ORDER
P. Mohanarajan, J.M.
1. These appeals are by the Revenue directed against the order of the CIT(A)-III, Bangalore, dt. 2nd Dec, 2004.
2. We have heard both sides and perused records. The only issue in the ‘Revenue’s appeal relates to the. claim of the assessee under Section 80JJAA of the IT Act which was disallowed by the AO in the assessment proceedings. In the first appellate proceedings, the CIT(A) granted relief to the assessee. The assessee had claimed a deduction of Rs. 2,55,81,220 under Section 80JJAA for the asst. yr. 2001-02 and a sum of Rs. 4,78,05,176 for the asst. yr. 2002-03. The claim of the assessee was not accepted by the AO. However, the CIT(A) granted relief to the assessee.
3. The learned CIT-Departmental Representative Mrs. Swathi S. Patil vehemently contended that the software engineer drawing a salary of Rs. 50,000 per month and more is treated as a workman whereas an office superintendent drawing a salary of Rs. 1,700 per month is excluded from the meaning and scope of Section 2(s) of the Industrial Disputes Act, 1947. She also took us to the provisions of Section 2(s) of the Industrial Disputes Act, 1947. Further she contended that the very argument that the wages prescribed is applicable only in respect of workmen employed in supervisory category but not to workman of other category is clearly an erroneous preposition. Section 2(s) of the Industrial. Disputes Act,. 1947 covers not only the workman drawing less than Rs. 1,600 per month in its meaning and scope but also the supervisors, drawing less than Rs. 1,600 per month. The provision of Section 2(s) of the Industrial Disputes Act, 1947 is a substantive class for workmen. She further contended that the assessee company did not substantiate that it is governed by the Industrial Disputes Act, 1947 for the purposes of redressal of grievances. The assessee also did not substantiate that the case of disputes of the software engineers classified as workmen with assessee company, the workmen can take recourse to the Labour Court set up under the Industrial Disputes Act, 1947. She contended that during the years under consideration, the senior software engineers employed in the assessee company drawing substantial salary cannot be categorized as workmen within the meaning and scope of Section 2(s) of the Industrial Disputes Act, 1947. She fully relied on the order of assessment and submitted that the learned CIT(A) is not justified in granting relief to the assessee. She further claimed that the order of the CIT(A) has to be reversed and that of the AO has to be restored.
4. On the other hand, the learned Counsel for the assessee submitted that the assessee company is engaged in development, design and manufacture of software. In respect of salary paid to the new employees the claim for deduction under Section 80JJAA was made. The learned Counsel for the assessee submitted that Section 80JJAA was introduced by the Finance Act 1998 w.e.f. 1st April, 1999. He further submitted that the section was introduced to encourage employers to generate more employment opportunities. Learned counsel further submitted that before claiming the deduction under Section 80JJAA to the extent of 30 per cent of additional wages the assessee should fulfil the following conditions:
(a) Eligible assessee should be an Indian company.
(b) Gross total income of the assessee should include profits and gains derived from an industrial undertaking engaged in the manufacture or production of an article or thing.
(c) Undertaking should not have been formed as a result of splitting up or reconstruction of a business already in existence.
(d) The eligible undertaking should employ at least 100 workmen.
(e) The additional employed force should be in excess of 10 per cent of existing number of workmen employed in the undertaking as on the last day of the immediately preceding previous year.
(f) The workmen should not be a casual workmen and should be employed at least for 300 days during the previous year and should not also be a workman employed through contract labour.
(g) An audit report should be furnished.
5. He also pointed out that the aforesaid deduction would be allowable only for three assessment years including the asst. yr. 2001-02, in which the additional workers were employed. He submitted that the term industrial undertaking is not defined in Section 80JJAA. However, in terms of Section 10(15), Section 33B of the IT Act and as per the provisions of Industrial Disputes Act, 1947 the assessee satisfied all the conditions to be regarded as industrial undertaking. He contended that it is an admitted fact that the assessee is a manufacturer of software development to fall in the parameters of provisions of Sections 10(15) and 10A of the IT Act. He also placed reliance on the decision of the Karnataka High Court in the case of CIT v. Datacons (P) Ltd. (1985) 47 CTR (Kar) 162 : (1985) 155 1TR 66 (Kar) to support the preposition that the assessee is a manufacturer of goods. He further contended that any person employed in any nature to do any manufacturing, skilled, unskilled, technical, operational, clerical or supervisory work would be ‘workmen’. He further pointed out that the persons employed by the assessee as software engineers involve skill and technical work which will fall in the category of workmen. He further argued that workmen salary may exceed Rs. 1,600 per month and still the undertaking would be eligible for deduction under Section 80JJAA of the IT Act. He fully relied on the order of the CIT(A).
6. We have heard the rival submissions and carefully perused the records. Considering the factual position after referring to the various documents filed by the assessee, the learned CIT(A) held as under:
According to the AO if an employee or workman is getting a salary of more than Rs. 1,600 per month he is not covered by the definition of workman. However as per Clause (iv) of Section 2(s) of the Industrial. Disputes Act a worker, employed in supervisory capacity and getting a salary of more than Rs. 1,600 per month only be excluded from the definition of workman. In appellant’s case the software engineers in respect of whom deduction under Section 80JJAA has been claimed have not been employed in a supervisory capacity even though they may be getting a salary of more than Rs. 1,600 per month. As the software engineers were not employed in supervisory capacity they cannot be excluded from the definition of workman. Further as per the notification of the Karnataka Government, the appellant company engaged in the development of software is covered by the Industrial Disputes Act.
7. As such, I am of the considered opinion that the appellant has satisfied all the conditions for claiming relief under Section 80JJAA. However, I find that the appellant has claimed deduction of Rs. 2.55,81,220 with reference to the additional wages of Rs. 8,52,70,736 which included the wages of Rs. 4,87.64,029 in respect of the new workmen employed during the year ended 31st March, 2000 relevant to the asst. yr. 2000-01. As there was no claim for relief under Section 80JJAA for the asst. yr. 2000-01, the relief in respect of the workers employed in asst. yr. 2000-01 cannot be considered for relief under Section 80JJAA in the asst. yr. 2001-02. As such the appellant will be entitled for relief under Section 80JJAA of Rs. 1,09,52,012 being 30 per cent of the additional wages of Rs. 3,65,06,707 (Rs. 8,52,70,736 – Rs. 4,87,64,029) in respect of the new workmen employed during the previous year relevant to the asst. yr. 2001-02. Similarly, for asst. yr. 2002-03 the appellant has claimed deduction of Rs. 4,78,05,176 being 30 per cent of the wages of Rs. 1,59,30,588 which also included the wages of Rs. 4,38.68,182 pertaining to the new workers employed in the previous year 1999-2000. For the reasons mentioned above the appellant is not entitled for relief under Section 80JJAA in respect of the wages pertaining to the workers employed in the previous year 1999-2000. As such the appellant would be eligible for relief of Rs. 3,46,44,722 being 30 per cent of the additional wages of Rs. 11,54.82,406 (Rs. 15,93,50,588 – Rs. 4,38,68,182) in respect of the workmen employed in previous years 2000-01 and 2001-02.
8. The learned Authorised Representatives of the appellant vide order-sheet noting dt. 24th Aug., 2004 agreed that the relief under Section 80JJAA in respect of the employees who joined in the previous year relevant to the asst. yr. 2001-02 onwards only may be considered and in respect of the employees who joined in earlier years the appellant is not pressing for relief under Section 80JJAA. In the circumstances, the AO is directed to allow the relief under Section 80JJAA of Rs. 1,09,52,012 and Rs. 3,46,44,722 for asst. yrs. 2001-02 and 2002-03 respectively.
9. As stated earlier the assessee had filed the details of the software engineers employed during the years under consideration containing the names of the employees, designation and date of joining. Further, in the same list the details of total number of employees joined during both the assessment years, number of employees without supervisory roles, workmen joined, number of supervisors joined and workmen joined and relieved during the years under consideration. A cursory perusal of this list shows that the assessee had claimed deduction in respect of employees, who had joined as engineers in their respective field such as systems engineer, test engineer, software design engineer, IC design engineer, lead engineer etc. A cursory perusal of those lists establishes that the assessee had claimed deduction in respect of the engineers employed not in the category of supervisory control. All these details were filed before the AO during assessment proceedings. These facts were not properly considered by the AO. Further, from the order of the CIT(A), it is seen that he had taken note of the notification issued by the Government of Karnataka and concluded that as per the notification issued, the assessee company engaged in the development of software is covered by the Industrial Disputes Act, 1947. Further it is not the case of the Revenue that the assessee did not fulfil the conditions extracted elsewhere in this order. Considering all those factual matters we do not find any infirmity in the order of CIT(A) according relief to the assessee. In fact he had clarified the relevant portions related to Industrial Disputes Act, 1947 and IT Act while granting relief to the asssessee which are extracted at pp. 5 and 6 of this order.
10. After carefully considering the same, we are inclined to accept the reasons shown by the learned CIT(A). The learned CIT-Departmental Representative could not assail the finding reached by the learned CIT(A) by bringing in any valid materials. The order of the CIT(A) is confirmed. It is ordered accordingly.
11. In the result the appeals filed by the Revenue are dismissed.