CIT v. Sultan & Sons Rice Mill

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The Tax Publishers2005 TaxPub(DT) 0885 (All-HC) : (2005) 003 (I) ITCL 0016 : (2005) 272 ITR 0181 : (2005) 193 CTR 0444 : (2005) 145 TAXMAN 0506 CIT v. Sultan & Sons Rice Mill () CONSTITUTION OF INDIA --Statute----INTERPRETATIONProvisions to encourage industry-- Catch Note: Ordinarily, the provision in a taxing statute granting incentive for promoting growth and development should be construed liberally. These provisions should be interpreted so as to advance the objective of the provision and not to frustrate it Ratio: Provisions in a taxing statute granting incentive for promoting growth and development should be construed liberally. Case Law Analysis: Applied :Textile Machinery Corporation Ltd. v. CIT (1977) 107 ITR 195 (SC) and Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 188 (SC). Decision: Principle enunciated. Date of Judgment: 5 November 2004 Assessment Year: 1976-77 and 1977-78 Constitution of India, 1950 Article 268 INCOME TAX --Deduction under s. 80HH/80J----CONDITION PRECEDENTEmployment of ten or more workers in-- Catch Note: Assessee was a registered firm manufacturing rice and dealing in food grains. Its claim for relief under sections 80J and 80HH in respect of its rice manufacturing business was disallowed by the AO on the ground that it did not employ ten or more workers in the manufacturing process carried on with aid of power and, therefore, it did not satisfy the conditions of section 80J(4)(iv) and section 80HH(2)(iv). The AO relying on the definition of 'manufacturer' as given in the Factories Act observed that the assessee's rice plant was automatic and to manufacture rice and rice bran, paddy was stored at one point of the machine and when the machine was started the paddy was sucked by the machine automatically and the rice and rice bran came out of the other end and to run the machine, the service of one mechanic and two labourers was needed as the whole process was automatic and, therefore, in the manufacturing process the number of persons employed never exceeded ten. The assessee contended that ordinarily, it starts with the procurement of raw material and terminates with the production of the finished article. All the workers engaged throughout the process would be considered to be employed in the manufacturing process of rice and rice bran. The claim of the assessee was accepted by the CIT(A) as well as by the Tribunal. Held: Justified. Workers engaged in rice mill in bringing paddy to factory and cleaning the rice would be treated to be engaged in the manufacturing process. Therefore, the assessee was entitled to deduction under section 80HH/80J. Ratio: The various processes starting from purchase of raw material till the sale of finished goods form an integral part of the manufacturing process and the workers and labourers employed in those processes were workers employed in the manufacturing process for purposes of sections 80HH(2) and 80J(a). The words 'employs ten or more workers in the manufacturing process' normally would cover the entire process carried on by the industrial undertaking right from converting the raw material into finished goods. Held: The words 'employs ten or more workers in the manufacturing prodess' normally would cover the entire process carried on by the industrial undertaking of converting the raw material into finished goods. The work of ten or more persons employed in the manufacturing process should be integrally connected with the manufacturing of rice. Their work should be reasonably connected with and be part of the manufacturing process of rice. The Income Tax Officer while holding that only two or three persons are required to run an automatic rice plant has interpreted the words 'manufacturing process in a very narrow manner'. The manufacturing process includes within its ambit that the raw material to be filled in the plant in such a shape and condition, which may be acceptable or can be fed in the plant. In the case of rice mill the palledars are required to bring paddy from the store or godown to the starting point of the plant. Drying of paddy is also necessary as found by the Tribunal before putting the paddy in the plant. The workers are also required to clean the plant and remove bhoosi, husk, etc. The assessee claimed that the manufacturing process started after the point of purchase of paddy. Paddy is cleaned and dried and thereafter brought and put into the machine. The rice comes out of the machine along with broken rice thereafter. There is further cleaning of rice to make it fit for marketing. The finished product emerges only when it is marketable. All these activities are integral parts of the manufacturing process of rice. These activities have to be necessarily carried out to obtain the finished product, i.e., rice in marketable condition after removing the broken rice and cleaning it if it is necessary. The expression 'manufacturing process' should be interpreted in its ordinary sense and should not be confined or restricted to the actual manufacturing alone. The processes which are intimately connected with actual manufacturing process will also be within the aforesaid expression. The Tribunal, as a last fact-finding authority has found that the workers employed for bringing the paddy bags from outside and keeping it in the factory can also be called 'workers employed in the manufacturing process' as the manufacturing process cannot be carried on unless paddy bags are available represents the correct view of law and is in consonance with the plain meaning of the word implied under section 80J(4)(iv) of the Act. The various processes starting from purchase of the raw material and till the sale of finished goods from an integral part of the manufacturing process and the workers and labourers employed in these processes are workers employed in the manufacturing process. In view of the above discussion, the Tribunal has rightly interpreted the provision of law and there is no legal error in the order of the Tribunal. Case Law Analysis: Applied :CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 196 ITR 149 (SC) and J. K. Cotton Spinning and Weaving Mill Co. v. Labour Appellate Tribunal of India (1964) AIR 1964 SC 737 Decision: In assessee's favour. Date of Judgment: 5 November 2004 Assessment Year: 1976-77 and 1977-78 Cases Referred: Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 188 (SC).CIT v. Harit Synthetics Fabrics P. Ltd. (1986) 162 ITR 640 (Bom), CIT v. J. H. Gotla (1985) 156 ITR 323 (SC), CIT v. K. G. Yediyurappa and Co. (1985) 152 ITR 152 (Karn), CIT v. N. C. Budharaja and Co. (1993) 204 ITR 412 (SC), CIT v. Orient Paper Mills Ltd. (1974) 94 ITR 73 (Cal), CIT v. Ormerods (I.) (P) Ltd. (1989) 176 ITR 470 (Bom), J. K. Cotton Spinning and Weaving Mills Co. Ltd. v. STO (1965) 16 STC 563 (SC), J. K. Steel Ltd. v. Union of India (1970) AIR 1970 SC 1173., Micklethwait In re (1855) 11 Ex 452. Modipon Ltd. v. CIT (2001) 247 ITR 40 (Del), Partington v. Attorney?General (1869) LR 4 (HL) 100, Poppatlal Shah v. State of Madras (1953) AIR 1953 SC 274, Ransom (Inspector of Taxes) v. Higgs (1974) 3 All ER 949 (HL), Saraswati Sugar Mills v. Haryana State Board (1992) AIR 1992 SC 224. Saroj Aggarwal v. CIT (1985) 156 ITR 497 (SC) and Termant v. Smith (1892) AC 150 (HL). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 0885 (All-HC) : (2005) 003 (I) ITCL 0016 : (2005) 272 ITR 0181 : (2005) 193 CTR 0444 : (2005) 145 TAXMAN 0506

CIT v. Sultan & Sons Rice Mill ()

CONSTITUTION OF INDIA

--Statute----INTERPRETATIONProvisions to encourage industry--

Catch Note:

Ordinarily, the provision in a taxing statute granting incentive for promoting growth and development should be construed liberally. These provisions should be interpreted so as to advance the objective of the provision and not to frustrate it

Ratio:

Provisions in a taxing statute granting incentive for promoting growth and development should be construed liberally.

Case Law Analysis:

Applied :Textile Machinery Corporation Ltd. v. CIT (1977) 107 ITR 195 (SC) and Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 188 (SC).

Decision:

Principle enunciated.

Date of Judgment:

5 November 2004

Assessment Year:

1976-77 and 1977-78

Constitution of India, 1950 Article 268

INCOME TAX

--Deduction under s. 80HH/80J----CONDITION PRECEDENTEmployment of ten or more workers in--

Catch Note:

Assessee was a registered firm manufacturing rice and dealing in food grains. Its claim for relief under sections 80J and 80HH in respect of its rice manufacturing business was disallowed by the AO on the ground that it did not employ ten or more workers in the manufacturing process carried on with aid of power and, therefore, it did not satisfy the conditions of section 80J(4)(iv) and section 80HH(2)(iv). The AO relying on the definition of 'manufacturer' as given in the Factories Act observed that the assessee's rice plant was automatic and to manufacture rice and rice bran, paddy was stored at one point of the machine and when the machine was started the paddy was sucked by the machine automatically and the rice and rice bran came out of the other end and to run the machine, the service of one mechanic and two labourers was needed as the whole process was automatic and, therefore, in the manufacturing process the number of persons employed never exceeded ten. The assessee contended that ordinarily, it starts with the procurement of raw material and terminates with the production of the finished article. All the workers engaged throughout the process would be considered to be employed in the manufacturing process of rice and rice bran. The claim of the assessee was accepted by the CIT(A) as well as by the Tribunal. Held: Justified. Workers engaged in rice mill in bringing paddy to factory and cleaning the rice would be treated to be engaged in the manufacturing process. Therefore, the assessee was entitled to deduction under section 80HH/80J.

Ratio:

The various processes starting from purchase of raw material till the sale of finished goods form an integral part of the manufacturing process and the workers and labourers employed in those processes were workers employed in the manufacturing process for purposes of sections 80HH(2) and 80J(a). The words 'employs ten or more workers in the manufacturing process' normally would cover the entire process carried on by the industrial undertaking right from converting the raw material into finished goods.

Held:

The words 'employs ten or more workers in the manufacturing prodess' normally would cover the entire process carried on by the industrial undertaking of converting the raw material into finished goods. The work of ten or more persons employed in the manufacturing process should be integrally connected with the manufacturing of rice. Their work should be reasonably connected with and be part of the manufacturing process of rice. The Income Tax Officer while holding that only two or three persons are required to run an automatic rice plant has interpreted the words 'manufacturing process in a very narrow manner'. The manufacturing process includes within its ambit that the raw material to be filled in the plant in such a shape and condition, which may be acceptable or can be fed in the plant. In the case of rice mill the palledars are required to bring paddy from the store or godown to the starting point of the plant. Drying of paddy is also necessary as found by the Tribunal before putting the paddy in the plant. The workers are also required to clean the plant and remove bhoosi, husk, etc. The assessee claimed that the manufacturing process started after the point of purchase of paddy. Paddy is cleaned and dried and thereafter brought and put into the machine. The rice comes out of the machine along with broken rice thereafter. There is further cleaning of rice to make it fit for marketing. The finished product emerges only when it is marketable. All these activities are integral parts of the manufacturing process of rice. These activities have to be necessarily carried out to obtain the finished product, i.e., rice in marketable condition after removing the broken rice and cleaning it if it is necessary. The expression 'manufacturing process' should be interpreted in its ordinary sense and should not be confined or restricted to the actual manufacturing alone. The processes which are intimately connected with actual manufacturing process will also be within the aforesaid expression. The Tribunal, as a last fact-finding authority has found that the workers employed for bringing the paddy bags from outside and keeping it in the factory can also be called 'workers employed in the manufacturing process' as the manufacturing process cannot be carried on unless paddy bags are available represents the correct view of law and is in consonance with the plain meaning of the word implied under section 80J(4)(iv) of the Act. The various processes starting from purchase of the raw material and till the sale of finished goods from an integral part of the manufacturing process and the workers and labourers employed in these processes are workers employed in the manufacturing process. In view of the above discussion, the Tribunal has rightly interpreted the provision of law and there is no legal error in the order of the Tribunal.

Case Law Analysis:

Applied :CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 196 ITR 149 (SC) and J. K. Cotton Spinning and Weaving Mill Co. v. Labour Appellate Tribunal of India (1964) AIR 1964 SC 737

Decision:

In assessee's favour.

Date of Judgment:

5 November 2004

Assessment Year:

1976-77 and 1977-78

Cases Referred:

Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 188 (SC).CIT v. Harit Synthetics Fabrics P. Ltd. (1986) 162 ITR 640 (Bom), CIT v. J. H. Gotla (1985) 156 ITR 323 (SC), CIT v. K. G. Yediyurappa and Co. (1985) 152 ITR 152 (Karn), CIT v. N. C. Budharaja and Co. (1993) 204 ITR 412 (SC), CIT v. Orient Paper Mills Ltd. (1974) 94 ITR 73 (Cal), CIT v. Ormerods (I.) (P) Ltd. (1989) 176 ITR 470 (Bom), J. K. Cotton Spinning and Weaving Mills Co. Ltd. v. STO (1965) 16 STC 563 (SC), J. K. Steel Ltd. v. Union of India (1970) AIR 1970 SC 1173., Micklethwait In re (1855) 11 Ex 452. Modipon Ltd. v. CIT (2001) 247 ITR 40 (Del), Partington v. Attorney?General (1869) LR 4 (HL) 100, Poppatlal Shah v. State of Madras (1953) AIR 1953 SC 274, Ransom (Inspector of Taxes) v. Higgs (1974) 3 All ER 949 (HL), Saraswati Sugar Mills v. Haryana State Board (1992) AIR 1992 SC 224. Saroj Aggarwal v. CIT (1985) 156 ITR 497 (SC) and Termant v. Smith (1892) AC 150 (HL).