Madras High Court
The Commissioner Of Income Tax-I vs M/S. Elgi Ultra Industries Ltd on 7 December, 2021
Tax Case Appeal No. 1193 of 2009
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 07.12.2021
CORAM :
THE HON'BLE MR. JUSTICE R. MAHADEVAN
AND
THE HON'BLE MR. JUSTICE MOHAMMED SHAFFIQ
T.C.A. No. 1193 of 2009
The Commissioner of Income Tax-I
Coimbatore. .. Appellant
Versus
M/s. Elgi Ultra Industries Ltd.
India House, Tiruchy Road
Coimbatore-18
PAN No. AAA CE 4566 G .. Respondent
Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961
against the order of the Income Tax Appellate Tribunal, 'D' Bench, Chennai
dated 12.06.2009 passed in I.T.A.No.1220/Mds/2008 for the Assessment Year
2005-06.
For Appellant : Mr. M.Swaminathan
Senior Standing Counsel
Mrs. K.G.Usha Rani
Junior Standing Counsel
For Respondent : Mr. N.V.Balaji
For M/s. C.Manishankar
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Tax Case Appeal No. 1193 of 2009
JUDGMENT
(Judgment was delivered by R. MAHADEVAN, J.)
Heard both sides and perused the materials placed before this court.
2.This tax case appeal has been filed by the Revenue, calling in question
the order dated 12.06.2009 passed by the Income Tax Appellate Tribunal,
Madras 'D' Bench, in I.T.A. No.1220/Mds/2008 relating to the Assessment Year
2005-06.
3.On 30.11.2009, the aforesaid appeal was admitted on the following
substantial questions of law:-
“1. Whether on the facts and in the circumstances of the case, the
Income Tax Appellate Tribunal was right in law in holding that the
assessee is eligible for relief under section 80IA of the Act, even
though the assessee 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 the case, the
Income Tax Appellate Tribunal was right in law in allowing the bad
debts written off in the books of accounts, even though the
conditions laid down under section 36(1)(vii) read with section
36(2) of the Act, were not satisfied by the assessee?
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Tax Case Appeal No. 1193 of 2009
4.The first substantial question of law is covered by the earlier order of
this Court in the assessees' own case in Commissioner of Income-tax,
Coimbatore -vs- Elgi Ultra Industries Ltd. [(2012) 25 taxmann.com 561
(Mad.)], wherein, it was held as follows:
“8.A perusal of the orders of the assessment as well as the
order of the Appellate Authority show that the assessee procured
raw materials and components. The dyes of the assessee were
handed over to the job contractors to make use of the same in the
manufacture of grinder parts. The order of the authorities below
show that the assessee exercised supervision and control in the
manufacturing of the parts done by the job workers on the materials
supplied by the assessee in according to the specification in the dyes
supplied by the assessee. They were subjected to quality control too.
Thus even though the assessee had not employed its own
employees, yet, the fact is that at every stage the assessee had
extracted control over the job work as though they were employees
of the assessee. Given the fact that the dyes and the materials were
given by the assessee to the job workers, who had merely bestowed
their labours, we have no hesitation in accepting the case of the
assessee that it qualify for relief under Section 80IA.
9.In the decision reported in 216 ITR 566 – C.I.T v.
V.O.RAMALINGAM, this Court considered the meaning of
manufacture or processing of goods under the Wealth Tax Act. This
Court pointed out that,
"............... There should be no misapprehension that "engaged
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Tax Case Appeal No. 1193 of 2009
in manufacturing" postulates the assessees direct involvement in the
manufacture and that it may not be necessary that the assessee
himself should be personally engaged, but it is enough that he
employs his own labourers. It is suggested that the processing
leading to the manufacture should be in some sort of permanent
establishment with a number of employees engaged in regular
work".
10. This Court further pointed out to the decision reported in
59 ITR 699 – CIT v. MANMOHAN DAS as well as [1957] SCR
157 – DHARANGADHARA CHEMICAL WORKS LTD v.
STATE OF SAURASHTRA and held that,
"We thus have no manner of doubt that in deciding whether
the assessee had engaged himself through his employees in the
manufacture or processing of goods, it will be necessary to see
whether labourers engaged were under the control of an
independent contractor or were controlled by an agent, whose
agency distinguished him from that of a servant or employee, and
how far the assessee exercised control by engaging such labourers
for work, paying wages or remuneration and determining their
conditions of service. ................... "
11. Thus this Court held that the question as to whether the
assessee is engaged in the manufacturing process or not, has to be
seen in the context of the control exercised by the assessee. Going
by the facts therein, indicating the supervision and control, this
Court held that bleaching of grey yarn and colouring done through
job worker is covered by Section 5(1)(xxxii) of the Wealth Tax Act.
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Tax Case Appeal No. 1193 of 2009
12. As far as the decision of the Apex Court reported in 225
ITR 814 – CHILLIES EXPORTS HOUSE LIMITED v.
COMMISSIONER OF INCOME TAX is concerned, the Apex
Court considered the issue as to whether the assessee was an
industrial company as defined under the Finance Act and hence, to
be taxed at 55%. There the assessee got the chillies fumigated by a
third party by paying charges therefor under a contract. The Apex
Court pointed out that the question as to whether the assessee was
carrying on business of processing of goods would depend upon the
consideration of all relevant materials available in the case. The
question that fumigation was done by another party is immaterial or
irrevalent for the purpose of considering whether the assessee is
engaged in the manufacturing activity. The question is whether the
activity including the one relating to fumigation given to another
party to make the goods to be exported as a marketable commodity,
amounted to processing of goods, has to be considered on the basis
of the facts available. Thus, the Apex Court pointed out that
question as to whether the assessee was carrying on process of
goods has to be looked at by taking into consideration the different
activities carried on by the assessee, which resulted in making the
goods fit for export and how far the cumulative effect of those
activities will amount to the processing of goods. Thus, the Apex
Court set aside the order and remitted the matters to the High Court
for de novo consideration.
13. A reading of the said judgment shows that the reasoning
is similar to what is considered in the decision reported in 216 ITR
566 – COMMISSIONER OF WEALTH TAX v. RAMALINGAM.
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Tax Case Appeal No. 1193 of 2009
Thus, the sum and substance of the law declared by this Court is
that the fact that the assessee himself is not personally engaged in
the manufacture, would not disentitle the assessee from claiming the
relief as one engaged in manufacturing activity, for, so long as the
assessee exercises control in the work entrusted to job workers, the
assessee would be entitled to the relief under Section 80IA of the
Act. Being a deduction provision, taking note of the present day
outsourcing of various activities, we need to give a meaningful
expression to "assessee engaged in the manufacturing process", to
hold that so long as the effective involvement of the assessee is
there in the form of quality control or supply of material and dyes
for the manufacture 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 benefit under Section 80IA of the Act.
14. In the circumstances, guided by the decision reported in
216 ITR 566 – COMMISSIONER OF WEALTH TAX v.
RAMALINGAM, we hereby rejecting the Revenue's appeal,
thereby, confirming the order of the Tribunal. The above Tax Case
(Appeals) are dismissed. No costs.”
Following the aforesaid decision, the first substantial question of law is answered
in favour of the assessee and against the Revenue.
5.As regards the second substantial question of law, the provisions of
section 36(1)(vii) of the Income Tax Act, 1961 provide for allowance of an
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Tax Case Appeal No. 1193 of 2009
amount representing bad debt or part thereof, which is written off as
irrecoverable in the accounts of the assessee for the previous year.
6.In the present case, for the previous assessment year 2000-01, the
assessee had taken over debts of Rs.25,68,81,743 for a sum of Rs.22,10,00,000/-
relating to several parties and they have accounted the interest received on these
loans amounting 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, and Rs.22,29,75,358/- as on 01.04.2004.
Out of these amounts, a sum of Rs.1,00,89,071/- was written off in the books as
bad debts during the previous year relevant to the assessment year 2005-06.
7.The claim for deduction on account of writing off of bad debts, was
disallowed by the assessing officer on the ground that the debts have been taken
over from the sister concerns voluntarily only as a measure of support to it and
knowing fully well that the same was irrecoverable and hence, the same was
liable to be denied. In appeal, the Commissioner of Income Tax (Appeals)
allowed the claim of the assessee. The said order was also confirmed by the
Tribunal taking note of the position that the Memorandum and Articles of
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Tax Case Appeal No. 1193 of 2009
Association permitted the assessee to carry on the business of money lending and
the transactions in question have been held to be in the realm of business
activity.
8.When there is no dispute raised on the aforesaid factual position, this
court finds no reason to differ with the view taken by the Tribunal. In view of the
same, the second substantial question of law is also answered in favour of the
assessee and against the Revenue.
9.It is also to be noted that by order dated 09.01.2019 passed by this court
in TCA Nos.1270 and 1271 of 2009, pertaining to the very same assessee for the
assessment years 2002-03 and 2003-04, the substantial questions of law were
decided in favour of the assessee and the appeals filed by the Revenue were
dismissed.
10.Therefore, this tax case appeal is dismissed. No costs.
[R.M.D., J.] [M.S.Q., J.]
07.12.2021
Internet : Yes
Index : Yes / No
Maya
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Tax Case Appeal No. 1193 of 2009
To
1.The Income Tax Appellate Tribunal
Chennai 'D' Bench.
2.The Commissioner of Income Tax-I
Coimbatore.
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Tax Case Appeal No. 1193 of 2009
R. MAHADEVAN, J.
and
MOHAMMED SHAFFIQ, J.
Maya
T.C.A. No. 1193 of 2009
Dated : 07.12.2021
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