Bishan Lal, Accountant Member -
(1.) THE assessee is a private limited company which was incorporated on 17-5-1966. According to the memorandum and articles of association, the objects of the company were to carry on business in India as exporters, importers, manufacturers and commission agents of brassware and a number of other articles mentioned in the main objects. THE previous year for the assessment year 1977-78 ended on 30-6-1976. During this year the company was engaged in work of manufacture and processing of brasswares and E.P.N.S., through artisans in cottage industries particularly centred in Moradabad city. THE artisans are supplied with raw materials and semi-finished materials with the construction to apply specific processes for engraving, scraping, colouring, polishing, numbering, etc., on behalf of the assessee on agreed wages per Item. THE sales in this year amounted to Rs. 64,15,420. In the return of income filed on 30-6-1977 the income was declared at Rs. 10,02,050. A revised return was filed on 17-1-1980 declaring income at Rs. 8,17,033. Before the ITO the assessee made three claims. THE first claim was that the assessee should be treated as an industrial company in which public are not substantially interested and the rate of tax should be charged at 60 per cent instead of 65 per cent. Such a contention had not been accepted by the ITO as also the Commissioner (Appeals) in the assessment year 1976-77 and, therefore, this contention was not accepted in this year also. THE second and third contentions were that deductions under Sections 80J and 80HH should be allowed to the extent of Rs. 1,85,017 and Rs. 2,53,773, respectively. THEse contentions were also not accepted because according to the ITO, the assessee was not an industrial undertaking.
(2.) Aggrieved, the assessee filed an appeal to the Commissioner (Appeals) and submitted that the assessee should be treated as an industrial company and deduction under Sections 80J and 80HH, as claimed, should be allowed as the assessee was an industrial undertaking carrying on business in a number of articles. The Commissioner (Appeals) did not accept the assessee's submission because for the assessment year 1976-77 he had already held that the assessee was not an industrial company. The Commissioner (Appeals) for the year had relied on the judgment in Addl. CIT v. Chillies Export House Ltd.  115 ITR 73 (Mad.) On behalf of the assessee reliance was placed on the judgment in Griffon Laboratories (P.) Ltd. v. CIT  119 ITR 145 (Cal). The Commissioner (Appeals) did not accept the assessee's submission because the assessee did not possess plant and machinery as also any building wherein the manufacturing work was being carried out. The Commissioner (Appeals) pointed out that the assessee clearly gave job work to the artisans for doing various processes. According to the Commissioner (Appeals), it was clear that the assessee did not have supervisory control or direction over the various processes applied by different artisans in their own premises with the aid of their machinery. The Commissioner (Appeal rejected the assessee's claim. The assessee is aggrieved by this order of the Commissioner (Appeals) and this is the first ground in the assessee's appeal.
The learned counsel for the assessee submitted that the business of the assessee was 100 per cent export business, mainly, of brassware goods. He submitted that in the assessment year 1976-77, the controversy was only limited to the point whether the assessee was an industrial undertaking or not. He filed a copy of the order of the Tribunal dated 12-11-1980 in IT Appeal No. 3609 (Delhi) of 1979 wherein it has been held that the assessee is an industrial company. On the basis of this order he submitted that in this year also it should be held that the assessee is an industrial company. He further submitted that the assessee should also be held to be a new industrial undertaking and the deduction permissible under Section 80J as well as Section 80HH should be allowed. He submitted that the first year of the assessee's business was for the year ending 30-6-1974, relevant to the assessment year 1975-76, and this was the third year of the assessee's business. He submitted that the assessee was manufacturing brassware and the activities carried on by the assessee would come within the words "manufacture or produce articles" used in Sections 80J and 80HH. He referred to the judgment in Griffon Laboratories (P.) Ltd. v. CIT (supra) for the submission that for manufacturing or producing goods the assessee need not have its own machinery or plant. For the same submission he referred to the judgment in Addl. CIT v. A. Mukherjee & Co. (P.) Ltd.  113 ITR 718 (Cal.), wherein it has been held that in order that a publisher of books should be a manufacturer of books it is wholly unnecessary for him to be a bookbinder himself. He submitted that if plant and machinery was not a requirement for manufacture or production of goods, then it would follow that workers also need not be employed by the assessee for those jobs which were got done from artisans. He also referred to the judgment in Orient Longman Ltd. v. CIT  130 ITR 477 (Delhi) wherein the assessee-company, a publisher of books, was held to be an industrial company. He submitted that the conditions laid down under Sections 80J(4) and 80HH(2) were fully satisfied and, therefore, the assessee should be allowed deduction both under Sections 80J and 80HH. He also referred to the order dated 22-10-1980 in IT Appeal No. 265 (Coch.) of 1978-79 of the Cochin Bench of the Tribunal, wherein Section 80HH relief was allowed to an assessee, who was exporting shrimps to foreign countries. This judgment was particularly relied on for the submission that the activities carried on by the assessee should be considered as manufacturing activities. The learned departmental representative submitted that the assessee was neither an industrial company nor an industrial undertaking and, therefore, it was neither entitled to concessional rate of tax nor entitled to deductions under Sections 80J and 80HH. He submitted that both under Sections 80J and 80HH the assessee itself was required to manufacture or produce articles and the assessee should also have its own plant and machinery which should be new. He pointed out that it was not enough for the assessee to get the goods manufactured from artisans, who were already working at Moradabad in their own premises. He pointed out that in the jobs assigned to the artisans the assessee was not exercising any supervisory control. He pointed out that in the immediately preceding year it was not argued that the company's own employees were supervising and controlling the artisans. He, however, submitted that in this year it was specifically argued that no supervisory control was exercised by the assessee over the artisans. He referred to the judgment in Farrukhabad Cold Storage (P.) Ltd. v. CIT  119 ITR 895 (All.) for the submission that the words "processing" and "production" had different meanings. He also submitted that the assessee's submission that the conditions laid down under Sections 80J(4) and 80HH(2) were satisfied should not be accepted because this aspect of the matter had not been either considered by the ITO or by the Commissioner (Appeals). He thus submitted that the assessee was not entitled to any of the claims made. In reply, the learned counsel for the assessee submitted that the judgment in Farrukhabad Cold Storage (P.) Ltd. v. CIT (supra) actually supported the assessee's case.
(3.) WE have carefully considered the rival submissions. The question whether the assessee is an industrial company or not has already been determined by the Tribunal in IT Appeal No. 3609 (Delhi) of 1979 dated 12-11-1980 pertaining to the assessment year 1976-77 and respectfully following that order, we would hold that the assessee is an industrial company for this year also. In Addl. CIT v. A. Mukherjee & Co. (P.) Ltd.'s case (supra) and Griffon Laboratories (P.) Ltd. (supra), it has been held that for manufacture or processing of goods the assessee need not possess its own plant and machinery. For purposes of determining that the assessee is an industrial company the words to be considered are "engaged ... in the manufacture or processing of goods ...". WE are holding the assessee-company to be an industrial company as the word "processing" is also used in the definition of ''industrial company".;