This Court Further Pointed Out To Thedecision Reported In 59 Itr 699 – Cit v. Manmohan Dasas Well As [1957] Scr 157 – Dharangadhara Chemicalworks Ltd V. State Of Saurashtra And Held That

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 07.12.2021 THE HON'BLE MR. JUSTICE R. MAHADEVANAND THE HON'BLE MR. JUSTICE MOHAMMED SHAFFIQ The Commissioner of Income Tax-ICoimbatore. ..Appellant M/s. Elgi Ultra Industries Ltd.India House, Tiruchy RoadCoimbatore-18PAN No. AAA CE 4566 G ..Respondent Tax Case Appeal filed under Section 260-A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, 'D' Bench, Chennai dated 12.06.2009 passed inI.T.A.No.1220/Mds/2008 for the Assessment Year 2005-06. Appealagainst the order dated 15.04.2008 made in Appeal No.211/07-08on the file of the Commissioner of Income Tax (Appeals)-1,Coimbatore. Appeal against the order dated 26.12.2007 made inPAN/GIR No.AAACE4566G on thr file of the Assistant Commissionerof Income Tax company Circle -1(1) Coimbatore – 18, for theAssessment year 2005-2006. JUDGMENT(Judgment was delivered by R. MAHADEVAN, J.) Heard both sides and perused the materials placed beforethis court. 2.This tax case appeal has been filed by the Revenue,calling in question the order dated 12.06.2009 passed by theIncome Tax Appellate Tribunal, Madras 'D' Bench, in I.T.A. https://hcservices.ecourts.gov.in/hcservices/ No.1220/Mds/2008 relating to the Assessment Year 2005-06. 3.On 30.11.2009, the aforesaid appeal was admitted on thefollowing substantial questions of law:- “1. Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was rightin law in holding that the assessee is eligible forrelief under section 80IA of the Act, even though theassessee was not engaged in the process of manufacture,but only assembling the parts procured from others?2. Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right inlaw in allowing the bad debts written off in the booksof accounts, even though the conditions laid down undersection 36(1)(vii) read with section 36(2) of the Act,were not satisfied by the assessee? 4.The first substantial question of law is covered by theearlier order of this Court in the assessees' own case inCommissioner of Income-tax, Coimbatore -vs- Elgi UltraIndustries Ltd. [(2012) 25 taxmann.com 561 (Mad.)], wherein, itwas held as follows: “8.A perusal of the orders of the assessment aswell as the order of the Appellate Authority show thatthe assessee procured raw materials and components.The dyes of the assessee were handed over to the jobcontractors to make use of the same in the manufactureof grinder parts. The order of the authorities belowshow that the assessee exercised supervision andcontrol in the manufacturing of the parts done by thejob workers on the materials supplied by the assesseein according to the specification in the dyes suppliedby the assessee. They were subjected to qualitycontrol too. Thus even though the assessee had notemployed its own employees, yet, the fact is that atevery stage the assessee had extracted control overthe job work as though they were employees of theassessee. Given the fact that the dyes and thematerials were given by the assessee to the jobworkers, who had merely bestowed their labours, wehave no hesitation in accepting the case of theassessee that it qualify for relief under Section80IA.9.In the decision reported in 216 ITR 566 – C.I.Tv. V.O.RAMALINGAM, this Court considered the meaningof manufacture or processing of goods under the WealthTax Act. This Court pointed out that,"...............Thereshouldbenomisapprehension that "engaged in manufacturing" postulates the assessees direct involvement in themanufacture and that it may not be necessary that theassessee himself should be personally engaged, but itis enough that he employs his own labourers. It issuggested that the processing leading to themanufacture should be in some sort of permanentestablishment with a number of employees engaged inregular work". postulates the assessees direct involvement in themanufacture and that it may not be necessary that theassessee himself should be personally engaged, but itis enough that he employs his own labourers. It issuggested that the processing leading to themanufacture should be in some sort of permanentestablishment with a number of employees engaged inregular work". 10. This Court further pointed out to thedecision reported in 59 ITR 699 – CIT v. MANMOHAN DASas well as [1957] SCR 157 – DHARANGADHARA CHEMICALWORKS LTD v. STATE OF SAURASHTRA and held that, "We thus have no manner of doubt that in decidingwhether the assessee had engaged himself through hisemployees in the manufacture or processing of goods,it will be necessary to see whether labourers engagedwere under the control of an independent contractor orwere controlled by an agent, whose agencydistinguished him from that of a servant or employee,and how far the assessee exercised control by engagingsuch labourers for work, paying wages or remunerationanddeterminingtheirconditionsofservice. ................... " 11. Thus this Court held that the question as towhether the assessee is engaged in the manufacturingprocess or not, has to be seen in the context of thecontrol exercised by the assessee. Going by the factstherein, indicating the supervision and control, thisCourt held that bleaching of grey yarn and colouringdone through job worker is covered by Section 5(1)(xxxii) of the Wealth Tax Act. 12. As far as the decision of the Apex Courtreported in 225 ITR 814 – CHILLIES EXPORTS HOUSELIMITED v. COMMISSIONER OF INCOME TAX is concerned,the Apex Court considered the issue as to whether theassessee was an industrial company as defined underthe Finance Act and hence, to be taxed at 55%. Therethe assessee got the chillies fumigated by a thirdparty by paying charges therefor under a contract. TheApex Court pointed out that the question as to whetherthe assessee was carrying on business of processing ofgoods would depend upon the consideration of allrelevant materials available in the case. The questionthat fumigation was done by another party isimmaterial or irrevalent for the purpose ofconsidering whether the assessee is engaged in themanufacturing activity. The question is whether theactivity including the one relating to fumigationgiven to another party to make the goods to be exported as a marketable commodity, amounted toprocessing of goods, has to be considered on the basisof the facts available. Thus, the Apex Court pointedout that question as to whether the assessee wascarrying on process of goods has to be looked at bytaking into consideration the different activitiescarried on by the assessee, which resulted in makingthe goods fit for export and how far the cumulativeeffect of those activities will amount to theprocessing of goods. Thus, the Apex Court set asidethe order and remitted the matters to the High Courtfor de novo consideration. exported as a marketable commodity, amounted toprocessing of goods, has to be considered on the basisof the facts available. Thus, the Apex Court pointedout that question as to whether the assessee wascarrying on process of goods has to be looked at bytaking into consideration the different activitiescarried on by the assessee, which resulted in makingthe goods fit for export and how far the cumulativeeffect of those activities will amount to theprocessing of goods. Thus, the Apex Court set asidethe order and remitted the matters to the High Courtfor de novo consideration. 13. A reading of the said judgment shows that thereasoning is similar to what is considered in thedecision reported in 216 ITR 566 – COMMISSIONER OFWEALTH TAX v. RAMALINGAM. Thus, the sum and substanceof the law declared by this Court is that the factthat the assessee himself is not personally engaged inthe manufacture, would not disentitle the assesseefrom claiming the relief as one engaged inmanufacturing activity, for, so long as the assesseeexercises control in the work entrusted to jobworkers, the assessee would be entitled to the reliefunder Section 80IA of the Act. Being a deductionprovision, taking note of the present day outsourcingof various activities, we need to give a meaningfulexpression to "assessee engaged in the manufacturingprocess", to hold that so long as the effectiveinvolvement of the assessee is there in the form ofquality control or supply of material and dyes for themanufacture of parts of the grinders or machinery,even in the case of assembling done through job work,the assessee would be entitled to have the benefitunder Section 80IA of the Act. 14. In the circumstances, guided by the decisionreported in 216 ITR 566 – COMMISSIONER OF WEALTH TAXv. RAMALINGAM, we hereby rejecting the Revenue'sappeal, thereby, confirming the order of the Tribunal.The above Tax Case (Appeals) are dismissed. No costs.” Following the aforesaid decision, the first substantial questionof law is answered in favour of the assessee and against theRevenue. 5.As regards the second substantial question of law, theprovisions of section 36(1)(vii) of the Income Tax Act, 1961provide for allowance of an amount representing bad debt or partthereof, which is written off as irrecoverable in the accountsof the assessee for the previous year. 6.In the present case, for the previous assessment year2000-01, the assessee had taken over debts of Rs.25,68,81,743for a sum of Rs.22,10,00,000/- relating to several parties andthey have accounted the interest received on these loansamounting to Rs.1,79,40,872/-, Rs.89,70,436/- and Rs.89,70,436/-for Assessment Years 2002-03, 2003-04 and 2004-05 respectively.The opening balance of amount outstanding was Rs.24,87,53,073/-as on 01.04.2002, Rs.23,74,73,791/- as on 01.04.2003, andRs.22,29,75,358/- as on 01.04.2004. Out of these amounts, a sumof Rs.1,00,89,071/- was written off in the books as bad debtsduring the previous year relevant to the assessment year 2005-06. 7.The claim for deduction on account of writing off of baddebts, was disallowed by the assessing officer on the groundthat the debts have been taken over from the sister concernsvoluntarily only as a measure of support to it and knowing fullywell that the same was irrecoverable and hence, the same wasliable to be denied. In appeal, the Commissioner of Income Tax(Appeals) allowed the claim of the assessee. The said order wasalso confirmed by the Tribunal taking note of the position thatthe Memorandum and Articles of Association permitted theassessee to carry on the business of money lending and thetransactions in question have been held to be in the realm ofbusiness activity. 7.The claim for deduction on account of writing off of baddebts, was disallowed by the assessing officer on the groundthat the debts have been taken over from the sister concernsvoluntarily only as a measure of support to it and knowing fullywell that the same was irrecoverable and hence, the same wasliable to be denied. In appeal, the Commissioner of Income Tax(Appeals) allowed the claim of the assessee. The said order wasalso confirmed by the Tribunal taking note of the position thatthe Memorandum and Articles of Association permitted theassessee to carry on the business of money lending and thetransactions in question have been held to be in the realm ofbusiness activity. 8.When there is no dispute raised on the aforesaid factualposition, this court finds no reason to differ with the viewtaken by the Tribunal. In view of the same, the secondsubstantial question of law is also answered in favour of theassessee and against the Revenue. 9.It is also to be noted that by order dated 09.01.2019passed by this court in TCA Nos.1270 and 1271 of 2009,pertaining to the very same assessee for the assessment years2002-03 and 2003-04, the substantial questions of law weredecided in favour of the assessee and the appeals filed by theRevenue were dismissed. 10.Therefore, this tax case appeal is dismissed. No costs. Sd/- Assistant Registrar(CCC) //True Copy// Maya Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal Chennai 'D' Bench. Chennai 'D' Bench. 2. The Commissioner of Income Tax (Appeal)-I Coimbatore. Coimbatore. 3. The Assistant Commissioner of Income Tax Company Circle 1(1), Coimbatore – 18. Company Circle 1(1), Coimbatore – 18. +1cc to Mr.N.V.Balaji, Advocate, S.R.No.65087+1cc to Mr.M.Saminathan, Advocate, S.R.No.65366+1cc to Mr.M.Saminathan, Advocate, S.R.No.65366 RSV(CO)RGA(30/12/2021)