High Court Of Rajasthan : Jaipur Bench
CIT vs. Rajasthan Steel Rolling Mills (P) Ltd.
Sections 43B, 80-I
Asst. Year 1983-84, 1984-85, 1985-86
Y.R. Meena & Shashi Kant Sharma, JJ.
IT Ref. Nos. 45 & 69 of 1995 and 2 of 1997
29th April, 2003
Counsel Appeared
R.B. Mathur, for the Applicant : A. Kasliwal, for the Respondent
JUDGMENT
BY THE COURT :
On an application under s. 256(1) of the IT At, 1961, Tribunal has referred the following questions for the opinion of this Court :
For asst. yr. 1983-84 to 1985-86
“Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that deduction under s. 80-I of the IT Act, 1961, was allowable to the assessee-company even though the industrial undertaking was not run by the assessee itself.”
For asst. yr. 1985-86
“Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting addition made under s. 43B ?”
2. The relevant assessment years are 1983-84 to 1985-86. The entire factory premises including machinery, etc. were leased out by the assessee-company to M/s Pratap Rajasthan Special Steels Ltd. w.e.f. August, 1981. No manufacturing activities were carried on by the assessee-company itself as the entire plant had been leased out from the very first month of the previous year relevant to asst. yr. 1983-84 till whole of the previous year relevant to asst. yr. 1985-86. The assessee though had not manufactured any article or things, but claimed deduction under s. 80-I. That claim has been rejected by the AO. Assessee preferred an appeal before the CIT(A), CIT(A) has also dismissed the appeal of the assessee.
In appeal before the Tribunal, Tribunal has followed the decision of Madras High Court in case of CIT vs. Universal Radiators (P) Ltd. (1981) 128 ITR 531 (Mad) and decision of Calcutta High Court in case of CIT vs. Flender Macneill Gears Ltd. (1984) 41 CTR (Cal) 60 : (1984) 150 ITR 83 (Cal) and held that when the word ‘derived’ has been used in the section, no manufacturing activity need be done by the assessee itself. Though he does not manufacture any article or things, assessee is entitled for deduction under s. 80-I of the Act.
Heard learned counsel for the parties.
Mr. Mathur, learned counsel for the applicant, submits that unless the assessee manufactures or produces any article or things himself/itself, the assessee is not entitled for benefit of s. 80-I. The conditions laid down in sub-s. (2) of s. 80-I are mandatory. He placed reliance on the decision of Delhi High Court in case of CIT vs. Northern India Iron and Steel Co. Ltd. (1997) 226 ITR 342 (Del), CIT vs. Phoenix Scrap Processors (1995) 123 CTR (Bom) 329 : (1995) 211 ITR 341 (Bom) and CIT vs. Mahavir Rubber Works (2002) 175 CTR (Raj) 90 : (2002) 256 ITR 667 (Raj).
On the other hand, Mr. Kasliwal, learned counsel for the assessee-respondent, submits that there was no requirement under the provisions of s. 80-I that assessee himself should manufacture article or things. Though he has given factory on hire to third party and manufacturing is also by third party, in spite of that the assessee is entitled for benefit of s. 80-I of the Act, 1961, Mr. Kasliwal placed reliance on the decision of Madras High Court, which has been relied on by the Tribunal in case of CIT vs. Universal Radiators (P) Ltd. (supra), CIT vs. Flender Macneill Gears Ltd. (supra), CIT vs. Western Mechanical Industries (P) Ltd. (1991) 92 CTR (Bom) 79 : ( 1991) 187 ITR 265 (Bom), CIT vs. U.P. State Agro Industrial Corporation Ltd. (1991) 93 CTR (All) 214 : (1991) 188 ITR 370 (All) and decision of their Lordships in case of CIT vs. Shaan Finance (P) Ltd. (1998) 146 CTR (SC) 110 : (1998) 231 ITR 308 (SC).
The facts are not in dispute that no manufacturing activities are carried on by the assessee. In CIT vs. Mahaveer Rubber Works (supra), this Court has taken the view that requirements under the provisions of cl. (iv) of sub-s. (4) of s. 80J are mandatory. Unless assessee fulfils all these conditions, assessee is not eligible for benefit of s. 80J of the Act.
In CIT vs. Northern India Iron and Steel Co. Ltd. (supra), Delhi High Court has taken the view that assessee has leased its machinery and had no control over the use of machinery, could not be said that assessee manufactured or produced any article or things, not entitled for deduction under s. 80J of the Act, 1961.
In CIT vs. Phoenix Scrap Processors (supra), the Bombay High Court has taken the view that for deduction under s. 80J, the condition precedent, inter alia, is that assessee itself should run the industrial undertaking and derive profit and gains from that. Provision of sub-s. (4) of s. 80J is pari materia to the provision of sub-s. (2) of s. 80-I. Mr. Kasliwal submits that s. 80-I is designed to give encouragement to certain industries. Therefore, it requires that provisions be liberally construed.
The issue before us is whether assessee is manufacturing any article or things. In CIT vs. U.P. State Agro Industrial Corporation (supra), the Allahabad High Court has taken the view that when assessee imports components of tractors and various parts are assembled by it to form tractor, company is justified in claiming on the ground that company is indulged in manufacturing activity and entitled for deduction under s. 80J. This case has no relevance as the admitted fact before us is that assessee has not manufactured itself any article or things.
In CIT vs. Flender Macneill Gears Ltd. (supra) the issue before Calcutta High Court was that when assessee manufactures gears which is a private industry and sold it to distributors as per the agreement, the assessee is entitled to charge interest from distributors for delay in payment of bills. Assessee claimed that he is entitled for deduction under s. 80-I on the interest also, which is charged for delayed payment. This case also has no relevance as the assessee has undisputedly not indulged in the manufacturing activity.
In CIT vs. Shaan Finance (P) Ltd. (supra), the issue before their Lordships is whether assessee is eligible for benefit of investment allowance under s. 32A of the Act though he has leased out his machinery. Their Lordships have under the provisions of s. 32A of the Act held that there was no requirement that assessee should manufacture itself. Business of the assessee is leasing out the machinery and derive income from that. Assessee is eligible for investment allowance. This case also has no application as the word used in s. 32A is not identical as that of sub-s. (2) of s. 80-I of the Act. Therefore, this decision of their Lordships has also no application.
The facts are not in dispute that assessee has leased out its industry and does not manufacture any article or things by itself. But Mr. Kasliwal submits that even if assessee does not manufacture any article or things, but the income from leasing out machinery is a business income, therefore, assessee is eligible for deduction under s. 80-I of the Act, 1961. Whether assessee is eligible for deduction under s. 80-I, sub-s. (2) lays down some conditions, which are to be fulfilled for deduction under s. 80-I of the Act, which reads as under : “(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 manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, of employs twenty or more workers in a manufacturing process carried on without the aid of power :”
18. A plain reading of cl. (iv) of sub-s. (2) leave no doubt that if assessee claims for deduction under s. 80-I, there should be a manufacturing or production of articles or things and assessee should have 10 or more employees if manufacturing or processing is carried on with the aid of power or if manufacturing is carried on without power, the assessee should employ 20 or more workers in the industrial undertaking. The employee can be employed only by the employer and not by the industry, therefore, manufacturing should be with the help of employees employed by the assessee. If we read cl. (iv) in its entirety, the net result is that there should be manufacturing activity by the assessee himself/itself for deduction under s. 80-I of the Act. If he does not carry on the manufacturing activities himself and leased out the factory to third party and third party carried on the manufacturing activity, the assessee is not entitled for deduction under s. 80-I of the Act.
In this view of the matter, Tribunal has committed error in allowing deduction to the assessee under s. 80-I of the Act.
The next additional issue in asst. yr. 1985-86 relates to the deletion of addition made under s. 43B of the Act. Mr. Mathur fairly admits that issue is concluded by their Lordships in case of Allied Motors (P) Ltd. vs. CIT (1997)139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), wherein their Lordships have taken the view that in case the payment is made though beyond accounting year but within the period permissible under the ST Act, no addition should be made invoking the provisions of s. 43B of the Act. Considering these submissions, we answer question No. 1, which is common for 3 years, in negative i.e., in favour of the Revenue and against assessee. The additional question, which has been raised in 1985-86, we answer in affirmative i.e., in favour of the assessee and against Revenue. Reference so made stands disposed of accordingly.
[Citation : 270 ITR 72]
