Honeywell Technology Solutions Lab Pvt. Ltd. Vs DCIT (ITAT Bangalore)
We respectfully following the aforesaid judgment of the Honable High Court of Bombay in the case of Sesa Gold Limited (supra), therein conclude that ‘Education Cess’ and the Secondary and Higher Education Cess is not disallowable as a deduction u/s 40(a)(ii) of the Act.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Bangalore dt.24.01.2018.
1.1 In this appeal, the first issue is with regard to disallowance of deduction of claim under Section 80JJAA of the Income Tax Act, 1961 (‘the Act’).
2. The facts of the issue are that during the A.Y. 2010-11, the assessee claimed a deduction u/s. 80JJAA of the Act amounting to Rs.23,25,88,302 in respect of salary paid to new regular workmen. However, while computing the taxable income, the Assessing Officer has denied the entire claim u/s. 80JJAA on account of following reasons :
– HTSL is not an industrial undertaking;
– HTSL is not in the business of manufacturing or production of article or thing and is a service provider;
– HTSL does not pay wages to its employees; and
– HTSL does not employ any workmen within the definition of Industrial Disputes Act, 1947.
3. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A), the assessee was specifically asked to produce the appointment letters of the employees as well as the hierarchy of the employees and the management. However, according to the CIT(A), these details were not produced despite of being given repeated opportunities and time of more than 5 months. The CIT(A) observed that the above documents could only have shown as to whether these employees were working in any supervisory capacity or not. On perusal of the designation of these employees, the CIT(A) found that the same include Principal Consultants, Senior Programmer, Lead Consultants, Team Leader, Technical Leader, Senior Engineer, Senior Sourcing Engineer, Senior Consultant, Engineer, Technology Specialist etc. and the salaries paid to several of these employees exceeded Rs.10,00,000/-. According to the CIT(A), only hierarchy chart of these employees could have shown as to which employees is reporting to which other employee and there is always a system of annual performance appraisal report in the companies and the supervisory authority records such appraisal of the employees reporting to him. In absence of details provided by the assessee, the CIT(A) was of the view that it is not possible to determine as to whether all these 556 employees are working in supervisory capacity or not. The CIT(A) was of the view that the onus was on the assessee to show that these employees were not working in any supervisory capacity, however the assessee had failed to discharge this onus. Therefore, according to the CIT(A), these employees cannot be considered to be satisfying the condition of being considered as workmen. In view of above also, the entire claim of the assessee needs to be rejected.
3.1 In addition to above, the CIT(A) noticed that as per Form No.10DA the assessee had claimed deduction u/s 80JJAA of the Act in relation to new regular workmen employed during FY 2007-08 and in relation to which deduction u/s 80JJAA of the Act was claimed for first time during A Y 2008-09. Before the CIT(A) , the assessee had claimed that it is eligible for the third installment of such deduction @30% on an amount of Rs.26,39,22,189/- being the wages paid to these workers. Here, the CIT(A) mentioned that Section 80JJAA of the Act allows deduction to be claimed at the rate of 30% of the additional wages for three assessment years including the assessment year related to the previous year in which such employment is provided. On perusal of the details furnished by the assessee vide letter dt 12.10.2017, the CIT(A) found that during the year under consideration the deduction (3rd installment) claimed by the assessee included deduction in respect of 66 such employees in relation to A Y 2008-09, who had left employment during FY 2009-10. It was found that the assessee had claimed deduction in relation to salary of Rs.2,08,58,689/- paid to these 89 employees. As per provisions of Section 80JJAA of the Act, the CIT(A) was of the view that deduction can be claimed in respect of only such employees who satisfy the definition of ‘regular workman’ which requires that the workman should have been employed at least three hundred days during the previous year in relation to which deduction is to be claimed. In the case under consideration, the CIT(A) found that out of these 89 employees, 68 had resigned on or before 25.01.2010, as such these employees did not complete period of 300 days in the employment and so, the salary of Rs 1,59,48,714/- paid to these employees cannot be considered for the purpose of computation of deduction under Section 80JJAA of the Act.
3.2 Similarly in relation to deduction claimed for the first time under Section 80JJAA of the Act during A Y 2009-10, the CIT(A) observed that deduction could be claimed second time during the year under consideration. On perusal of the details furnished by the assessee vide letter dt 12.10.2017, the CIT(A) found that during the year under consideration the deduction (2nd installment) claimed by the assessee includes deduction in respect of 66 such employees in relation to A Y 2009-10, who had left employment during FY 2009-10 and the assessee had claimed deduction in relation to salary of Rs.1,91,25,302/- paid to these 66 employees. The CIT(A) observed that as per provisions of Section 80JJAA of the Act, deduction can be claimed in respect of only such employees who satisfy the definition of ‘regular workman’ which requires that the workman should have been employed at least three hundred days during the previous year in relation to which deduction is to be claimed. In the case under consideration, the CIT(A) observed that of these 66 employees, 50 had resigned on or before 25.01.2010, as such these employees did not complete period of 300 days in the employment and hence, the salary of Rs 1,91,25,302/- paid to these employees cannot be considered for the purpose of computation of deduction under Section 80JJAA of the Act.
3.3 As regards the eligibility of deduction @30% on the balance amount of Rs. 24,79,73,475/- for A Y 2008-09 (3rd claim) and Rs 35,79,14,149/- for A Y 2009-10 (2nd Claim), the CIT(A) felt that the issue could have been decided on the basis of information regarding the employees i.e. whether they are working in the supervisory capacity or not. However, according to the CIT(A), the assessee has not produced the requisite details to ascertain this aspect. Since the assessee failed to discharge the onus that these employees were not working in supervisory capacity during the initial year as well as during the year under consideration, the CIT(A) denied the benefit of deduction in relation to above amounts to the assessee.
3.4 The CIT(A) observed that salary paid to a worker who is not employed for a minimum of 300 days during the year is not to be considered for the purpose of deduction under Section 80JJAA of the Act. Further, on the issue of whether a workman employed for a period of less than 300 days during the previous year would be eligible for deduction in the next year in which it remains employed for 300 days, the CIT(A) relied on the decision of the ITAT Delhi in the case of LG Electronics India (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle Noida, UP[20I3] 33 taxmann.com 465 (Delhi – Trib.) wherein it was held as follows:
” 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 80JJAA 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 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 Id CIT(A).”
3.5 Thus, the CIT(A) observed that such a workman cannot be considered for the purpose of deduction under Section 80JJAA of the Act even if it completes 300 days in the subsequent year as in the initial year it was not considered as new workman and in the subsequent year it is not a new workman, as already employed as on the first day of such year. Since in the case under consideration the assessee had admitted that it is taking into consideration such employees, who were not employed for a period of 300 days in the initial year, for purpose of deduction under Section 80JJAA of the Act, the CIT(A) held that deduction in relation to such employees employed in FY 2007-08 and FY 2008-09 was wrongly claimed in A Y 2008-09 and A Y 2009-10 and hence, the 3rd and 2nd claim in relation to these earlier deductions for A Y 2008-09 and A Y 2009-10 in relation to such employees needs to be rejected.
3.6 Further, the CIT(A) noticed that one of the reason for the claim of the assessee having failed for the year under consideration is that after excluding workman employed for less than 300 days, the number of remaining new workmen employed during the year fell below the limit of 10% of the workmen as on the last day of the previous year and the same could be the situation in relation to A Y 2008-09 and A Y 2009-10. Therefore, the CIT(A) held that the 3rd and 2nd claim in relation to these earlier claims would not be allowable in the year under consideration.
3.7 The CIT(A) observed that in the absence of data of workmen as on the last day of the previous year the percentage of new regular workman was computed on the basis of data of regular workman as on the last day of the previous year, as only the same was available in the Form 10DA. According to the CIT(A), if the number of workmen is considered then the percentage will go down further. The CIT(A) relied on the decision of the ITAT, Delhi in the case of Panacea Biotec Lid v. Assistant Commissioner of Income-tax, Circle 14(1) [2008] 25 SOT I (Delhi) wherein the issue of the definition of workman and regular workman was considered and held as follows:
“2. The only issue for consideration relates to sustaining of disallowance of Rs. 26,99,432 under section 80JJAA of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’]. The facts of the case stated in brief are that the assessee claimed deduction under section 80JJAA of the Act of Rs. 52,75,173. According to the Assessing Officer, the additional wages means the wages paid 10 workmen in excess of 100 workmen employed during the year. In effect the workmen employed during the year should be more than 100 and the wages paid to the worker in excess of 100 workers shall be additional wages. The Assessing Officer further noted that 236 new regular workmen were employed by the assessee during the year under consideration. He, therefore, deduction of 30 per cent of additional wages paid to 136 new workmen.
3. The matter was carried in appeal before the ld. CIT (Appeals). It was submitted that section 80JJAA of the Act was inserted by the Finance (No.2) Act, 1998 with effect from 1-41999 with an object to promote employment at a large scale and 10 provide tax incentives to the employers employing a large number of persons. The Assessing Officer had also not disputed the eligibility of the assessee to claim deduction under section 80JJAA of the Act. Out of Rs. 52,75,173, the amount of 7,69,770 relates to additional wages paid to the workmen employed in previous year relevant to assessment year 2001-02. As on 31-3-2000 there were 961 regular ‘workmen which increased to 1160 as on 31-3-2001. Thus there was net increase in number of regular workmen to 207 giving increase of 21.34 per cent as against 10 per cent required under the law. The condition that the increase in number of regular workmen during the year should not be less than 10 per cent of the existing workmen stood satisfied. Once this condition was satisfied, the assessee was eligible for deduction of 30 per cent additional wages in respect of 63 workmen, who were employed for a period of more than 300 days during the year. Therefore, the assessee was entitled for deduction to the tune of Rs.7,69,770. As regards the balance amount of additional wages paid at Rs. 45,05,403, the regular workmen as on 31-3-2002 were 1653, which increased to 1926 as on 31-3-2003 giving an increase of regular workmen at 273 [16.52 per cent). Since the condition of increase in regular workmen not less than 10 per cent was satisfied, the assessee was eligible for deduction under section 80JJAA of the Act at the rate of 30 per cent of additional wages paid to 236 new regular workmen employed for a period of 300 days or more during the relevant previous year.
4. The ld. CIT (Appeals) in respect of wages paid to new regular workmen employed in the previous year relevant to assessment year 2000-01 noted that the regular workmen who worked for a period of 300 days or more were 63 as against the regular workmen at the beginning of year was at 961. Since the increase in new regular workmen employed during the year for a period of 300 days or more were less than 10 per cent of the existing number of regular workmen as on 31-3-2000, ld. CIT(A) came to the conclusion that the assessee was not entitled for deduction under section 80JJAA of the Act, in respect of assessment year 2001-02. As regards the new regular ‘workmen employed for period of 300 days or more during previous year relevant to assessment year 2003-04, the assessee was found to be eligible for deduction under section 80JJAA of the Act as the increase in the number was more than 10 per cent. But for the purpose of quantification of deduction under section 80JJAA, he was of the view that as per the provisions of the Explanation to section 80JJAA, the additional wages would mean the wages paid to the new regular workmen in excess of 100 workmen employed during the previous year. Since 236 new regular workmen were employed during the year under consideration, the wages paid to 100 regular workmen was not to be considered for the purpose of computing 30 per cent of additional wages. The deduction was available at the rate of 30 per cent of additional wages paid to the remaining 136 regular workmen. He accordingly upheld the disallowance made by the Assessing Officer in respect of a sum of Rs. 19,29,662 also.
5. Before us, the ld. AR of the assessee submitted that deduction under section 80JJAA of the Act is available to an Indian company to the extent of 30 per cent of additional wages paid to new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to previous year in which such an employment is provided. The expressions “additional wages” and “regular ‘workmen” have been defined in the Explanation to section 80JJAA of the Act. The ld. counsel for the assessee further submits that under proviso to clause (i) of the Explanation in case of an existing undertaking additional wages will be NIL if the increase in the number of regular workmen employed during the year is less than 10 per cent of the existing number of workmen employed in such undertaking as on the last day of the preceding year. Further the regular workmen has been defined in clause (ii) of the Explanation which does not mean a casual workman or a workman employed through contract labour or any other workman employed for a period of less than 300 days during the previous year. He further submits that the interpretation of words ‘new regular workmen’ in excess of 100 workmen employed during the previous year adopted by CIT(A) is incorrect in the sense that the deduction will be available only if regular workmen employed during the year for more than 300 days exceeds 100. These words are to be interpreted with reference to the other condition for allowability of deduction that the regular workmen employed should not be less than 10 per cent of workmen employed as on the last day of the preceding year. In view of above it has been pleaded that the ld. CIT (Appeals) has not correctly appreciated the provisions of law. Since assessee has employed regular new workmen as provided under law, the assessee is entitled for deduction of Rs. 19,29,662 in respect of such workmen. However, in respect of disallowance of Rs. 7,69,770 the Id. AR of the assessee fairly conceded that the assessee is not entitled for deduction as the number of regular workmen employed if previous year 2000-01 were less than 10 per cent of the regular “workmen employed as on 31-3-2000. On the other hand, the ld. DR relied on the orders of the Assessing Officer and the ld. CIT (Appeals).
6. We have heard both the parties. Under section 80JJAA of the Act in case of an assessee being an Indian company, which derives profits and gains front industrial undertaking engaged in the manufacture or production of article or thing shall be allowed a deduction of an amount equal to 30 per cent 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. Sub-section (2) of section 80JJAA of the Act provides certain conditions to be These include (i) the industrial undertaking is not formed by splitting up or reconstruction of an existing undertaking or amalgamation with industrial undertaking; and (ii) the assessee furnishes along with the return of income a report of the accountant giving such particulars as prescribed in the report. Explanation 10 section 80JJAA defines the terms “additional wages”, “regular workman” and “workman” which reads’ as under :-
The language employed in the Explanation is plain and clear. For the purposes of section 80JJAA every employee is not a workman and every workman is not a regular workman. Clause (s) of section 2 of the Industrial Disputes Act, 1947 defines the term “workman” as below :-
7. On the basis of definition of word “workman” as per section 2(5) of the Industrial Disputes Act, 1947 and words “regular workman” of clause (ii) of the Explanation to section 80JJAA of the income-tax Act, 1961, all employees in an undertaking can be grouped in the following categories:
(a) Employees employed in managerial or administrative capacity. It also includes employees employed in supervisory capacity and drawing salary exceeding1,600 per month.
(b) Casual workman and workman employed through contract labour but do not include employees coming in (a).
(e) Other workmen if employed for less than 300 days during the previous year but not coming in categories (a) and (b).
(d) Other workman if employed for 300 days or more during the previous year but not coming in categories (a) and (b).
From above one can find that “regular workmen” are those who come under category (d) whereas the employees under categories (b), (c) and (d) are “workmen”. in other words employees of categories (b) and (c) are ‘workmen’ but they are not “regular ‘workmen”, Clause (i) of the Explanation defines the expression “additional wages” which means the wages paid to the new regular workmen in excess of one hundred workmen employed during the previous year. The Legislature has employed words “in excess of one hundred workmen employed” in clause (i) of the Explanation. Therefore, all employees falling in categories (b), (c) and (d) taken together ‘will constitute “workmen” employed in an industrial undertaking. Thus for becoming eligible for deduction under section 80JJAA in case of a new industrial undertaking there should be minimum 100 workmen employed during the previous year. The additional wages should be paid to the new regular workman in excess of one hundred workmen so employed during the previous year. Proviso to clause (i) of the Explanation carves out an exception that in the case of an existing undertaking the additional wages shall be NIL if the increase in the number of regular workmen employed during the year is less than 10 per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year. In the proviso the expression “existing number of workmen employed” has been used and not the expression “existing number of regular workmen employed”. Therefore, the percentage increase in the number of regular workmen has to be determined with reference to existing number of workmen employed in the undertaking. In other words the increase in number of regular workmen falling in category (d) will be seen with reference to the workmen consisting of employees of categories (b), (c) and (d).
8. 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 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.
9. 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 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 200304, the Assessing Officer has not computed deduction with reference to new regular workmen in ex 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 mailer to the file of the Assessing Officer with the directions to compute deduction under section 80JJAA of the Act discussed as above.
10. 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 the 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.
11. 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 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, 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.
12. In the result, the appeal filed by the assessee, is partly allowed for statistical
3.8 Thus, according to CIT(A) , workman includes:
(b) Casual workman and workman employed through contract labour but do not include employees coming in (a).
(c) Other workmen if employed for less than 300 days during the previous year but not coming in categories (a) and (b).
(d) Other workman if employed for 300 days or more during the previous year but not coming in categories (a) and (b).
Here, according to the CIT(A), the category (a) is as follows:
a. Employees employed in managerial or administrative, capacity. It also includes employees employed in supervisory capacity and drawing salary exceeding Rs. 1,600 per month.
3.9 The CIT(A) relied on the decision of the jurisdictional ITAT in the case of Texas Instruments (India) (P.) Ltd. v. Deputy Commissioner of Income-tax, LTU, Bangalore[2017 (l82 taxman 264). Therefore, the CIT(A) held that the claim of the assessee regarding percentage increase in regular workmen could have been considered by applying this method only.
3.9.1 On perusal of Form No 10DA for claiming deduction tender Section 80JJAA of the Act, the CIT(A) found that it carries following note:
“8) A position has been taken that the benefit is available for new regular workmen’ employed in the year and the reference to ‘in excess of 100 ‘workmen employed’ in the definition of ‘additional wages’ under Explanation, only provides a threshold in respect of the minimum number of new regular workmen that would need to be employed and does not per se require exclusion of the amount of wages paid to 100 workmen. “
3.9.2 On perusal of the above note, the CIT(A) found that the method employed by the assessee for computation of deduction u/s 80JJAA of the Act is faulty. According to the CIT(A) , the method to be employed has been spelt in the case of Panacea Biotech Ltd. (supra) and as per the same, the number of workmen (being category b, c and d as in the order of ITAT) is different from number of regular workmen (being category d as in the order of ITAT). The CIT(A) noticed that if this method is employed, the threshold level of 100 workmen can be achieved without employing any regular person. According to the CIT(A) , in the above said decision the ITAT has clearly held that additional wages will be the wages paid to the new regular workmen in excess of 100 workmen employed during the year. The CIT(A) gave an example that if the workers of category band a are 80 and regular workmen as in the category d are 30 workmen, then total number of workmen will be 110. Here, the CIT(A) observed that the benefit of deduction Section 80JJAA of the Act will be available in relation to 10 regular workmen only if condition of proviso is also satisfied. Similarly, in another example, the CIT(A) explained that if the workers of category b and c are 100 and regular workmen as in the category d are 30, then total no. of workmen will be 130. Here, according to the CIT(A), the benefit of deduction Section 80JJAA of the Act will be available in relation to all the 30 regular workmen.
4. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. The learned Authorised Representative relied on the order of the co-ordinate bench of this Tribunal in the case of Manhattan Associates (India) Development Centre Pvt. Ltd. in ITA No.150/Bang/2019 dt.23.10.2019 wherein it was held that the assessee would be eligible for deduction under Section 80JJA of the Act provided fulfillment of the following conditions :
