no machinery and plant and business (film production) was carried out with hired equipments and machinery. The Division Bench has still found the assessee entitled to the benefit of deduction under Section 80I.
17. In view of the discussion above and law as laid down in various precedents, we find it difficult to accept the arguments of Shri Parchure, learned counsel for revenue. Question no.1 also needs to be answered in favour of the assessee in present circumstances.
18. Accordingly, we answer both the questions in favour of the assessee and against the revenue.