A.V. Balasubramanyam, Judicial Member - (1.) THIS is an appeal by the assessee and there are two grounds requiring determination.
(2.) The assessee is a jeweler engaged in the business of manufacture and sale of gold and silver ornaments at Belgaum. It would appear that the manufactured articles are sent to outside places like Madras and Bangalore. No local sales had been effected. 3 to 6. [These Paras are not reproduced here as they involve minor issues.] 7. The second ground is in regard to disallowance claimed under Section 80HH. The Income-tax Officer declined the relief on the ground that the business of the assessee was formed by splitting up an already existing business and that the assessee had not employed any workers. There is also a remark that the audit report had been filed late. The Commissioner (Appeals) rejected the two points raised by the Income-tax Officer. With regard to splitting up of the business and late filing of the audit report, he remarks that they do not justify rejection of the claim. We entirely agree with the Commissioner (Appeals) that neither of the aforesaid two could result in denial of the claim. The audit report has been subsequently filed and there is no reason why the same should not be taken into consideration. The objection raised from the point of Section 80HH(2)(ii) also has no merit. 8. The Commissioner (Appeals) held that the assessee is not entitled to the relief since he had not employed any workers to fulfil the condition in Clause (iv) of Sub-section (2) of Section 80HH. To repeat, it is his case that the assessee had not employed workers to manufacture articles. According to submission made by Shri Kulkarni, the assessee was giving job work to artisans who were to prepare articles of jeweler as per the requirement of the assessee. It was job work that was given to the artisans for which money was being paid. 9. Sub-clause (iv) prescribes that the industrial undertaking should employ ten or more workers in the manufacturing process if it is carried on with the aid of power, or should employ twenty or more workers if the activity is carried on without the aid of power. The word 'employs' clearly means that the workers should be the servants of the assessee. To put it technically, the relationship of employer and employee should subsist between the assessee and the workers. An employer is the master and the employee is the servant. 10. In the case of Shivnandan Slvxrma v. Punjab National Bank Ltd. AIR 1955 SC 404, Their Lordships of the Supreme Court pointed out the distinction between a servant and an independent contractor thus : The distinction between a servant and an independent contractor has been the subject-matter of a large volume of case-law from which the textbook writers on torts have attempted to lay down some general tests. For example, in Pollock's Law on Torts, the distinction has thus been brought out: A master is one who not only prescribes to the workman the end of his work, but directs or at any moment may direct the means also, or, as it has been put, "retains the power of controlling the work", a servant is a person subject to the command of his master as to the manner in which he shall do his work . . . An independent contractor is one who undertakes to produce a given result but so that in the actual execution of the work he is not under the order or control of the person for whom he does it, and may use his own discretion in things not specified beforehand . . . Clerk & Lindsell on Torts (Edn. 11) at p. 135 have adopted the description of an independent contractor given by Pollock as quoted above. (11) In Edn. 11 of Salmond's Treatise on the Law of Torts, the same distinction has been clearly indicated in the following passage at p. 98 : What then, is the test of this distinction between a servant and an independent contractor? The test is the existence of a right of control over the agent in respect of the manner in which his work is to be done. A servant is an agent who works under the supervision and direction of his employer; an independent contractor is one who is his own master. A servant is a person engaged to obey his employer's orders from time to time; an independent contractor is a person engaged to do certain work, but to exercise his own discretion as to the mode and time of doing it - he is bound by his contract, but not by his employer's orders. If a job work is given to a worker, he is paid on the work turned out. The worker may finish his job in a day or two days, depending upon his capacity. The payment is for the work done. A servant is paid on time basis irrespective of the work turned out. In the case of job work, the payment has nexus to the work done. An independent contractor undertakes to produce the given result for which a payment is assured. Therefore, a person who undertakes job work, or what is otherwise called piece work, is an independent contractor. He is not a servant of the person who gives the work and there is no relationship of employer and employee between them. 11. A relief under Section 80HH is given to an assessee who is running an industrial undertaking. Naturally the Industrial law should apply to the workers and such a case could exist if only the workers are servants in the undertaking. 12. The point considered by the Tribunal in the case of K.R. Jewelers, Belgaum, was whether the assessee who had run a small scale industry where workers were being paid on piece work and that was in connection with relief claimed under Section 80HHA. The context in which the Tribunal considered the matter was altogether different in the case of K.R. Jewelers. 13. We are clearly of the view that workers who undertake to do job work, or where the assessee gets the articles prepared on piece work basis, the workers are not employees of the assessee and as such the condition in Clause (iv) of Section 80HH(2) is not fulfilled. For these reasons, we affirm the finding of the Commissioner (Appeals) in this regard and dismiss the second ground. 14. In the result, the appeal is allowed in part.;