COMMISSIONER OF INCOME TAX vs. V.B.NARANIA & CO

ITR/155/1986HC GujaratGJHC24010779198627 August 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA5 pages
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What were the facts?

The assessee, V.B. Narania & Co., engaged in the manufacturing of Carborandum, claimed deductions under Sections 80HH and 80J of the Income Tax Act, 1961, for assessment years 1978-79 to 1980-81, asserting it employed 10 or more workers in its manufacturing process aided by power. The Income-tax Officer and Appellate Assistant Commissioner disallowed the claim, reasoning that the assessee outsourced work on a piece-meal basis and did not provide regular employment, considering such workers as outsiders. The assessee argued that salaries paid to workers were debited as 'Majuri Pagar Kharch' in the manufacturing account, and workers performed tasks within the factory premises, with payments based on the quantity of work done. The Tribunal accepted the assessee's contention, finding that 10 or more persons were employed.

What did the High Court hold?

The High Court held in favour of the assessee. It reasoned that while the Assessing Officer and Appellate Assistant Commissioner noted work was done by outsiders, they did not clarify if it was outside the factory premises. The Tribunal's acceptance of the assessee's case, that work was done within the factory, meant the finding of work being done by outsiders was not confirmed. The Court further held that payment on a job work or piece-rate basis does not preclude a person from being considered an employee. Citing the Apex Court in *Harish Chandra Bajpai vs. Triloki Singh*, the Court stated that the real test for employment is whether the agreement is for personal labour, irrespective of whether it's piece-work or time-work. The Tribunal correctly applied this test, finding that the assessee controlled the work and the manner of doing it, thus establishing an employer-employee relationship. Consequently, the Tribunal was correct in holding that the assessee employed 10 or more workers for the purpose of Sections 80HH and 80J.

What were the issues?

1. Whether the assessee employed 10 or more workers in a manufacturing process carried on with the aid of power, as provided under clause (iv) of sub-section (2) of Section 80HH and clause (iv) of sub-section (4) of Section 80J of the Income Tax Act, 1961. Assessee's arguments: The assessee contended that workers were employed within the factory premises, their salaries were debited to the manufacturing account, and payments were made based on work done. They argued that even casual workers and employees of contractors should be considered, and that the employment was not time-bound but based on the completion of processes or pieces, usually during regular hours. Revenue's arguments: The revenue argued that since the work was done by outsiders on a job work basis, these individuals could not be considered workers or employees, and therefore, the Tribunal erred in overruling the Assessing Officer and Appellate Assistant Commissioner.

Which sections of the Income-tax Act were involved?

Section 80HH,Section 80J

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 155 of 1986

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO ----------------------------------------------

The order continues below.

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