JUDGMENT
On an application under section 256(1) of the Income Tax Act, 1961, Tribunal has referred the following questions for the opinion of this court :
For assessment years 1983-84 to11985-86 :
“Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that deduction under section 80I of the Income Tax Act, 1961 was allowable to the assessee company even though the industrial undertaking was not run by the assessee itself?”
For assessment year 1985-86 :
“Whether on the facts and in the circumstances of the case in law, the Tribunal was justified in deleting addition made under section 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. with effect from 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 assessment year 1983-84 till whole of the previous year relevant to assessment year 1985-86. The assessee though had not manufactured any article or things, but he claimed deduction under section 80-I. That claim has been rejected by the assessing officer.
3. Assessee preferred an appeal before the Commissioner (Appeals), Commissioner (Appeals) has also dismissed the appeal of the assessee.
4. In appeal before the Tribunal, Tribunal has followed the deduction of Madras High Court in case of CIT v. Universal Radiators (P.) Ltd. (1981) 128 ITR 531 (Mad) & decision of Calcutta High Court in case of CIT v. Flender Macneill Gears Ltd. (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 section 80I of the Act.
5. 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 section 80-I. The conditions laid down in sub-section (2) of section 80-I are mandatory. He placed reliance on the decision of Delhi High Court in case of CIT v. Northern India Iron & Steel Co. Ltd. (1997) 226 ITR 342 (Del), CIT v. Phoenix Scrap Processors (1995) 211 ITR 341 (Del), CIT v. Mahavir Rubber Works (2002) 256 ITR 667 (Del).
6. On the other hand, Mr. Kasliwal, learned counsel for the assessee-respondent submits that there was no requirement under the provisions of section 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 section 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 Universal Radiators (P.) Ltd. (supra), Flender Macneill Gears Ltd.’s case (supra), CIT v. Western Mechanical Industries (P) Ltd. (1991) 187 ITR 265 (Bom), CIT v. U.P. State Agro Industri Corpn. Ltd. (1991) 188 ITR 370 & decision of their lordships in case of CIT v. Shaan Finance (P) Ltd. (1998) 231 ITR 308.
7. The facts are not in dispute that no manufacturing activities are carried on by the assessee.
8. In Mahavir Rubber Work’s case (supra), this court has taken the view that requirements under the provisions of clause (iv) of sub-section (4) of section 80J are mandatory. Unless assessee fulfills all these conditions, assessee is not eligible for benefit of section 80J of the Act.
9. In Northern India Iron & Steel Co. Ltd.’s case (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 section 80J of the Act, 1961.
10. In Phoenix Scrap Processors (supra), the Bombay High Court has taken the view that for deduction under section 80-I, the condition precedent, inter alia, is that assessee itself should run the industrial undertaking and derive profit and gains from that.
11. Provision of sub-section (4) of section 80-I is pari materia to the provision of sub-section (2) of section 80-I.
12. Mr. Kasliwal submits that section 80-I is designed to give encouragement to certain industries. Therefore, it requires that provision be liberally construed.
13. The issue before us is whether assessee is manufacturing any articles or things.
14. In U.P. State Agro Industrial Corpn.’s case (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 section 804. This case has no relevance as the admitted fact before us is that assessee has not manufactured itself any article or things.
15. In Flender Macneill Gears Ltd.’s case (supra), the issue before Calcutta High Court that when assessee manufacture 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 section 80J 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.
16. In Shaan Finance (P) Ltd.’s case (supra), the issue before their Lordships is whether assessee is eligible for benefit of investment allowance under section 32A of the Act though he has leased out his machinery. Their lordships have under the provisions of section 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 section 32A is not identical as that of sub-section (2) of section 80-I of the Act. Therefore, this decision of their lordships has also no application.
17. 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 section 80-I of the Act, 1961.
18. Whether assessee is eligible for deduction under section 80-I, subsection (2) lays down some conditions, which are to be fulfilled for deduction under section 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 31-3-1981, 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, or employs twenty or more workers in a manufacturing process carried on without the aid of power.”
A plain reading of clause (iv) of sub-section (2) leave no doubt that if assessee claims for deduction under section 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.
19. 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 clause (iv) in its entirety, the net result is that there should be manufacturing activity by the assessee himself/itself for deduction under section 80-I of the Act.
20. 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 section 80-I of the Act.
In this view of the matter, Tribunal has committed error in allowing deduction to the assessee under section 80-I of the Act.
21. The next additional issue in assessment year 1985-86 relates to the deletion of addition made under section 43B of the Act. Mr. Mathur fairly admits that issue is concluded by their lordships in case of Allied Motors (P) Ltd. v. CIT (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 Sales-tax Act, no addition should be made invoking the provisions of section 43B of the Act.
22. 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 addl. question, which has been raised in 1985-86, we answer in affirmative i.e. in favour of the assessee and against revenue.
23. Reference so made stands disposed of accordingly.