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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ B ’
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
07, the assessee has challenged the assessment order dt.14.10.2010 passed under Section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short 'the Act') in pursuant to the directions of the Dispute Resolution Panel (in short ‘DRP’) dt.28.09.2010. For the Assessment Year 2004-05, the assessee challenging the order dt.15.8.2014 of Commissioner of Income Tax (Appeals).
First we take up the appeal for the Assessment Year 2006-07 wherein the assessee has raised the following grounds :
The assessment order dated October 14, 2010 passed by the learned Assessing Officer (“AO”) under section 143(3) read with section 144C of the Income-tax Act, 1961 (“Act”) is not in accordance with the law and is contrary to the facts and circumstances of the present case and in any case violation of principle of equity and natural justice.
2. Deduction under section 80JJAA of the Income-tax Act, 1961 2.1 The Honourable Dispute Resolution Panel (“DRP”) and the learned AO (“Ld AO”) have erred in denying the deduction under section 80JJAA of the Income-tax Act, 1961 (“the Act”). They have erred in disregarding the decision of the jurisdictional ITAT in the case of Texas Instruments (India) Private Limited (“TI India”) for the assessment years 2001-02 and 2002-03, wherein the deduction claimed by the appellant under section 80JJAA has been allowed.
3 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 2.2 The Honourable DRP and Ld AO have erred in not appreciating that the “workman” defined in the Industrial Disputes Act includes persons involved in various types of activities and from out of such different types of persons only one category viz supervisor drawing wages in excess of Rs 1,600/- is excluded and the employees of the appellant whose salary qualified for deduction did not fall in the category of such exclusion in the above definition of workmen.
4 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 5 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 6 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014
Ground No.1 is general in nature and no specific adjudication is called for.
At the time of hearing, the learned Authorised Representative of the assessee has submitted that the Transfer Pricing dispute has been resolved between the parties under MAP and therefore the assessee does not press Ground No.3 in respect of TP issue. The learned Departmental Representative has no objection if Ground No.3 is dismissed as not pressed in view of the Resolution of TP issue under MAP. Accordingly, the Ground No.3 of the assessee's appeal is dismissed being not pressed in pursuant to the dispute resolved under MAP.
Ground No.2 is regarding denial of deduction under Section 80JJAA of the Income Tax Act, 1961 (in short 'the Act').
The TPO has denied the deduction under Section 80JJAA of the Act on the ground that the engineers employed by the assessee are not 7 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 falling under the category of workmen as per the definition provided under Section 80JJAA and further since the issue was still pending before the Hon'ble High Court, the Assessing Officer has taken the same view as taken for the Assessment Years 2001-02 and 2002-03.
We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset, we note that an identical issue was considered by this Tribunal in assessee's own case for the Assessment Years 2001-02 & 2002-03 vide order dt.21.12.2006 in & 274/Bang/2005. Subsequently, the Hon'ble High Court remitted the matter to the record of Tribunal for deciding another aspect of the issue regarding the condition of completion of 300 working days during the year as contemplated u/s. 80JJAA of the Act. Therefore as far as the issue of the new employees appointing during the year under consideration without any supervisory role had already been decided by the decision of this Tribunal vide order dt.21.12.2006 in assessee's own case for the Assessment Years 2001-02 & 2002-03. However the issue of the condition of 300 days employment during the year under consideration is concerned this issue was decided against the assessee in the remand proceedings in pursuant to the directions of Hon'ble High Court. The finding of the Tribunal in assessee's own case on this issue vide order dt.29.12.2016 in paras 7 to 10 as under :
8 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 “ 7. We have considered the rival submissions as well as the relevant material on record. There is no dispute regarding the objects for which this provision of Section 80JJAA was inserted in the Act vide Finance Act, 1998 w.e.f. 1.4.1999. The Memorandum explaining the provision of Finance No.2 Bill as reported in 231 ITR 233 Statute as under :
Thus it is clear that in order to further generate more employment particular section 80JJAA was inserted to provide an incentive in the form of Special Deduction over and above the expenditure of wages or salaries which is otherwise allowable as business expenditure. The deduction is provided under this provision equivalent to 30% of the aggregate charges or salary paid to new workmen on satisfaction of the 9 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 conditions provided under the said provision. At this stage we quote the provisions of Section 80JJAA as exist at the relevant point of time as under : “ Deduction in respect of employment of new workmen. 80JJAA. (1) Where the gross total income of an assessee includes any profits and gains derived from the manufacture of goods in a factory, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided. (2) No deduction under sub-section (1) shall be allowed— [(a) if the factory is acquired by the assessee by way of transfer from any other person or as a result of any business re-organisation;] (b) unless the assessee furnishes along with the return of income the report of the accountant, as defined in the Explanation below sub-section (2) of section 288 giving such particulars in the report as may be prescribed. Explanation.—For the purposes of this section, the expressions,— (i) "additional wages" means the wages paid to the new regular workmen in excess of [fifty] workmen employed during the previous year : Provided that in the case of an existing factory, the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than ten per cent of existing number of workmen employed in such factory as on the last day of the preceding year; (ii) "regular workman", does not include— (a) a casual workman; or (b) a workman employed through contract labour; or (c) any other workman employed for a period of less than three hundred days during the previous year; (i) "workman" shall have the meaning assigned to it in clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947);”
Thus it is clear that in case of an industrial undertaking the additional wages paid to the new regular workmen in excess of 100 workmen employed during the previous year and further the number of regular workmen employed during the year should not be less than 10% of the existing number of workmen employed as on last date of the preceding year. The dispute before us is not regarding number of workmen but is 10 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 pertaining to the regular workmen as defined under clause (ii) of Explanation to Section 80JJAA of the Act. This definition of regular workmen exclude certain categories of workmen as enumerated in the clause (ii). As per sub-clause (e) any workmen employed for a period of less than 300 days during the previous year will not be included in the definition of regular workmen for the purpose of Section 80JJAA. We find that the tenure of employment for a period of atleast 300 days as stated in the Memorandum explaining the provision is in a year, but it has been provided under Explanation to Section 80JJAA as during the previous year. Therefore the language of the Memorandum explaining the provision and the language of the sub-clause (c) of clause (ii) of Explanation to Section 80JJAA are not identical. However, the Memorandum of explaining the provision is a guidance to understand the meaning of the provision in the statute and the intention of the Legislature. The word ‘previous year’ as used in sub-clause (c) of Clause (ii) of explanation is not used in the Memorandum explaining the provision as the condition for such workman should be a regular workman is provided as he has been employed for atleast 300 days in an year. Therefore this condition of 300 days during the previous year as stipulated under section 80JJAA for treating a worker as a regular workman can be satisfied only when a workman joins on or before 5th June of previous year and not thereafter. There is no doubt that the Legislature has not intended while providing this incentive of generation of employment opportunity that it should be only at the beginning of each financial year but the employment is generally given throughout the year depending upon the demand and supply of the workmen in the industry. Even otherwise the definition of workmen as given under Explanation to Section 80JJAA is not an inclusive definition but certain categories of workmen are excluded such as a casual workman, a workman employed through contract labour or any other workman employed for a period of less than 300 days during the previous year. All these three categories of employment excluded from the definition of regular workmen itself shows that these three categories of workmen cannot be otherwise considered as regular workmen. Therefore we find force in the contention of the ld. Senior counsel that this condition of 300 days of employment during the previous year should be read as 300 days 11 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 in a year from the date of employment. It is to be noted that once a workman is employed as a regular workman by an undertaking/assessee then in the absence of any ambiguity regarding the nature of employment being regular the other three categories of the workmen being casual employment through contract labour and employed for less than 300 days are not relevant.
Though the language employed in the provision appears to militate with the intention of the Legislature as expressed in the Memorandum explaining the provision as well as against the very object and scheme of the provision of the providing incentive for generating more employment opportunities in the industry however, this may be an omission in the provision which can be supplied only by an Act of Legislature through proper amendment. Therefore as per the existing provisions of Section 80JJAA, the additional wages paid to regular workmen who have been employed for a period of not less than 300 days during the previous year is eligible for deduction under section as this view has been consistently taken by this Tribunal in various cases relied upon by the ld. DR. In the case of Panacea Biotech Ltd. Vs. ACIT (supra), the Delhi Bench of this Tribunal has held in para 10 to 13 as under : “10. Now we will explain the method of computation of deduction under section 80JJAA of the Act. In case of a new industrial undertaking we have to first find out whether number of workmen [(i.e., category (b) + (c ) + (d)] employed during the previous year is more than 100. If yes, then the wages paid to new regular workmen falling in category (d) in excess of 100 workmen employed during the year has to be determined. 30 per cent of the wages determined in the second step is the amount of deduction under section 80JJAA of the Act. For computing deduction under section 80JJAA of the Act in case of an existing industrial undertaking, first we have to find out whether number of workmen [category (b) + (c) + (d )] employed during the previous year is more than 100. If answer is yes, then the number of regular workmen falling in category (d) newly employed during the year is to be determined; and whether it is equal to or more than 10 per cent of existing number of workmen [i.e., category (b) + (c) + (d)] employed in the undertaking on the last day of the preceding year. If answer to this question is yes, then the wages paid to new regular workmen [i.e., category (d)] in excess of 100 workmen employed during the year is to be determined. 30 per cent of wages so determined will be the amount of deduction under section 80JJAA of the Act.
12 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 11. There is no dispute that the case of assessee is of an existing undertaking. Therefore, for computing additional wages the percentage increase in the number of regular workmen has to be determined with reference to the workmen employed in the undertaking as on the last day of the preceding year. From the order of ld. CIT(A) we find that in this case, the increase in the number of regular workmen has been determined with reference to regular workmen and not with reference to workmen employed in the undertaking as on the last day of the preceding year. For computation of deduction in respect of regular workmen employed for 300 days or more in previous year 2002-03 relevant to assessment year 2003-04, the Assessing Officer has not computed deduction with reference to new regular workmen in excess of 100 workmen employed during the year. For this purpose as discussed above the percentage increase in the number of regular workmen has to be determined with reference to workmen employed in the undertaking as on the last day of the preceding year. This has also not been done. We, therefore, set aside the matter to the file of the Assessing Officer with the directions to compute deduction under section 80JJAA of the Act discussed as above.
We may like to clarify that in a case if the assessee fulfils both the conditions that workmen employed during the year were 100 and percentage increase of regular workmen as compared to last day of preceding year is not less than 10 per cent, the assessee will be eligible for the benefit in excess of 100 workmen employed. In other words the law does not require that in every year the number of regular workmen appointed should be more than 100 and only excess of 100 regular workmen so employed will be eligible for benefit of section 80JJAA of the Act. The ld. CIT(A) as well as Assessing Officer have gone wrong in excluding 100 regular workmen out of 236 workmen employed during previous year relevant to assessment year 2003- 04. The Assessing Officer will bear in mind this position of law while computing additional wages for the purposes of deduction under section 80JJAA of the Act.
13. As regards the disallowance of additional wages in respect of new regular workmen employed in the previous year relevant to the assessment year 2001-02, Sh. Salil Agarwal, the ld. counsel for the assessee has fairly conceded that increase in the number of regular workmen with reference to the existing regular workmen employed as on the last day of the preceding year was less than 10 per cent. From the details given in the order of the ld. CIT (Appeals) we find that the increase in the number of regular workmen employed during the year 2000-01 has been determined with reference to existing regular workmen employed as on the last day of the preceding year and not with reference to the existing number of workmen employed as on that date. The number of workmen employed discussed as above is normally higher than the regular workmen as it takes into its fold the casual workmen, 13 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 the labour hired on contract basis, the workmen employed less than 300 days and also the workmen employed for 300 days or more. When the percentage increase with reference to regular workmen is less than 10 per cent, it will be further less when the percentage increase will be worked out with reference to the total number of workmen employed. Therefore, in any case the assessee will not be eligible for deduction in respect of regular workmen employed during the assessment year 2001-02. The order of CIT(A) is upheld in this regard.” A similar view has been taken by the Delhi Bench of this Tribunal in the case of LG Electronics India Pvt. Ltd. Vs. ACIT (supra) in paras 12 & 13 as under : “ 12. As regards the merits of the case, regarding claim u/s 80JJAA the section reads as under:- "(1) Where the gross total income of an assessee being an Indian Company includes any profits and gains derived from any industrial undertaking engaged in the manufacture or production of articles of things there shall subject to the conditions specified in sub section (2) be allowed as deduction of an amount equal to 30% of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided."
13. The explanation to section defines regular workmen which does not include:- a) Casual Worker. b) Any other workmen employed for a period of less than 300 days during the previous year. c) A workmen employed through contract labour. The definition of new workmen in section along with explanation clearly provides that deduction will be available only if the new workmen is employed for a period of 300 days in the previous year and there is no reference to the new employees employed in the preceding year for eligibility u/s 80JJAA. Form No.10DA which is required for making claim u/s 80JJAA also does not have any column in respect of employee employed during the preceding year. The argument taken by Ld AR that employees employed in the preceding year who had not completed 300 days in that year should be taken in the current 14 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 year when he completes 300 days is of no force. In view of the above, we do not see any reason to interfere in the order of ld CIT(A)” We find that the co-ordinate bench of this Tribunal in the case of Bosch Ltd. Vs. ACIT (supra) has also taken similar view.
Therefore in view of the decisions of this Tribunal on this point and to maintain the rule of consistency, we hold that the assessee has not fulfilled the condition of employing the new regular workmen in excess of 100 workmen and further an increase of 10% of the existing number of workmen employed by the assessee as on last date of preceding year. The Assessing Officer has filed the remand report and the assessee has also accepted this fact that during the previous year relevant to the Assessment Year 2001-02, the number of workmen who were employed from 300 days or more days are only 16 and similarly during the previous year relevant to the assessment year 2002-03, the number of workmen who were employed for 300 days or more are only 8. Therefore the assessee does not satisfy the condition as prescribed under the provisions of Section 80JJAA of the Act because the workmen employed by the assessee cannot be included in the definition of regular workman as per explanation to this section.
10. As regards the alternative plea of the ld. Senior counsel, we find that once these workmen are excluded from the category of regular workmen then the same cannot be considered as new regular workmen in excess of 100 as well as increase in the number of regular workmen not less than 10%. Therefore while considering the alternative plea a different meaning cannot be given to the regular workmen.”
Accordingly, the first aspect of the issue regarding the engineers can be considered as workmen as per the provisions of section 80JJAA of the Act is decided in favour of the assessee and the issue of the condition of 300 days employment during the previous is decided against the assessee.
15 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 8. For the Assessment Year 2004-05, the assessee has challenged the order of CIT (Appeals) and raised the following grounds :
1. “ The learned CIT(A) has erred in passing an order which is bad in law and on facts.
2. Denial of the claim of deduction under section 80JJAA of the Act 2.1. The learned CIT(A) erred in law and on facts in not allowing deduction under section 80JJAA of the Act to the extent of Rs 67,962,013, as claimed in the return of income. 2.2. Without prejudice to the above, the learned CIT(A) has erred in law and on facts in upholding the action of the Assessing Officer (“AO”) in disallowing the deduction earlier allowed to the extent of Rs 11,724,254. 2.3. The learned CIT(A) and AO have erred in law and on facts in holding that the Appellant does not satisfy the eligibility criteria in respect of the new regular workmen employed during the financial year relevant for the Assessment Year (“AY”) 2004-05. 2.4. The learned CIT(A) has erred in law and on facts in misinterpreting the directions of the Commissioner of Income Tax (“CIT”) and in holding that the AO had not assumed jurisdiction for matters beyond the scope of the same, given that the directions of the CIT were for the limited aspect of verifying if the workmen employed by the Appellant were employed in supervisory capacity or not. 2.5. The learned CIT(A) has erred in law and on facts in not adjudicating on the issue of whether the Ld AO had erred in law and on facts in concluding that employees employed for a period of less than 300 days could not be considered as regular workmen. The Appellant submits that each of the above grounds is independent and without prejudice to one another. Further, the Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal.”
9. The learned Authorised Representative of the assessee has submitted that in the first round of appeal the Tribunal remitted the matter to the record of the Assessing Officer vide order dt.22.9.2010 for 16 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 verification of the fact whether the employees claimed to have been employed during the year under consideration are in the supervisory category or not. The learned Authorised Representative has pointed out that in the giving effect order, the Assessing Officer did not examined the issue as directed by the Tribunal and disallowed the claim of the assessee. Thereafter the CIT invoked the jurisdiction under Section 263 of the Act and revised order dt.16.1.2013 the Assessing Officer was directed to verify whether the conditions stipulated for grant of deduction under Section 80JJAA as directed by the Tribunal are satsified in this case. The learned Authorised Representative has then contended that the order passed by the Assessing Officer in pursuant to the revision order dt.16.1.2013 the Assessing Officer exceeded its jurisdiction by considering the other conditions of Section 80JJAA in respect of the employment of 300 days during the previous year which was not the issue remitted by the Tribunal to the Assessing Officer and therefore the Assessing Officer has travelled beyond the jurisdiction while passing the order in pursuant to the revision order passed under Section 263. He has relied upon the decision of Gujarat High Court in the case of CIT Vs D.N.
17 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 Desai 280 ITR 275 and submitted that the Hon'ble High Court has held that the Assessing Officer by following the directions of the order passed under Section 263 had travelled beyond the jurisdiction. Thus the learned Authorised Representative has submitted that the limited issue in the remand proceedings was for the Assessing Officer to verify whether the employees employed by the assessee was in the supervisory category or workmen whereas the Assessing Officer has denied the claim of the assessee on the ground that the workmen have not worked for 300 days during the year under consideration.
On the other hand, the learned Departmental Representative has submitted that even on the issue of the workmen or supervisory category, the Assessing Officer has given the finding that the assessee has failed to produce any evidence to show that the employment of these engineers are not in the nature of supervisoy.
In rebuttal, the learned Authorised Representative has submitted that the assessee produced the relevant details vide letter dt.5.8.2013 at page No.105 of the paper book.
18 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 12. We have considered the rival submissions as well as the relevant material on record. In the first round of litigation for the Assessment Year 2004-05, the Tribunal while setting aside the issue to the record of the Assessing Officer in paras 2.7 to 2.8 has observed as under :
19 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 Thus it is apparent from the order of the Tribunal that the details with regard to the employees on whose salary deduction under Section 80JJAA of the Act have been claimed has not been produced before the Tribunal. Therefore the Tribunal expressed its limitation to verify whether the persons employed in the supervisory role are also included in the list. Accordingly, the matter was remitted to the record of the Assessing Officer. The limited issue in the remand proceedings before the Assessing Officer was only to verify whether any persons employed in the supervisory role was included in the list for the purpose of deduction under Section 80JJAA of the Act. The Assessing Officer while passing the 20 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 order dt.20.12.2011 denied the claim without giving effect the directions of the Tribunal to verify the factual position. Subsequently, the CIT passed a revision order under Section 263 dt.16.1.2013 and directed the Assessing Officer to verify whether the condition stipulated for the grant of deduction under Section 80JJAA as directed by the Tribunal are satisfied in the case of the assessee. The Assessing Officer then passed the order dt.16.1.2014 in pursuant to the revision order under Section 263 and denied the claim by following the order of the earlier assessment year. We find that for the earlier assessment year, the issue of nature of employment whether it is supervisory or not has been decided in favour of the assessee. However, this issue is pending before the Hon'ble High Court for the Assessment Years 2001-02 and 2002-03.
As regards the issue of satisfying the condition of not less than 300 days of employment during the previous year, we find that this issue does not germane from the order of this Tribunal in the first round of appeal as the limited aspect remitted to the Assessing Officer for verification was whether any person employed in the supervisory role was included in the list of workmen as claimed by the assessee.
21 IT(TP)A Nos.1478/Bang/2010 & 1603/Bang/2014 Therefore even if the Assessing Officer has made a reference about the employment of less than 300 days, this issue is not emanating from the proceedings as remanded by the Tribunal. Since this issue is still pending before the Hon'ble High Court therefore to keep this issue open as per the outcome of the proceedings pending before the Hon'ble High Court, we direct the Assessing Officer to take necessary step only after the decision of Hon'ble High Court.
In the result, the appeal for the A.Y. 2006-07 is partly allowed and for the A.Y. 2004-05 is allowed.
Order pronounced in the open court on the 19th day of May, 2017.