THE COMMISSIONER OF INCOME TAX, COCHIN vs. M/S. METROLLA IRON & STRIPS CO. LTD.,

We have heard standing counsel appearing for the appellant-department. There is no dispute as to the entitlement of the assessee for deduction under Section 80(IB) of the Act except in regard to number of employees engaged by it in the manufacturing process in the industry. In other words if the respondent-assessee has engaged the required number of employees in terms of Section 80(IB)(2)(iv) then it is entitled to the deduction provided under the Section. Further there is no dispute that the respondent is engaged in the manufacturing activity with the aid of power and therefore the number of employees required for eligibility for deduction is ten or above. On going through the Tribunal's order we find that the Tribunal has confirmed the finding of the first appellate authority that the respondent-assessee had in fact employed about ten and above workers during the relevant previous years and this finding by the first appellate authority confirmed by the Tribunal is based on evidence before it. Even though standing counsel challenged before us the veracity of evidence produced towards proof of employment of ten or above workers on regular basis we do not think there is any justification for us to interfere with the finding of fact by the Tribunal in an appeal filed under Section 260A of the Act wherein we are only concerned with substantial questions of law arising from Tribunal's order. Therefore respondent's entitlement for deduction under Section 80(IB) based on findings of the Tribunal does not call for interference in the appeal filed by the Revenue. Consequently, we answer the question raised on this issue against the revenue. However, since apparently conflicting views are expressed by various High Courts on the entitlement of assessee for reckoning contract employees as their employees for the purpose of claiming deduction under Section 80(IB) we should consider the question at least for other cases and to settle the controversy at the level of this Court at the earliest opportunity.

The Standing Counsel has relied on the decision of the Alahabad High Court in the case of R & P Exports v. Commissioner of Income Tax (279 ITR 536) to contend that the decisions of the other High Courts followed by the Tribunal do not lay down the correct law. However, we notice that in the case decided by the Alahabad High Court payment made by the Industry was on piece rate basis and there is nothing to indicate that contract employees were engaged by the company. We notice that Gujarat High Court has consistently taken the view in the decision reported in Commissioner of Income Tax v. Narania and Company (252 ITR 884) and another decision in Commissioner of Income Tax v. Prithviraj Bhoorchand (280 ITR 94) that casual employees should be reckoned for the purpose of considering entitlement for the Industry to claim deductions under Section 80(HH) and 80(IB) of the Income Tax Act.

In this case the finding of the Tribunal is that besides direct employment, respondent assessee was engaging workers on a rather regular basis through contractors. The purpose of granting an incentive to an industry based on number of employees engaged is to encourage generation of employment for the people in the country. What is important is employment for the people and so much so in our view the objective of the Section is achieved by the respondent engaging employees in the industry and it is immaterial even if such employment is through contractors. The question to be considered is whether the employment generated is directly attributable to the industry and the employment is in it and if so the assessee is entitled to reckon all such employees engaged in the industry whether directly or through contractors for the purpose of claiming deduction. We feel the principle laid down by the Supreme Court in Commissioner of Income Tax v. Strawboard Manufacturing Company Ltd. (177 ITR 431) is applicable to this case because an incentive available to an industry under the Income Tax Act should not be declined to it on technical grounds. The objective of the Income Tax Act is not merely collection of revenue but the provisions therein are made keeping in mind the other needs of the country, the most important of which is industrial development involving generation of employment. So much so we feel the number of employments generated by the respondent assessee on a rather regular basis should be reckoned for the purpose of considering eligibility for deduction under Section 80(IB) of the Act. However, we make it clear that the employment through contractor we have in mind is rather steady and regular employment for substantial period in the year and it should not be casual or employment once in a while. We therefore uphold the order of the Tribunal on this issue also and dismiss the department appeal. C.N.RAMACHANDRAN NAIR Judge K. SURENDRA MOHAN Judge jj