IN HIGH COURT OF DELHI AT NEW DELHI Decided on 7th April, 2015 ITA 126/2001 M/S TRIMATIC ENGINEERING CO. P. LTD.ndent Through Mr. Rohit Madan, Mr. Ruchir Bhatia and Mr. Akash Vajpai, Advs. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K.GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1. question of law framed by this Court for decision in this appeal is: Whether relationship of master and servant is necessary to claim deduction under 80I of Income Tax Act, 1961? 2. appellant concededly employed and utilised services of workers through contractor Buta Singh. At relevant time during assessment year 1986-87, appellant employed 18 workers including those supplied by labour contractor. It claimed deduction under Section 80I to extent of Rs.92,251/- being 25% of profit i.e. Rs.3,69,005.00. AO declined it and included amount in taxable income by impugned order dated 23.3.1989. AO was of opinion that since employees engaged by assessee were through contractor and not its own employees, assessee could not be said to have qualified for said deduction by reason of Section 80I(2)(iv). assessee appealed to ITA 126/2001 Page 1 Commissioner of Income Tax (Appeals) who accepted contentions and inter alia, recorded as follows: From above it is clear that though appellant s representative is correct in claiming that appellant is entitled for deduction if it has employed at least ten workers whether casual or regular appellant will have to satisfy requirement that at least 10 workers were engaged in manufacturing process. From order of ACIT it is not clear as to whether this requirement was satisfied while claiming deduction under section 80I. ITO will, therefore, look into claim of assessee for deduction under section 80I and satisfy himself that at least 10 workers were engaged in manufacturing process during year and allow deduction as per law. 3. revenue s appeal to Income Tax Appellate Tribunal was accepted and order of CIT(Appeals) was reversed. ITAT held as follows : I have heard rival submissions. Admittedly, more than 10 employees were not on pay rolls of assessee. It was submitted that persons employed through contractors should also be treated as employee of assessee. learned counsel failed to establish relationship of employer and employee with those persons who were employed through contractors. It was found that those persons were working under contractor and not under assessee company. As such, in my opinion, those persons cannot be treated as employees of assessee company. Finding given in this regard by assessing officer is correct in my opinion. Accordingly, I reverse order of Commissioner of Income Tax (Appeals) and restore that order of assessing officer. 4. This Court has carefully considered grounds of appeal as well and ITA 126/2001 Page 2 heard counsel for revenue. Section 80I enables deduction in respect of profits and gains from industrial income to extent of 20%. This Court is at present concerned with one provided in Section 80I(2)(iv). same reads as follows : 80I. xxxxx (2) This Section applies to any industrial undertaking which fulfils all following conditions, namely :- xxxxx (iv) in case where industrial undertaking manufactures or produces articles or things, undertaking employs ten or more workers in manufacturing process carried on with aid of power, or employs twenty or more workers in manufacturing process carried on without aid of power. 5. It is evident from plain reading of above provision that all that provision s intent was that industrial undertaking in order to qualify for deduction should be involved in inter alia, production of articles or things and should employ 10 or more workers in manufacturing process carried on with aid of power or in manufacturing process carried on without aid of power, employ 20 or more workers. Considering that provision is beneficial one and meant to provide relief to industrial undertaking involved in manufacturing. restrictive interpretation placed by ITAT in circumstances of case is not justified. 6. There is nothing in Section 80I(2)(iv) to say that relationship in order to qualify for term employment must be one of master and servant and cannot extend to contractual employment. That concept of permanent or direct workmen is precondition envisioned in Section 80I(2) when it was term employs does not appear to be reflected in ITA 126/2001 Page 3 statute as is imputed by lower authorities. This Court also notices that there are situations where it has been held that services provided by outside agencies would also qualify for benefits of Section 80I. In Krishak Bharti Cooperative Limited V. Deputy Commissioner of Income Tax 358 ITR 168, Division Bench of this Court held that service charges received from owner of unit, could in fact be considered as profit derived from industrial undertaking and thus be entitled for deduction under Section 80I. In other words, even though ownership of unit, from which profit was derived by industrial undertaking claiming deduction under Section 80I, did not vest with it, Court held that it was entitled to said benefit. For above reasons Court is of opinion that this appeal is entitled to succeed. In view of above, appeal is answered in favour of assessee and against revenue. 7. appeal is accordingly allowed. S. RAVINDRA BHAT (JUDGE) R.K.GAUBA (JUDGE) APRIL 07, 2015 vld ITA 126/2001 Page 4 M/s. Trimatic Engineering Co. P. Ltd. v. Asst. Commissioner of Income-tax