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IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA
ITA No. 34 of 2009
Date of Decision: August 3, 2017 Commissioner of Income Tax, Shimla …Appellant
Versus
M/s Him Knit Feb.
…Respondent. Coram: The Hon’ble Mr. Justice Sanjay Karol, Acting Chief Justice. The Hon’ble Mr. Justice Sandeep Sharma, Judge.
Whether approved for reporting?1 Yes.
For the Appellant: Mr. Vinay Kuthiala, Sr. Advocate with Ms.Vandana Kuthiala & Mr.Diwan Singh Negi, Advocates, for the appellant.
For the Respondent: Mr. Vishal Mohan, Advocate, for the respondent.
Sanjay Karol, Acting Chief Justice (oral).
The appeal came to be admitted on the following substantial question of law:-
“Whether the condition specified in Section 80IB(2)(iv) of the Income Tax Act can be said to be substantially complied with, even though the number of workers is less than ten during seven months of the year?”
The only issue which arises for consideration is as to whether findings of fact, so returned by the
1 Whether reporters of the local papers may be allowed to see the judgment?
2 authorities below, qua employment of workers, more than ten in number, during the substantial part of the year, warrants interference by this Court or not. Are they perverse, erroneous or illegal? 3. This Court vide judgment dated 30.09.2010, passed in ITA No. 32 of 2004, titled as M/s Amrit Rubber Industries Versus Commissioner of Income Tax, has already interpreted the term “employment for substantial part of the year” to mean the employment not to be for the entire year, but for a substantial period, which, in the facts of case was held to be more than six months in a year. 4. Claiming statutory deduction under the provisions of Clause (iv) of sub-section (2) of Section 80IB of the Income Tax, 1961 (hereinafter referred to as the Act), with respect to the assessment year 2003-04, the present assessee declared his income by filing the return. 5. On scrutiny, such claim of the assessee came to be rejected by the Assessing Officer, in terms of order dated 30.03.2006 (Annexure P-1). 6. It is not in dispute that findings of fact, that of the Assessing Officer qua engagement of less than ten
3 workers, came to be reversed by the Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT (A)], in terms of order dated 24.11.2006 (Annexure P-2). 7. Also finding of fact that of CIT (A) came to be affirmed by the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal), in terms of order dated 17.11.2008 (Annexure P-3). 8. For proper appreciation, we reproduce here-in- under relevant clause of Section 80 IB(2) of theAct:- “80 IB(2): … … … (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.”
The only issue being as to whether the assessee is compliant of the said provision or not. From the bare reading of sub-clause (iv) reproduced supra, it is evident that the undertaking of the assessee, must have employed ten or more workers in a manufacturing unit carried out with the aid of power.
4 10. Otherwise assessee being a manufacturing unit, is entitled to the benefits of deductions, fulfilling all other conditions specified in sub-section (2) of Section 80IB of the Act, is not in dispute. 11. In the instant case, assessee is carrying on the activity of manufacturing knitted cloth with the aid of power. It is not in dispute. 12. The Assessing Officer, in a tabulated form, depicted employment status of each one of the workers so employed by the assessee on monthly basis. From a reading of para-5.1 of order dated 30.03.2006 (Annexure P-1, page-7), it is evident that assessee had not employed more than ten workers for more than five months in the assessment year in question. Considering the principle of law laid down by this Court in Amrit Rubber Industries (supra), it cannot be disputed that if findings returned in the said paragraph alone are to be considered, then the assessee was not compliant of the essential eligibility criteria of having employed the requisite number of workers in an undertaking engaged in the process of manufacturing.
5 13. However, in the instant case, as stands observed by the Assessing Officer himself, in para-5.5 of the order, assessee’s employment of foremen in the undertaking was found to be doubtful. Finding is based on his appreciation of material, so available on record. Reasons and findings, which prompted him to exclude employment of foremen from considering the number of employees engaged, so referred to in para-5.5 of the order passed by the Assessing Officer, were found to be not only factually incorrect, but to be based on surmise and conjecture. Except for what is recorded in para-5.5 of the order, the Assessing Officer did not record any other reason for rejecting the contention of the assessee, with regard to employment of requisite number of persons. 14. If the number of persons employed as Foremen are accounted for, assessee would be in compliant of the statutory provisions, entitling him for statutory deductions. 15. The CIT (A), while recording his findings on the question of fact with regard to employment of requisite number of workers, holding the assessee entitled to the benefits under Section 80IB of the Act, returned its
6 findings after ascertaining the factual matrix on the basis of inspection carried out on 21.08.2002, on the premises of the assessee. Now significantly, inspection took place in presence of the Assessing Officer, when entire record was inspected and upon thorough examination of books of account, the factum of employment of foremen, as claimed by the assessee, was found to be factually correct. It is in this backdrop, that the Appellate Authority observed as under:- “3(xii) In the light of the above legal and factual discussions and having regard to the judicial mandates, on the issue in question, it is evident that compliance with the statutory condition of section 80IB(2)(iv) of the Act, is to be considered in terms of evidences documentary or otherwise on record, plain relevant provisions of the Act, direct decisions of various courts/tribunals and not in terms of suspicions, surmises and conjectures. It is only empirical evidence and not mathematical exercise that is relevant and decisive, in ascertaining the compliance with the relevant statutory condition. It is not statutorily incumbent on the appellant to explain and justify day–to-day employment of such workers, based on the product or outcome of various statistical formulations. Therefore, having regard to the submissions made by the appellant, relevant record and above discussions, it is evident that
7 the appellant has substantially complied with the said statutory condition of employment of workers. Consequently, such findings of the A.O., based on pure surmises and suspicion are not sustainable and, hence, found unacceptable.”
Perusal of the order dated 17.11.2008 (Annexure P-3) passed by the Tribunal, only reveals the aforesaid findings to have been affirmed. 17. While contending that in fact the Tribunal had concurred with the findings of the Assessing Officer, Ms. Vandana Kuthiala, learned counsel, invites our attention to para-10 of the order, which we reproduce as under:- “10. It is evident from the above decisions that, what is necessary is the substantial compliance of condition provided under section 80IB(2)(iv) of the Act. In other words, an assessee need not to have employed ten or more employees during the entire year to claim deduction under section 80IB(2)(iv) of the Act. In the instant case, the assesse has furnished a chart showing number of persons employed by the assesee. It would be seen from the chart as placed on record by the assessee that it has substantially complied with the condition as provided under section 80IB(2)(iv) of the Act. In fact, it is seen that the assessee has employed ten or more workers for substantial part of the year. The contention of the AO that foremen cannot be treated as part of the
8 manufacturing process is unfounded and incorrect. In the case of the assessee, we find that, for five complete months, there are ten or more employees and even for other months, though at time, during the month, the assessee may not have employed ten or more person yet even during those months, the assessee had intermittently employed ten or more workers. We, thus, in light of the above judicial pronouncements and the facts of the case hold that the assessee has satisfied the statutory pre-condition for claiming deduction under section 80IB(2)(iv) of the Act and we hereby confirm the findings of the CIT(A), who on the basis of the relevant record has also found that, the assessee has substantially complied with the statutory pre-condition of employment of workers and, the findings of the AO are not based correct appreciation of the evidence on record and, provisions of law.”
Careful perusal of the aforesaid findings only reveals the Tribunal to have independently formed an opinion, based on correct, complete and proper appreciation of entire material, that the assessee had in fact employed more than ten workers for substantial part of the year. Findings of fact cannot be said to be arbitrary, illegal, erroneous or unreasonable. 19. As to whether foremen were employed in the process of manufacture or not was not an issue either
9 before the Assessing Officer or before the CIT (A). The only issue being as to whether Foremen were employed in the undertaking or not. It is in this backdrop, the Tribunal found it appropriate not to answer the contention of the revenue that in fact foreman is not treated as a part of the manufacturing process. In fact, Tribunal was not even required to answer the same, for there was no dispute as to whether the undertaking of the assessee is engaged in the activity of manufacture or that foremen were not employed for the process of manufacture, in the particular undertaking of the assessee, for which, benefit under Section 80IB(2)(iv) was sought. 20. Though this Court, after having gone through the material adduced on record by appellant-department vis-a-vis impugned order passed by the learned Appellate Tribunal, is of the view that no substantial question of law arises for determination of this Court, but otherwise also, as has been discussed hereinabove, learned Tribunal has correctly dealt with each and every aspect of the matter, taking into consideration law laid down by Hon’ble Apex Court as well as the rule occupying the field.
10 21. This Court, after having carefully examined the text of questions of law formulated in the appeal vis-a-vis findings recorded by learned Appellate Tribunal, finds that questions framed by the appellant-department are pure questions of fact, which definitely cannot be looked into in the present proceedings, and as such present appeal deserves to be dismissed. 22. Section 260-A of the Income Tax Act, 1961 provides that “An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law.”
Taking note of the aforesaid provision of law, the foremost question for consideration is as to whether any substantial question of law arises in this case or not. 24. In this regard reliance is placed upon Kondiba Dagadu Kadam vs. Savitribai Sopan Gujar, (1999) 3 SCC 722, wherein the Hon’ble Apex Court has held as under:- “6. If the question of law termed as a substantial question stands already decided by a larger bench of the High Court concerned or by the Privy Council or by the Federal Court or by the Supreme Court, its merely wrong application on the facts of the case would not be termed to be a substantial question of law. Where a point of law has not been pleaded or is found to be arising between the parties in the absence of any factual format, a litigant should not be
11 allowed to raise that question as a substantial question of law in second appeal. The mere appreciation of the facts, the documentary evidence or the meaning of entries and the contents of the document cannot be held to be raising a substantial question of law. But where it is found that the first appellate court has assumed jurisdiction which did not vest in it, the same can be adjudicated in the second appeal, treating it as a substantial question of law. Where the first appellate court is shown to have exercised its discretion in a judicial manner, it cannot be termed to be an error either of law or of procedure requiring interference in second appeal. This Court in Reserve Bank of India v. Ramakrishan Govind Morey, AIR (1976) SC 830 held that whether the trial court should not have exercised its jurisdiction differently is not a question of law justifying interference.”
In Panchugopal Barua v. Umesh Chandra Goswami, (1997) 4 SCC 713, it has been laid down by Hon’ble Apex Court that existence of substantial question of law is sine qua non for the exercise of jurisdiction. The Hon’ble Apex Court has held as under:- “7. A bare look at Section 100 C.P.C. shows that the jurisdiction of the High Court to entertain a second appeal after the 1976 amendment is confined only to such appeals as involve a substantial question of law, specifically set out in the memorandum of appeal and formulated by the High court. Of course, the proviso to the Section shows that nothing shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law, not formulated by it, if the Court is satisfied that the case involves such a question. The proviso presupposes that the court shall indicate in its order the substantial question of law which it proposes to decide even if such substantial question of law was not earlier formulated ate by it. The existence of a "substantial question of law" is thus, the sine-qua-non for the exercise of
12 the jurisdiction under the amended provisions of Section 100 C.P.C.”
In Santosh Hazari v. Purushottam Tiwari, (2001) 3 SCC 179, the court reiterated the statement of law that the High Court cannot proceed to hear a second appeal without formulating the substantial question of law. “9. The High Court cannot proceed to hear a second appeal without formulating the substantial question of law involved in the appeal and if it does so it acts illegally and in abnegation or abdication of the duty cast on Court. The existence of substantial question of law is the sine qua non for the exercise of the jurisdiction under the amended Section 100 of the Code. [See Kshitish Chandra Purkait Vs. Santosh Kumar Purkait, (1997) 5 SCC 438, Panchugopal Barua Vs. Umesh Chandra Goswami, (1997) 4 SCC 413 and Kondila Dagadu Kadam Vs. Savitribai Sopan Gujar, (1999) 3 SCC 722]. 10. At the very outset we may point out that the memo of second appeal filed by the plaintiff- appellant before the High Court suffered from a serious infirmity. Section 100 of the Code, as amended in 1976, restricts the jurisdiction of the High Court to hear a second appeal only on “substantial question of law involved in the case”. An obligation is cast on the appellant to precisely state in the memorandum of appeal the substantial question of law involved in the appeal and which the appellant proposes to urge before the High Court. The High Court must be satisfied that a substantial question of law is involved in the case and such question has then to be formulated by the High Court. Such questions or question may be the one proposed by the appellant or may be any other question which though not proposed by the appellant yet in the opinion of the High Court arises as involved in the case and is substantial in nature. At the hearing of the appeal, the scope of hearing is circumscribed by the question so formulated by the High Court. The respondent is at liberty to show that the question formulated by the High Court was not involved in the case. In spite of a substantial question of law
13 determining the scope of hearing of second appeal having been formulated by the High Court, its power to hear the appeal on any other substantial question of law, not earlier formulated by it, is not taken away subject to the twin conditions being satisfied: (i) the High Court feels satisfied that the case involves such question, and (ii) the High Court records reasons for its such satisfaction.”
All the aforesaid judgments have been referred to in the later judgment of K. Raj and Anr. v. Muthamma, (2001) 6 SCC 279. A statement of law has been reiterated regarding the scope and interference of the court in second appeal under Section 100 of the Code of Civil Procedure.
Consequently, in view of detailed discussion made hereinabove, it cannot be said that any question of law much less substantial, is involved in this appeal, which needs adjudication by this Court. Therefore, order passed by the learned Appellate Tribunal is upheld and the present appeal dismissed.
All interim orders are vacated and all the miscellaneous pending applications are disposed of.
(Sanjay Karol),
Acting Chief Justice.
August 3, 2017
(Sandeep Sharma),
(Purohit)
Judge.