Workers working under contractor and not under the assessee company are to be be treated as employees u/s 80I(2)(iv) for the purpose of claiming deduction u/s 80I of the Income Tax Act, 1961.
The appellant concededly employed and utilised the services of workers through the contractor Buta Singh. At the relevant time during the assessment year 1986-87, the appellant employed 18 workers including those supplied by labour contractor. It claimed a deduction under Section 80I to the extent of Rs.92,251/- being 25% of the profit i.e. Rs.3,69,005.00. The AO declined it and included the amount in the taxable income by the impugned order dated 23.3.1989. The AO was of the opinion that since the employees engaged by the assessee were through a contractor and not its own employees, the assessee could not be said to have qualified for the said deduction by reason of Section 80I(2)(iv).
This Court has carefully considered the grounds of appeal as well and heard the counsel for the revenue. Section 80I enables deduction in respect of profits and gains from industrial income to the extent of 20%. This Court is at present concerned with the one provided in Section 80I(2)(iv). The same reads as follows :
(2) This Section applies to any industrial undertaking which fulfils all the following conditions, namely :-
(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.”
It is evident from a plain reading of the above provision that all that the provision’s intent was that an industrial undertaking in order to qualify for the deduction should be involved in inter alia, production of articles or things and should employ 10 or more workers in manufacturing process carried on with the aid of power or in a manufacturing process carried on without the aid of power, employ 20 or more workers. Considering that the provision is a beneficial one and meant to provide relief to industrial undertaking involved in manufacturing. The restrictive interpretation placed by the ITAT in the circumstances of the case is not justified.
There is nothing in Section 80I(2)(iv) to say that the relationship in order to qualify for the term “employment” must be one of master and servant and cannot extend to contractual employment. That the concept of permanent or direct workmen is the precondition envisioned in Section 80I(2) when it was the term “employs” does not appear to be reflected in the statute as is imputed by the lower authorities. This Court also notices that there are situations where it has been held that services provided by outside agencies would also qualify for benefits of Section 80I. In Krishak Bharti Cooperative Limited V. Deputy Commissioner of Income Tax 358 ITR 168, a Division Bench of this Court held that service charges received from the owner of the unit, could in fact be considered as profit derived from an industrial undertaking and thus be entitled for deduction under Section 80I. In other words, even though the ownership of unit, from which the profit was derived by the industrial undertaking claiming deduction under Section 80I, did not vest with it, the Court held that it was entitled to the said benefit. For the above reasons the Court is of the opinion that this appeal is entitled to succeed.