M/s Manhattan Associates (India) Developement Centre Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-4(1)(2), Bangalore

ITA 150/BANG/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6461 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-10-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 25-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T SURYANARAYANA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N V VASUDEVAN, VICE PRESIDENT AND S HRI G. MANJUNATHA , ACCOUNTANT MEMBE R ITA NO. 150/ BANG / 2019 ASSESSMENT YEAR : 2012 - 13 MANHATTAN ASSOCIATES (INDIA) DEVELOPMENT CENTRE PVT. LTD., BRIGADE TECH GARDENS, 5 TH & 6 TH FLOOR, KUNDANAHALLI, WHITEFIELD, BANGALORE 560 037. P AN: AADCM 0727A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(2), BANGALORE. APP ELLANT RESPONDENT APP ELLANT BY : SHRI T. SURYANARAYANA, ADVOCATE RESPONDENT BY : SHRI C.H. SUNDAR RAO, CIT(DR - I)(IT AT), BENGALURU. DATE O F HEARING : 22. 1 0 .2019 DATE OF PRONOUNCEMENT : 23 . 1 0 .2019 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 29.10.2018 OF THE CIT(APPEALS)-4, BENGALURU, RELATI NG TO ASSESSMENT YEAR 2012-13. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S.80JJAA OF THE INCOME TAX ACT, 1961 (THE ACT). SEC.80JJA OF THE A CT, AS IT STOOD FOR THE RELEVANT AY 2012-13 READS THUS:- ITA NO.150/BANG/2019 PAGE 2 OF 13 DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN . 80JJAA. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSE SSEE, BEING AN INDIAN COMPANY, INCLUDES ANY PROFITS AND GAINS D ERIVED FROM ANY INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTU RE OR PRODUCTION OF ARTICLE OR THING, THERE SHALL, SUBJEC T TO THE CONDITIONS SPECIFIED IN SUB-SECTION (2), BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO THIRTY PER CENT OF ADDITIONAL WA GES PAID TO THE NEW REGULAR WORKMEN EMPLOYED BY THE ASSESSEE IN THE PREVIOUS YEAR FOR THREE ASSESSMENT YEARS INCLUDING THE ASSES SMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH EMPLOYM ENT IS PROVIDED. (2) NO DEDUCTION UNDER SUB-SECTION (1) SHALL BE ALL OWED (A) IF THE INDUSTRIAL UNDERTAKING IS FORMED BY SPL ITTING UP OR RECONSTRUCTION OF AN EXISTING UNDERTAKING OR AMALGA MATION WITH ANOTHER INDUSTRIAL UNDERTAKING; (B) UNLESS THE ASSESSEE FURNISHES ALONG WITH THE R ETURN OF INCOME THE REPORT OF THE ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 GI VING 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 ONE HUNDRED WORKMEN EMPLOYED D URING THE PREVIOUS YEAR : PROVIDED THAT IN THE CASE OF AN EXISTING 56A[UNDERTAKING], THE ADDITIONAL WAGES SHALL BE NIL IF THE INCREASE IN TH E NUMBER OF REGULAR WORKMEN EMPLOYED DURING THE YEAR IS LESS TH AN TEN PER CENT OF EXISTING NUMBER OF WORKMEN EMPLOYED IN SUCH UNDERTAKING AS ON THE LAST DAY OF THE PRECEDING YEA R; (II) 'REGULAR WORKMAN', DOES NOT INCLUDE (A) A CASUAL WORKMAN; OR (B) A WORKMAN EMPLOYED THROUGH CONTRACT LABOUR; O R ITA NO.150/BANG/2019 PAGE 3 OF 13 (C) ANY OTHER WORKMAN EMPLOYED FOR A PERIOD OF L ESS THAN THREE HUNDRED DAYS DURING THE PREVIOUS YEAR; (III) 'WORKMAN' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (S) OF SECTION 257 OF THE INDUSTRIAL DISPUTES ACT, 1947 (14 OF 1947).] 3. THE ASSESSEE IS AN INDIAN COMPANY. IT IS ENGAGE D IN THE BUSINESS OF RENDERING SOFTWARE DEVELOPMENT SERVICES. THE AS SESSEE CLAIMED DEDUCTION OF A SUM OF RS.2,38,66,624/- AS DEDUCTION . ACCORDING TO THE ASSESSEE IT HAD PAID ADDITIONAL WAGES TO NEW REGULA R WORKMEN EMPLOYED BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR AND T HAT IT SATISFIES ALL THE OTHER CONDITIONS LAID DOWN IN THE PROVISIONS OF SEC .80JJA OF THE ACT TO CLAIM DEDUCTION. 4. THE AO EXAMINED THE CLAIM OF THE ASSESSEE BY FRA MING THE FOLLOWING QUESTIONS: 5.3 THE MAIN QUESTIONS THAT REQUIRES TO BE SATISFI ED FOR CLAIMING 80JJAA DEDUCTION ARE A. WHETHER ASSESSEE QUALIFIES AS AN INDUSTRIAL UNDERTA KING B. WHETHER DEVELOPMENT OF COMPUTER SOFTWARE TANTAMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING UN DER SECTION 80JJAA C. THE DEFINITION OF WORKMEN, AND WHETHER THE EMPLOYEE S OF THE COMPANY WITH RESPECT TO WHOM THE SAID DEDUCTION HAS BEEN CLAIMED, QUALIFY AS WORKMEN UNDER SECTION 80JJ AA OF THE IT ACT D. WHETHER PAYMENTS MADE BY ASSESSEE TO EMPLOYEES IS I N THE NATURE OF SALARY OR WAGES. 5. ON THE QUESTION WHETHER THE ASSESSEE QUALIFIES A S AN INDUSTRIAL UNDERTAKING, THE AO FIRSTLY NOTICED THAT THE TERM INDUSTRIAL UNDERTAKING HAS NOT BEEN DEFINED FOR THE PURPOSE OF SEC.80JJA O F THE ACT. THE SAID TERM HAS HOWEVER BEEN DEFINED FOR THE PURPOSE OF SE C.10(15) OF THE ACT ITA NO.150/BANG/2019 PAGE 4 OF 13 AND SEC.72A OF THE ACT AS AN INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTURE OF COMPUTER SOFTWARE. UNDER SEC.10B OF THE ACT DEDUCTION FROM PROFITS AND GAINS OF A 100% EXPORT ORIENTED U NDERTAKING ENGAGED IN MANUFACTURE OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE IS AVAILABLE. ACCORDING TO THE AO IN NORMAL PARLANCE MANUFACTURE OF COMPUTER SOFTWARE IS NOT AKIN TO MANUFACTURE OF AN ARTICLE OR THING A ND THAT IS THE REASON WHY A SPECIFIC PROVISION HAS BEEN MADE IN SEC.10B, SEC.10 (15) AND 72A OF THE ACT. ACCORDING TO THE AO, INDUSTRIAL UNDERTAKING H AS BEEN DEFINED UNDER THE INDUSTRIES (DEVELOPMENT & REGULATION) ACT, 1951 AS A SCHEDULED INDUSTRY CARRIED ON IN ONE OR MORE FACTORIES. THE TERM FACTORY HAS BEEN DEFINED IN THE FACTORIES ACT, 1948 AS ANY PREMISES WHERE TEN OR MORE WORKMEN WORK WHERE MANUFACTURING PROCESS IS CARRI ED ON. THE TERM MANUFACTURING PROCESS AS DEFINED UNDER THE FACTORIE S ACT, 1948 DOES NOT INCLUDE MANUFACTURE OF COMPUTER SOFTWARE AND THEREF ORE THE ASSESSEE WAS NOT AN INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SE C.80JJAA OF THE ACT. 6. ON THE QUESTION WHETHER MANUFACTURE OF COMPUTER SOFTWARE TANTAMOUNT TO MANUFACTURE OF AN ARTICLE OR THING, T HE AO HELD THAT THE SAID ACTIVITY IS NOT SUBJECT TO VALUE ADDED TAX BUT ONLY SERVICE TAX AND THEREFORE THE MANUFACTURE OF COMPUTER SOFTWARE IS N OT MANUFACTURE OF AN ARTICLE OR THING. THE AO ALSO MADE A REFERENCE TO T HE FACT THAT W.E.F.1.4.2014 SEC.80JJAA OF THE ACT WAS AMENDED TO MAKE IT CLEAR THAT THE SAID PROVISIONS APPLIES ONLY TO PROFITS AND GAI NS DERIVED FROM THE MANUFACTURE OF GOODS IN A FACTORY. ACCORDING TO THE AO THE AFORESAID AMENDMENT IS CLARIFICATORY AND HENCE APPLICABLE EVE N FOR AY 2012-13. 7. ON THE QUESTION WHETHER PERSONS WORKING IN SOFTW ARE INDUSTRY CAN BE SAID TO BE WORKMEN FOR THE PURPOSE OF SEC.80JJ AA OF THE ACT, THE DEFINITION OF WORKMEN FOR THE PURPOSE OF SEC.80JJAA WAS THE DEFINITION OF THE TERM AS PER SEC.2(S) OF THE INDUSTRIAL DISPUTES ACT, 1947 AND THAT DEFINITION LAYS DOWN THAT ANY PERSON EMPLOYED IN A NY INDUSTRY TO DO ANY ITA NO.150/BANG/2019 PAGE 5 OF 13 MANUAL, UNSKILLED, SKILLED, TECHNICAL, OPERATIONAL, CLERICAL AND SUPERVISORY WORK FOR HIRE OR REWARD, BUT DOES NOT INCLUDE EMPLO YEES EMPLOYED MAINLY IN A MANAGERIAL OR ADMINISTRATIVE CAPACITY. ACCORD ING TO THE AO SOFTWARE PROFESSIONALS ARE HIGHLY SKILLED WORKERS AND THE NA TURE OF WORK PERFORMED BY THEM WERE HIGHLY SKILLED WHEREAS THE SKILLED WOR K CONTEMPLATED BY THE DEFINITION OF WORKMEN IN THE INDUSTRIAL DISPUTES AC T, 1947 IS ORDINARY SKILL AND THEREFORE THE WORKMEN OF THE ASSESSEE CANNOT BE CONSIDERED AS WORKMEN FOR THE PURPOSE OF SEC.80JJAA OF THE ACT. 8. ON THE QUESTION WHETHER THE SUMS PAID TO EMPLOYE ES EMPLOYED IN SOFTWARE INDUSTRY CAN BE SAID TO BE IN THE NATURE O F WAGES, THE AO HELD THAT THE SOFTWARE PROFESSIONALS PERFORM BLUE-COLOR JOBS AND THE SALARY PAID TO THEM CANNOT BE SAID TO BE WAGES PAID FOR THE PURPOS E OF SEC.80JJAA OF THE ACT. THE AO ALSO MADE A REFERENCE TO THE AMENDE D PROVISIONS OF SEC.80JJAA OF THE ACT W.E.F. 1.4.2016 WHEREBY A CEI LING LIMIT OF RS.25,000/- PER MONTH AS SALARY TO EMPLOYEE IS PRESCRIBED. ACC ORDING TO THE AO THE INTENTION OF THE LEGISLATURE HAS ALWAYS BEEN NOT TO REGARD EMPLOYEES EMPLOYED IN SOFTWARE SERVICE INDUSTRY AS WORKMEN FO R THE PURPOSE OF SEC.80JJAA OF THE ACT. 9. FOR ALL THE ABOVE REASONS, THE AO DENIED THE CLA IM OF THE ASSESSEE FOR DEDUCTION U/S.80JJAA OF THE ACT. THE CIT(A) CO NFIRMED THE ORDER OF THE AO AND HENCE THIS APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. 10. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REIT ERATING SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES, FURTHER SUBMIT TED THAT THE ISSUE WHETHER DEDUCTION U/S.80JJAA OF THE ACT IS AVAILABL E TO ASSESSEES RENDERING SOFTWARE DEVELOPMENT SERVICES HAS BEEN DE CIDED BY ITAT BANGALORE BENCH IN THE CASE OF ACIT VS. TEXAS INSTRUMENTS (I) PVT.LTD. (2009) 27 SOT 72 (BANG-URO); ONMOBILE GLOBAL LTD. V S. ACIT (2014) 45 TAXMANN.COM 346(BANG-TRIB) AND M/S.SAP LABS INDIA P VT.LTD. VS. ACIT ITA NO.150/BANG/2019 PAGE 6 OF 13 IT(TP)A.NO.1006/BANG/2011 ORDER DATED 30.6.2016. H E ALSO RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF ESI VS. RELIABLE SOFTWARE SYSTEMS PVT.LTD. (2012) 5 AIR BOM R 795 WHEREIN THE QUESTION WAS WHETHER EMPLOYEES EMPLOYED IN SOFTWARE DEVELOPM ENT SERVICE INDUSTRY COULD BE SAID TO BE ENGAGED IN THE PROCESS OF MANUFACTURE AND HENCE THE PROVISIONS OF THE EMPLOYEES STATE INSURAN CE ACT, 1948 ARE APPLICABLE TO THEM. THE HONBLE BOMBAY HIGH COURT HELD THAT COMPUTER SOFTWARE DEVELOPMENT FALLS WITHIN THE DEFINITION OF MANUFACTURING PROCESS AS DEFINED IN SEC.2(K) OF THE FACTORIES ACT, 1948. THE LEARNED DR RELIED ON THE ORDER OF THE REVENUE AUTHORITIES. 11. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. THE QUESTION TO BE DECIDED IS AS TO WHETHER THE ASSESSE E CAN BE SAID TO BE INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. THE REVENUE AUTHORITIES HAVE PROCEEDED T O DENY THE CLAIM OF THE DEDUCTION ONLY ON THE GROUND THAT THE ASSESSEE IS N OT AN INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTURE OR PRODUCTIO N OF ARTICLE OR THING. NO OTHER REASONS HAVE BEEN ASSIGNED FOR DENYING THE CLAIM OF THE ASSESSEE FOR DEDUCTION. 12. THE FIRST ASPECT TO BE EXAMINED IS AS TO WHETHE R THE ASSESSEE CAN BE SAID TO BE INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTURE OF ARTICLE OR THING. THE TERM INDUSTRIAL UNDERTAKING HAS NO T BEEN DEFINED FOR THE PURPOSES OF SEC.80JJAA OF THE ACT. THE TERM HAS HO WEVER BEEN DEFINED FOR THE PURPOSE OF SEC.10(15) OF THE ACT AND SEC.72 A OF THE ACT AS AN INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTURE O F COMPUTER SOFTWARE. UNDER SEC.10B OF THE ACT DEDUCTION FROM PROFITS AND GAINS OF A 100% EXPORT ORIENTED UNDERTAKING ENGAGED IN MANUFACTURE OF ARTICLES OR THINGS OR COMPUTER SOFTWARE IS AVAILABLE. ACCORDING TO THE A O IN NORMAL PARLANCE MANUFACTURE OF COMPUTER SOFTWARE IS NOT AKIN TO MAN UFACTURE OF AN ARTICLE OR THING AND THAT IS THE REASON WHY A SPECIFIC PROV ISION HAS BEEN MADE IN ITA NO.150/BANG/2019 PAGE 7 OF 13 SEC.10B, SEC.10(15) AND 72A OF THE ACT. ACCORDING TO THE AO, INDUSTRIAL UNDERTAKING HAS BEEN DEFINED UNDER THE INDUSTRIES ( DEVELOPMENT & REGULATION) ACT, 1951 AS A SCHEDULED INDUSTRY CARRI ED ON IN ONE OR MORE FACTORIES. THE TERM FACTORY HAS BEEN DEFINED IN THE FACTORIES ACT, 1948 AS ANY PREMISES WHERE TEN OR MORE WORKMEN WORK WHER E MANUFACTURING PROCESS IS CARRIED ON. THE TERM MANUFACTURING PRO CESS AS DEFINED UNDER THE FACTORIES ACT, 1948 DOES NOT INCLUDE MANUFACTUR E OF COMPUTER SOFTWARE AND THEREFORE THE ASSESSEE WAS NOT AN INDUSTRIAL UN DERTAKING FOR THE PURPOSE OF SEC.80JJAA OF THE ACT. THIS REASONING O F THE AO WILL NOT HOLD GOOD IN THE LIGHT OF THE DECISION OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF ESI CORPORATION VS. RELIABLE SOFTWARE SYSTEMS PVT.L TD. (SUPRA) WHEREIN THE HONBLE BOMBAY HIGH COURT HELD AS FOLLO WS:- 18. AS STATED IN THE BEGINNING, THE MEANING OF THE TERM 'MANUFACTURING PROCESS' UNDER SECTION 14AA OF THE E .S.I. ACT SHALL HAVE THE MEANING ASSIGNED TO IT IN THE FACTOR IES ACT, 1948 I.E. 2(K). WHILE READING EXPLANATION-II OF SECTION 2(M) OF THE FACTORIES ACT, THE PHRASE 'IF NO MANUFACTURING PROC ESS IS CARRIED ON' IS TO BE READ NECESSARILY IN RESPECT OF THE SUB STANCE MANUFACTURED IN THE PREMISES BY ANY MEANS OR ANY ME THOD INCLUDING THE COMPUTER. THE LANGUAGE OF EXPLANATION -II IS TO BE READ IN A LITERAL SENSE BY APPLYING RULE OF LITERAL INTERPRETATION. NO ADDITIONAL WORDS CAN BE READ BETWEEN THE LINES BY R EFERRING TO THE PURPOSE AND OBJECT OF THE AMENDMENT. THEREFORE, THE CLAUSE 'NO MANUFACTURING PROCESS IS CARRIED ON' IS TO BE UNDER STOOD AS IT IS COVERING ANY TYPE OF MANUFACTURING PROCESS INCLUDIN G RELATED TO THE COMPUTER. IT IS ERRONEOUS TO READ THE CLAUSE AS NO OTHER MANUFACTURING PROCESS IS CARRIED OUT (EXCLUDING THE COMPUTERS). THE PURPOSE OF THE EXPLANATION IS TO CLARIFY THAT M ERELY BECAUSE A COMPUTER OR COMPUTERS ARE INSTALLED, THE PLACE WILL NOT BE TREATED AS A FACTORY IF OTHERWISE NO MANUFACTURING PROCESS IS CARRIED ON. 19. SIGNIFICANTLY, THE DEFINITION OF 'FACTORY' IN F ACTORIES ACT AND E.S.I. ACT ARE NOT THE SAME. EXPLANATION II OF SECTION 2(M) OF THE FACTORIES ACT IS INSERTED IN THE FACTORIES ACT AND NOT IN THE E.S.I. ACT. IT MARKS DIFFERENCE IN ITS INTERPRETATI ON AND APPLICATION. IN THE DEFINITION OF 'FACTORY' UNDER F ACTORIES ACT THE ITA NO.150/BANG/2019 PAGE 8 OF 13 WORDS 'WORKER WORKING' ARE USED, WHILE IN THE E.S. I. ACT, IN THE SECTION DEFINING 'FACTORY', THE TERM 'PERSON EMPLOY ED FOR WAGES' ARE USED. A DIFFERENCE IN THESE TWO DEFINITI ON OF ONE WORD 'FACTORY' CAN BE EXPLAINED BY EXAMPLE. A CLERK OR S TAFF IN THE PREMISES IS NOT- COVERED UNDER THE DEFINITION OF 'W ORKER' UNDER THE FACTORIES ACT, HOWEVER, UNDER THE ESI ACT, THE WORD 'WORKER' IS NOT USED BUT THE LEGISLATURE CHOSE THE WORD 'PER SON' AND FOR 'WORKING', THE WORD 'EMPLOYED' IS USED. THUS, THE P REMISES WHERE PERSON IS EMPLOYED FOR A CLERICAL WORK IS COV ERED UNDER THE DEFINITION 'FACTORY' UNDER THE E.S.I. ACT. THEREFOR E, DEFINITION OF 'FACTORY' HAS WIDER MEANING UNDER THE ESI ACT THAN THE FACTORIES ACT. I RELY ON THE DECISION IN THE CASE OF QUZI NOO RUL, H.H.H. PETROL PUMP V. DEPUTY DIRECTOR, EMPLOYEES' STATE IN SURANCE CORPORATION, REPORTED IN (2009) 15 SCC 30 WHEREIN T HE SUPREME COURT HELD IN PARA 6 OF THE JUDGMENT AS FOLLOWS:- '6. IN THIS CONNECTION, IT MAY BE STATED THAT THE W ORDS 'NONFRACTURING PROCESS' IN DIFFERENT STATUTES HAVE DIFFERENT MEANINGS. FOR INSTANCE, IN THE CENTRAL EXCISE ACT, 1 944, THE WORD 'MANUFACTURE' MEANS BRINGING INTO EXISTENC E A DIFFERENT COMMODITY, THOUGH THIS IS NOT THE DEFINIT ION OF 'MANUFACTURING PROCESS' IN THE FACTORIES ACT, 1948. WE CANNOT APPLY THE DEFINITION OF 'MANUFACTURING PROCE SS' IN ONE STATUTE TO ANOTHER STATUTE'. 20. LET ME NOW EXAMINE THE MEANING OF 'MANUFACTURIN G PROCESS' AS DEFINED UNDER SECTION 2(K) OF THE FACTO RIES ACT. MANY VERBS DESCRIBING DIFFERENT ACTIVITIES ARE MENT IONED IN THE SAID DEFINITION. IT IS TRUE THAT EACH ACTIVITY AND VERB HAS ITS OWN CONNOTATION. THE FACTORIES ACT WAS ENACTED IN 1948 AND AT THE RELEVANT TIME, USE OF COMPUTER AND SOFTWARE WAS ALI EN TO THE LEGISLATURE. NATURALLY, THE WORDS WHICH ARE MORE AP PROPRIATE, PRECISELY DESCRIBING THE ACTIVITIES CARRIED OUT WIT H THE HELP OF THE COMPUTERS I.E. DEVELOPMENT OF SOFTWARE, PROGRAMMING OF DATA, APPLICATION ETC. WERE NEITHER KNOWN NOR IN PRACTICE AT THE RELEVANT TIME WHEN THE ACT WAS ENACTED. ALBEIT, THE ABSENCE OF THESE WORDS, THE MANUFACTURING OF THE SUBSTANCE WITH THE HELP OF COMPUTERS CAN BE COVERED GENERALLY UNDER THE ACTIVI TIES WHICH ARE MENTIONED IN THE DEFINITION OF MANUFACTURING PROCES S AS MAKING, ALTERING, TREATING, ADAPTING ETC. THUS, THE SECTION DEFINING MANUFACTURING PROCESS ALLOWS A WIDE INTERPRETATION. THIS CAN BE SUBSTANTIATED BY GIVING EXAMPLE THAT SOME OTHER ACT IVITIES LIKE ITA NO.150/BANG/2019 PAGE 9 OF 13 TURNING, MILLING, FITTING WELDING, DRILLING, IRONIN G, COOKING, PAINTING ETC. ARE NOT SPECIFICALLY MENTIONED IN THE DEFINITION OF MANUFACTURING ACTIVITIES THOUGH THESE ARE CONSIDERE D AS MANUFACTURING PROCESS AT VARIOUS WORK PLACES AND CO VERED UNDER DIFFERENT 'VERBS' USED IN THE DEFINITION OF MANUFAC TURING PROCESS. THEREFORE, THOUGH COMPUTER RELATED ACTIVITIES LIKE DEVELOPMENT, PROGRAMMING, APPLICATION ARE NOT MENTIONED IN THE D EFINITION AND TO THAT EFFECT THERE IS NO AMENDMENT IN THE SECTION ; THE DEFINITION TAKES CARE OF ACTIVITIES LIKE DEVELOPMENT AND APPLI CATION. 21. IN MY CONSIDERED VIEW, IF MANUFACTURING PROCESS IS CARRIED OUT AS CONTEMPLATED UNDER SECTION 2(12) OF THE E.S. I. ACT, THEN THAT PARTICULAR UNIT CANNOT BE MADE AN EXCEPTION TO THE APPLICATION OF THE E.S.I. ACT. TO BORROW THE MEANIN G FROM THE PROVISION OF EXPLANATION II OF SECTION 2(M) OF THE FACTORIES ACT, WILL BE A MAYOPIC VIEW DEFEATING THE OBJECT AND SPI RIT OF THE E.S.I. ACT. THE MEANING OF THE TERM 'FACTORY' FOR T HE PURPOSE OF E.S.I. ACT IS NOT TO BE UNDERSTOOD IN THE CONTEXT O F EXPLANATION II OF SECTION 2(M) OF THE FACTORIES ACT. THIS IS NOT A HARMONIOUS CONSTRUCTION OF THE STATUTE. APPLICATION OF E.S.I. ACT IS NOT A REGRESSIVE BUT A PROGRESSIVE STEP AND TO THINK THAT IF E.S.L ACT IS MADE APPLICABLE THEN IT WILL AFFECT LT. INDUSTRY AD VERSELY IS A FUTILE FEAR. 13. THEREFORE, THE ASSESSEE HAS TO BE REGARDED AS A N INDUSTRIAL UNDERTAKING ENGAGED IN MANUFACTURE OF ARTICLE OR TH ING, EVEN GOING BY THE REASONING GIVEN BY THE AO. WE ARE ALSO OF THE VIEW THAT THE TERM INDUSTRIAL UNDERTAKING HAVING BEEN DEFINED IN THE ACT, THOUGH FOR A DIFFERENT STATUTORY PROVISION, CAN BE A GUIDING FAC TOR TO THE INTENTION OF THE LEGISLATURE TO APPLY THAT DEFINITION TO STATUTORY P ROVISION IN WHICH THE SAID TERM HAS NOT BEEN DEFINED. IN THE ABSENCE OF ANY CO NTRARY INTENTION EMANATING FROM ATTENDING CIRCUMSTANCES OR FOR ANY O THER REASONS, ADOPTING THE DEFINITION GIVEN IN THE ACT, WOULD BE MORE APPR OPRIATE. 14. ON THE QUESTION WHETHER THE EMPLOYEES EMPLOYED IN SOFTWARE INDUSTRY CAN BE SAID TO BE WORKMEN, THE BANGALORE BENCH OF ITAT HAS ALREADY SETTLED THIS ISSUE IN THE CASE OF TEXAS INSTRUMENTS (INDIA) PVT.LTD. ITA NO.150/BANG/2019 PAGE 10 OF 13 (SUPRA). THE TRIBUNAL HELD THAT SOFTWARE INDUSTRY H AS ALSO BEEN NOTIFIED AS INDUSTRY FOR THE PURPOSE OF INDUSTRIAL DISPUTES ACT , 1947 BY THE STATE OF KARNATAKA AND THAT THE EMPLOYEES EMPLOYED IN SOFTWA RE DEVELOPMENT INDUSTRY RENDER TECHNICAL SERVICES AND NOT SERVICES IN THE NATURE OF SUPERVISORY OR MANAGEMENT CHARACTER. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE RECORDS. CONSIDERING THE FACTUAL POSITION AFTER REFERRING TO THE VARIOUS DOCUMENTS FILED BY THE ASSESSEE, THE LEARNE D CIT(A) HELD AS UNDER : 'ACCORDING TO THE ASSESSING OFFICER IF AN EMPLOYEE OR WORKMAN IS GETTING A SALARY OF MORE THAN RS. 1,600 PER MONTH HE IS NOT COVERED BY THE DEFINITION OF WORKMA N. HOWEVER AS PER CLAUSE (IV) OF SECTION 2(S) OF THE I NDUSTRIAL. DISPUTES ACT A WORKER, EMPLOYED IN SUPERVISORY CAPAC ITY AND GETTING A SALARY OF MORE THAN RS. 1,600 PER MON TH ONLY BE EXCLUDED FROM THE DEFINITION OF WORKMAN. IN APPELLANT'S CASE THE SOFTWARE ENGINEERS IN RESPECT OF WHOM DEDUCTION UNDER SECTION 80JJAA HAS BEEN CLAIMED HAVE NOT BEEN EMPLOYED IN A SUPERVISORY CAPACITY EVEN TH OUGH THEY MAY BE GETTING A SALARY OF MORE THAN RS. 1,600 PER MONTH. AS THE SOFTWARE ENGINEERS WERE NOT EMPLOYED I N SUPERVISORY CAPACITY THEY CANNOT BE EXCLUDED FROM T HE DEFINITION OF WORKMAN. FURTHER AS PER THE NOTIFICAT ION OF THE KARNATAKA GOVERNMENT, THE APPELLANT COMPANY ENGAGED IN THE DEVELOPMENT OF SOFTWARE IS COVERED B Y THE INDUSTRIAL DISPUTES ACT. AS SUCH, I AM OF THE CONSIDE RED OPINION THAT THE APPELLANT HAS SATISFIED ALL THE CO NDITIONS FOR CLAIMING RELIEF UNDER SECTION 80JJAA. HOWEVER, I FIND THAT THE APPELLANT HAS CLAIMED DEDUCTION OF RS. 2,55,81,220 WITH REFERENCE TO THE ADDITIONAL WAGES OF RS. 8,52,70,736 WHICH INCLUDED THE WAGES OF RS. 4,87,64 ,029 IN RESPECT OF THE NEW WORKMEN EMPLOYED DURING THE Y EAR ENDED 31-3-2000 RELEVANT TO THE ASSESSMENT YEAR 200 0- 01. AS THERE WAS NO CLAIM FOR RELIEF UNDER SECTION 8 0JJAA FOR THE ASSESSMENT YEAR 2000-01, THE RELIEF IN RESP ECT OF THE WORKERS EMPLOYED IN ASSESSMENT YEAR 2000-01 CAN NOT BE CONSIDERED FOR RELIEF UNDER SECTION 80JJAA IN THE ASSESSMENT YEAR 2001-02. AS SUCH THE APPELLANT WILL BE ENTITLED FOR RELIEF UNDER SECTION 80JJAA OF RS. 1,09 ,52,012 ITA NO.150/BANG/2019 PAGE 11 OF 13 BEING 30 PER CENT OF THE ADDITIONAL WAGES OF RS. 3,65,06,707 (RS. 8,52,70,736 - RS. 4,87,64,029) IN RESPECT OF THE NEW WORKMEN EMPLOYED DURING THE PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR 2001-02. SIMILARLY, FOR ASSESSMENT YEAR 2002-03 THE APPELLANT HAS CLAIMED DEDUCTION OF RS. 4,78,05,176 BEING 30 PER CENT OF T HE WAGES OF RS. 1,59,30,588 WHICH ALSO INCLUDED THE WA GES OF RS. 4,38,68,182 PERTAINING TO THE NEW WORKERS EMPLO YED IN THE PREVIOUS YEAR 1999-2000. FOR THE REASONS MENTIONED ABOVE THE APPELLANT IS NOT ENTITLED FOR R ELIEF UNDER SECTION 80JJAA IN RESPECT OF THE WAGES PERTAIN ING TO THE WORKERS EMPLOYED IN THE PREVIOUS YEAR 1999-2 000. AS SUCH THE APPELLANT WOULD BE ELIGIBLE FOR RELIEF O F RS. 3,46,44,722 BEING 30 PER CENT OF THE ADDITIONAL WAG ES OF RS. 11,54,82,406 (RS. 15,93,50,588 - RS. 4,38,68,18 2) IN RESPECT OF THE WORKMEN EMPLOYED IN PREVIOUS YEARS 2 000- 01 AND 2001-02. THE LEARNED AUTHORISED REPRESENTATIV ES OF THE APPELLANT VIDE ORDER-SHEET NOTING DATED 24-8 -2004 AGREED THAT THE RELIEF UNDER SECTION 80JJAA IN RESP ECT OF THE EMPLOYEES WHO JOINED IN THE PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR 2001-02 ONWARDS ONLY MAY BE CONSIDERED AND IN RESPECT OF THE EMPLOYEES WHO JOIN ED IN EARLIER YEARS THE APPELLANT IS NOT PRESSING FOR REL IEF UNDER SECTION 80JJAA. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE RELIEF UNDER SECTI ON 80JJAA OF RS. 1,09,52,012 AND RS. 3,46,44,722 FOR ASSESSMENT YEARS 2001-02 AND 2002-03 RESPECTIVELY.' 7. AS STATED EARLIER THE ASSESSEE HAD FILED THE DET AILS OF THE SOFTWARE ENGINEERS EMPLOYED DURING THE YEARS UNDER CONSIDERATION CONTAINING THE NAMES OF THE EMPLOYEES , DESIGNATION AND DATE OF JOINING. FURTHER, IN THE SAME LIST THE DETAILS OF TOTAL NUMBER OF EMPLOYEES JOINED DURING BOTH THE ASSESSME NT YEARS, NUMBER OF EMPLOYEES WITHOUT SUPERVISORY ROLES, WORK MEN JOINED, NUMBER OF SUPERVISORS JOINED AND WORKMEN JOINED AND RELIEVED DURING THE YEARS UNDER CONSIDERATION. A CURSORY PER USAL OF THIS LIST SHOWS THAT THE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF EMPLOYEES, WHO HAD JOINED AS ENGINEERS IN THEIR RES PECTIVE FIELD SUCH AS SYSTEMS ENGINEER, TEST ENGINEER, SOFTWARE D ESIGN ENGINEER, IC DESIGN ENGINEER, LEAD ENGINEER ETC. A CURSORY PE RUSAL OF THOSE LISTS ESTABLISHES THAT THE ASSESSEE HAD CLAIMED DED UCTION IN RESPECT OF THE ENGINEERS EMPLOYED NOT IN THE CATEGORY OF SU PERVISORY CONTROL. ALL THESE DETAILS WERE FILED BEFORE THE AS SESSING OFFICER ITA NO.150/BANG/2019 PAGE 12 OF 13 DURING ASSESSMENT PROCEEDINGS. THESE FACTS WERE NOT PROPERLY CONSIDERED BY THE ASSESSING OFFICER. FURTHER, FROM THE ORDER OF THE CIT(A), IT IS SEEN THAT HE HAD TAKEN NOTE OF TH E NOTIFICATION ISSUED BY THE GOVERNMENT OF KARNATAKA AND CONCLUDED THAT AS PER THE NOTIFICATION ISSUED, THE ASSESSEE COMPANY ENGAG ED IN THE DEVELOPMENT OF SOFTWARE IS COVERED BY THE INDUSTRIA L DISPUTES ACT, 1947. FURTHER IT IS NOT THE CASE OF THE REVENU E THAT THE ASSESSEE DID NOT FULFIL THE CONDITIONS EXTRACTED EL SEWHERE IN THIS ORDER. CONSIDERING ALL THOSE FACTUAL MATTERS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ACCORDING RELIEF T O THE ASSESSEE. IN FACT HE HAD CLARIFIED THE RELEVANT PORTIONS RELA TED TO INDUSTRIAL DISPUTES ACT, 1947 AND INCOME-TAX ACT WHILE GRANTIN G RELIEF TO THE ASSSESSEE WHICH ARE EXTRACTED AT PP. 5 AND 6 OF THIS ORDER. AFTER CAREFULLY CONSIDERING THE SAME, WE ARE INCLIN ED TO ACCEPT THE REASONS SHOWN BY THE LEARNED CIT(A). THE LEARNE D CIT- DEPARTMENTAL REPRESENTATIVE COULD NOT ASSAIL THE FI NDING REACHED BY THE LEARNED CIT(A) BY BRINGING IN ANY VALID MATE RIALS. THE ORDER OF THE CIT(A) IS CONFIRMED. IT IS ORDERED ACC ORDINGLY. 15. THE ONLY OTHER ASPECT THAT REMAINS TO BE CONSID ERED IS WHETHER THERE IS ANY DISTINCTION BETWEEN SALARY AND WAGES A ND WHETHER MONIES PAID TO A PERSON WORKING IN SOFTWARE INDUSTRY CANNO T BE TERMED AS WAGES. IN OUR VIEW THERE IS NO DISTINCTION SOUGH T TO BE MADE IN THE PROVISIONS OF SEC.80JJAA OF THE ACT AND THE REASON ASSIGNED BY THE AO FOR CONSIDERING REMUNERATION RECEIVED BY A PERSON EMPLO YED IN SOFTWARE INDUSTRY AS SALARY AND NOT WAGES, IS WITHOUT AN Y BASIS. IN OUR VIEW SUCH DISTINCTION SOUGHT TO BE MADE BY THE REVENUE A UTHORITIES FOR DENYING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80JJAA OF THE ACT IS UNSUSTAINABLE. 16. WE ARE OF THE VIEW THAT IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE SHOULD BE ALLOWED DEDUCTION U/S. 80JJAA OF THE ACT, SUBJECT TO QUANTIFICATION OF THE SUM TO BE ALLOWED AS DEDUCTION BY THE AO AFTER DUE OPPORTUNITY TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. ITA NO.150/BANG/2019 PAGE 13 OF 13 17. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF OCTOBER, 2019. SD/- SD/- ( G MANJUNATHA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 23 RD OCTOBER, 2019. / D ESAI S MURTHY / COPY TO: 1. A PPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, I TAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.