Herald Publications Pvt. Ltd. V. The Asst. Commissioner of Income Tax, Circle 12(3), Bangalore

ITA/787/2008

AI Insights

Herald Publications Pvt. Ltd., the appellant, is a company engaged in publishing and job printing. The dispute arose from the denial of a deduction claim under section 80IB of the Income Tax Act, 1961, for the Assessment Year 2000-2001. The Assessing Officer initially denied the claim, noting that only seven out of eleven employees were engaged in the manufacturing process, failing to meet the statutory requirement of ten employees. This decision was upheld by the Commissioner of Income Tax and later by the Tribunal. The High Court's judgment referenced a similar case decided by the Bombay High Court at Goa, which supported the interpretation that the industrial undertaking must employ ten or more individuals in the manufacturing process to qualify for the deduction under section 80IB.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 794097 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 01-12-2014
• Assessment Year: misc
• Other Referred Cases: Bombay High Court at Goa in the assessee's case for the earlier year
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K V ANAND
• Assessee Lawyers: G SARANGAN
• Keywords: Deduction; Exemption denial; Income Tax; Industrial Undertaking; Manufacturing process
• Section: 80IB; 260-A; 80IA(2)(v); 80IA(1); 80IA(2)(i); 80IA(2)(ii)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 1ST DAY OF DECEMBER 2014 PRESENT THE HON’BLE MR.JUSTICE N.KUMAR AND THE HON’BLE MR.JUSTICE B.MANOHAR I.T.A. No.787/2008 BETWEEN: Herald Publications Pvt. Ltd., Having Office at RUA DE OUREM St. TOME Street, Panaji – Goa -403001. …APPELLANT (By Sri.G.Sarangan, Sr.Counsel for Sri.Balram R.Rao, Adv.) AND: The Asst. Commissioner of Income Tax, Circle 12(3), Bangalore. …RESPONDENT (By Sri.K.V.Anand, Adv.) **** This ITA is filed under section 260-A of I.T.Act, 1961, arising out of order dated 30.04.2008 passed in ITA.No.349/ PNJ/2004, for the Assessment Year 2000-2001, praying to formulate the substantial 2 questions of law stated therein and allow the appeal and set aside the order passed by the ITAT, Panaji, in ITA No.349/PNJ/2004 dt.30.04.2008. This ITA coming on for Hearing this day, N.KUMAR, J., delivered the following: J U D G M E N T The assessee has preferred this appeal against the order passed by the Tribunal holding that the assessee is not entitled for deduction under section 80IB in view of the fact that the assessee has to establish that the manufacturing process was maintained by way of a separate unit, for which satisfaction has to be recorded by the Assessing Officer by verifying the number of employees, purchasers and etc., under which no substantive evidence has been established by the assessee even before us. 2. The assessee is a Private Limited Company carrying on business as publisher of a Daily Herald and operating a job printing unit. The assessee’s claim for exemption under section 80IB was rejected by the Assessing Officer on the ground that out of 11 persons employed, four employees are not employed in the manufacturing process which means that the effective number of employees engaged in the 3 manufacturing process comes to seven which does not satisfy the condition as required under section 80IB(2)(iv) of Income Tax Act and therefore, the assessee is not entitled to the benefit. The assessee preferred an appeal against the said order before the Commissioner of Income Tax, Panaji, who relying on his own order in the case of assessee for the earlier year upheld the order of the Assessing Officer and dismissed the appeal. In the second appeal, the Tribunal upheld the order passed by the Appellate Authority. Aggrieved by the said order, the present appeal is filed. 3. The appeal was admitted to consider the following substantial question of law:- 1) Whether the Tribunal was justified in denying the exemption under section 80IB of the Income Tax Act, 1961 on the ground that the assessee has not employed ten employees in the manufacturing process though more than ten employees were employed in the establishment? 4. The question involved herein arose for consideration before the Hon’ble High Court of Bombay at Goa in the assessee’s case 4 itself for the earlier year. After taking note of the admitted facts and the judgments relied on by both the parties, the Bombay High Court held has under:- “21. Here the provisions of Section 80 IA(2)(v) of the Income Tax Act employs two phrases; first one is ‘Industrial Undertaking’ and the second is ‘Manufacturing Process’. This Clause (v) considers the Industrial Undertaking which manufactures or process articles or things. By implication, it excludes those Industrial Undertakings which do not manufacture or produce any article or thing. Section 80 IA(1) speaks of a business of an industrial undertaking. Sub-section (2) thereof speaks of an Industrial Undertaking. Clause (i) therein lays down that such Industrial Undertaking should not be formed by splitting up or reconstruction of a business, already in existence. Similarly, its Clause (ii) also necessitates that such industrial undertaking should not be formed by transfer to a new business of machinery or plant previously used for any purpose. Thus concept of ‘business’ envisaged therein appears to be wider including within itself the ‘industrial undertaking’. However, for the present purpose it is not necessary to conclusively lay down any such law.” 5. Though the principle of res judicata has no application in deciding the cases under the Income Tax Act, when the fact situation for 5 the earlier year is identical with the subsequent year and the legal position is clear, the judgment rendered on an earlier occasion is applicable. That is precisely what the Tribunal has held. Admittedly, even for the subsequent year, the assessee had not employed ten or more such employees in the industrial undertaking for the manufacturing process. Therefore, the assessee is not entitled for the benefit of Section 80IB of the Act. Accordingly, the substantial question of law is answered in favour of the revenue and against the assessee. Hence, we pass the following:- ORDER Appeal is dismissed. Parties to bear their own costs. Sd/- JUDGE Sd/- JUDGE Bss. "