Per Dr. V. Balasubramanian, Vice President - The assessed has raised several grounds of appeal out of which except for two, the remaining grounds have been withdrawn as not pressed. The two points in dispute relater to the taxability of the premium received in respect of import entitlement and the grant of relief under section 80J of the Income-tax Act, (the Act).
2. The ground relating to import entitlement was raised by the assessed for the first time before the Commissioner (Appeals). Nothing that the matter is one purely of the legal nature, the Commissioner (Appeals) admitted the claim but following the decision of the Allahabad High Court in Agra Chain Mfg. Co. v. CIT : 114ITR840(All) , decided the matter against the assessed. This point was against before use but we find that on account of the conflicting decisions by different Benches of the Tribunal, this matter has been referred to for decision to a Special Bench. It would not thereforee, be proper for us to adjudicate on this issue. The decision of the Special Bench should be the basis for resolution of this dispute. We, thereforee, remit this matter back to the ITO so that he can follow the decision of the Tribunal in the Special Bench and decide the matter accordingly.
3. The other point at issue related to the claim for relief under section 80J. This claim was not made by the assessed before the ITO but was made before the IAC at the time of dealing with the matter under section 144B of the Act. The assesseds business started in October 1972. This first year of the assessment, thus, was the year 1975-76, the assessed was dealing in the types of articles; brass and EPNS were. The sales of which during this year came to about Rs. 39 lakhs and the ready made garments of the sale value of nearly Rs. 1 1/2 lakhs.
4. Before the ITO in substantiating his claim for relief under section 80J, the assessed pointed out that he purchased cloth in bulk and gave it to workers for getting it converted into garments for expert purposes. Likewise he imported brass material in the form of scrap, got it converted into manufactured articles through various artisans in Moardabad and exported the same. The assesseds claim for relief under section 80J was rejected by the ITO. According to him, the assessed failed to furnish details regarding the capital employed in the manufacturing units, number of workers, separate balance sheet for the manufacturing unit, details of manufacturing expenses, etc. The ITO, thereforee, held that the conditions to be fulfillled for the grant of relief were not satisfied by the assessed.
5. The Commissioner (Appeals) also rejected the assesseds claim. According to the Commissioner (Appeals), the assessed did not satisfy the condition of being an industrial undertaking even if he could be regard as an industrial company. The assessed could not also be said to be engaged in a manufacturing activity as envisaged by section 80J. The provisions of section 80J require that the assessed should begin manufacture of an article for the first time and not drawn upon manufacturing capacity already in existence. He has also to satisfy the conditions laid down in sub-section (4) of section 80J. According to the Commissioner (Appeals), the relief would not be available if the actual manufacturing operations were not carried out by the assessed directly. There should also be 10 or 20 workers regularly employed, as the case may be, as required by section 80J (4). Both on the ground of not having fresh industrial capacity coming into existence for the first time and not being already involved in manufacture using machinery as plant not out for use for any purpose earlier, the assessed was not entitled to the relief. In the appeal before us the Commissioner (Appeals)s order is challenged.
6. The learned counsel for the assessed has pointed out that the authorities below have not understood the exact nature of the work carried on by him. Broadly, the assessed carried on two types of activities, open dealing with manufacture of brass material and the other manufacture of garments from imported fabrics. As regards the first, the assessed had two artisans on his roll but availed of the expertise and labour of several other artisans regularly employed by him for the purpose. The assessed used to obtain samples made by clever artisans, submit them for the scrutiny of parties abroad and after their approval and indent get the articles manufactured through expert artisans. The assessed took over all the brass materials imported by him, delivered the requisite quantity of material to the artisans, supervised their work and got the manufactured article conform to the samples exported by him. The artisans were paid wages. In respect of each artisan the assessed was maintaining a separate account both with regard to the quantity of material supplied, received, etc., and the wages payable. The artisans were, though not solely employed by him, employed by the assessed for the particular manufacture of goods. To support the case that the manufacture was done by the assessed at his own instance, the detailed process followed is explained. It is pointed out that the that the raw material purchased by the assessed are handed over to the artisans. All through the material remained the property of the assessed. The workers were only paid wages for the period of employment on the basis of work turned out. The process of manufacturing both in respect of garments as well as the brass material is elaborated and it is pointed out that the assessed was completely involved in the manufacture. In respect of the former the process includes purchase of fabric, issuing the same to the tailor, purchase and issue of the sales to fabricators, overlooking quality control, pressing, tagging and packing. In respect of the latter the basis raw materials in the form of brass scrap is purchased by the assessed. Designs, shape, quality and weight of the goods as approved by the foreign buyers are given to the skilled artisans who melt the brass, get the moulds prepared, get the scrapping done and manufacture the goods by joining different parts, giving finishing touches getting them electroplated, silverplated, etc. It is pointed out that throughout the process the goods in various forms and shapes belonged exclusively to the assessed and the labour charges are paid to the workers.
According to the learned counsel, the entire activity of converting the raw materials imported into finished products indented by the purchaser on the basis of the samples approved is a single case in which the assessed played his full part. At various stages, various activities have to be done but the entire activity belonged to the assessed. In fact different activities are carried on by different artisans even for the manufacture of single article. Thus, melting, moulding, scrapping and polishing are all done sometimes by different artisans, the assessed maintaining continuity in the manufacturing process by his supervision, advice and checking. In fact the claim may be that the entire manufacture is done by the assessed but instead of employing the worker in his own factory, different parts of the manufacture is got done sometimes at the workers own place. The fact that the at every stage the property belong to the assessed and the worker has only a right to payment of the wages, according to the learned counsel, fully supports his case that his is a continuous and unitary activity. Since the assessed satisfied all other conditions laid down under section 80J, he is entitled to the relief.
7. Drawing on the details available in the order of the authorities below, the learned counsel for the department had pointed out that the assessed is not entitled to the relief claimed. Apart from the fact that the assessed is not a manufacturer as is evident from the manner is which the activity is carried on by him, the assessed has not given a list of workers, if any, who may be considered as employees. Prima facie, the conditions laid down in section 80J (4) are not satisfied. Reference is made in this connection to the decision in the case of CWT v. K. Lakshmi : 142ITR656(Mad) . According to the learned counsel, the provisions of section 2(m) of the Factories Act, 1948, have been virtually reproduced in section 80J. Relying on the decisions of the Supreme Court in State of Kerala v. R. E. Dsouzha : 1971CriLJ689 and Shankar Balaji Waje v. State of Maharashtra : (1962)ILLJ119SC , the learned counsel has pointed out that artisans from whom the assessed has taken periodical services do not constitute employees as understood in law and expounded in the Supreme Court decisions. A pre-requisite of the application of section 80J is that the assessed should employ 10 workers at least if power is utilised and 20 workers if power is not utilised. In the present case, apart from the fact that the assessed is a company, even if it is conceded that the assessed is a manufacturer, certainly the assessed does not employ 10 or 20 workers, as the case may be. Even on the assesseds own stand these artisans cannot be said to be his employee and the assessed their employer so as so satisfy the conditions of section 80J (4). The assessed is, thereforee, neither an industrial company nor a manufacture; he does not also satisfy the other conditions laid down is section 80J such as employment of the requisite number of persons, etc.
8. Having heard the parties, we find that all the information necessary to enable us to a finding on the matter has not been produced by the assessed or collected by the authorities below. In the absence of such particulars it would not be proper to say whether the assessed is a manufacturing company or in industrial undertaking or entitled to the relief claimed. If, as the assessed has claimed, the entire activity from obtained indent to the supply of the goods including the manufacture, dispatch, etc., is done by the assessed, he could certainly be regarded as a manufacturer. If, however, some stages of the activity are not performed by a assessed, it may not be correct to treat the assessed as a manufacturer. The ITO has mentioned that the details asked for have not been given. An allegation was made at one stage that even the number of workers employed has not been specified. Going into the orders of the authorities below, we find that neither has the assessed supplied the full details nor the ITO or the Commissioner asked for them in enough substantial details to enable one to decide on the availability of section 80J relief. Apparently the assessed has relied on the general information has furnished to claim that the manufacture is done by him. Whether the assessed employs 10 or more workers as laid down in the section does not also seem to have been clarified. In a matter of this type where a person manufacturers goods, it is not always necessary at every stage that the labourers and the workers should be in the factory and should be employed by the owner even though this is generally done. Manufacture of goods in modern times involves several stages, such stages themselves involving expertise of different types which is not all available in the same factory. Nor can it be said that the proprietor of the business or a manufacturer should perform all the activities from the acceptance of the raw material to the disposal of the finished products himself. Different activities at different stages are performed and of diverse nature.
9. The Commissioner (Appeals) has referred to the objective and the background against which the provisions of section 80J have been enacted. In coming to a conclusion as to whether the assessed is entitled to the benefit of this relief certainly the object should be considered but such consideration should be against the background of the section, the modes of carrying on the business or manufacture, etc. Section 80J deals with several basic requirements which the assessed should satisfy for his being entitled to the benefit thereof. All the expression used in the section do not also admit of a precise definition. Several concepts are involved fin the application of the section and having in view the purpose of the section as pointed out by the Commissioner (Appeals)-these have to be clarified. Four example, there is the concept of an industrial undertaking;manufacture of an article; employment of certain number of workers; employment in the manufacturing process, etc. There is also an additional concept whether such process should encompass the entire manufacture, should cover the entire previous year and several such unambiguous matter. Thus, where an assessed claims that he is employing certain persons thou those persons themselves are workers or artisans on their own the claim cannot be brushed aside of on analysing in detail the nature of the engagement and the type of work, the assessed can be said to have done this himself. In modern manufacture, several aspects of the manufacturing activity are carried on at several centers and in different forms. For instance, in the case of the manufacture of automobile in order to avail of the benefit of the section it is necessary that even the manufacture of an ordinary nut and bolt should be done by the preparatory of the business. Or can the proprietor get the work done through a labourer he himself employees or engages but on strict employment basis one on a piece time agreement The undertaking may employ 10 or more workers for some part of the year but not all the year through. Would in that case the benefit of the concession be lost These and a large number of other question will have to be answered before the decision as to the availability of the relief is made. Unless the matters gone into in depths with an analysis of all the aspects of the work done and also a clear motion of the various concepts involved in section itself, a decision cannot be made. Reference has been made to the decisions dealing with book binding, the case of challis, manufacture of bidis, etc., in an attempt to allow or disallow the claim for relief. In our view, an analogous approach to the problem rather than an attempt to answer the question which directly arises from the assesseds own activities themselves cannot help us to decide the issue. We, thereforee, consider it proper to remit the matter back to the ITO to gather all the details about the nature of the activities carried on by the assessed and come to the correct legal conclusion having regard to the prices scope of the various concepts obtaining in the section. The assessed must be given full opportunity to produce all the details.
10. For statistical purposes the appeal is treated as allowed.