IN HIGH COURT OF HIMACHAL PRADESH SHIMLA ITA No. 34 of 2009 . Date of Decision: August 3, 2017 .P Commissioner of Income Tax, Shimla Appellant Versus H M/s Him Knit Feb. Respondent. Coram: Honble Mr. Justice Sanjay Karol, Acting Chief Justice. of Hon ble Mr. Justice Sandeep Sharma, Judge. Whether approved for reporting? Yes. For Appellant: Mr. Vinay Kuthiala, Sr. Advocate with Ms.Vandana Kuthiala & Mr.Diwan Singh Negi, Advocates, for appellant. For Respondent: Mr. Vishal Mohan, Advocate, for respondent. Sanjay Karol, Acting Chief Justice (oral). appeal came to be admitted on h following substantial question of law:- Whether condition specified in Section 80IB(2)(iv) of Income Tax Act can be H said to be substantially complied with, even though number of workers is less than ten during seven months of year? 2. only issue which arises for consideration is as to whether findings of fact, so returned by 1 Whether reporters of local papers may be allowed to see judgment? ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 2 authorities below, qua employment of workers, more than ten in number, during substantial part of year, warrants interference by this Court or not. Are they . perverse, erroneous or illegal? .P 3. This Court vide judgment dated 30.09.2010, H passed in ITA No. 32 of 2004, titled as M/s Amrit Rubber Industries Versus Commissioner of Income Tax, has of already interpreted term employment for substantial part of year to mean employment not to be for entire year, but for substantial period, which, in rt facts of case was held to be more than six months in ou year. 4. Claiming statutory deduction under C provisions of Clause (iv) of sub-section (2) of Section 80IB of Income Tax, 1961 (hereinafter referred to as h Act), with respect to assessment year 2003-04, ig present assessee declared his income by filing return. 5. On scrutiny, such claim of assessee came H to be rejected by Assessing Officer, in terms of order dated 30.03.2006 (Annexure P-1). 6. It is not in dispute that findings of fact, that of Assessing Officer qua engagement of less than ten ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 3 workers, came to be reversed by Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT (A)], in terms of order dated 24.11.2006 (Annexure P-2). . 7. Also finding of fact that of CIT (A) came to be .P affirmed by Income Tax Appellate Tribunal H (hereinafter referred to as Tribunal), in terms of order dated 17.11.2008 (Annexure P-3). of 8. For proper appreciation, we reproduce here-in- under relevant clause of Section 80 IB(2) of theAct:- 80 IB(2): rt ou (iv) in case where industrial undertaking manufactures or produces articles or things, undertaking employs ten or more workers in manufacturing C process carried on with aid of power, or employs twenty or more workers in h manufacturing process carried on without aid of power. ig 9. only issue being as to whether H assessee is compliant of said provision or not. From bare reading of sub-clause (iv) reproduced supra, it is evident that undertaking of assessee, must have employed ten or more workers in manufacturing unit carried out with aid of power. ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 4 10. Otherwise assessee being manufacturing unit, is entitled to benefits of deductions, fulfilling all other conditions specified in sub-section (2) of Section . 80IB of Act, is not in dispute. .P 11. In instant case, assessee is carrying on H activity of manufacturing knitted cloth with aid of power. It is not in dispute. of 12. Assessing Officer, in tabulated form, depicted employment status of each one of workers so employed by assessee on monthly basis. From rt reading of para-5.1 of order dated 30.03.2006 (Annexure ou P-1, page-7), it is evident that assessee had not employed more than ten workers for more than five C months in assessment year in question. Considering principle of law laid down by this Court in Amrit h Rubber Industries (supra), it cannot be disputed that if ig findings returned in said paragraph alone are to be considered, then assessee was not compliant of H essential eligibility criteria of having employed requisite number of workers in undertaking engaged in process of manufacturing. ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 5 13. However, in instant case, as stands observed by Assessing Officer himself, in para-5.5 of order, assessee s employment of foremen in . undertaking was found to be doubtful. Finding is based .P on his appreciation of material, so available on record. H Reasons and findings, which prompted him to exclude employment of foremen from considering number of of employees engaged, so referred to in para-5.5 of order passed by Assessing Officer, were found to be not only factually incorrect, but to be based on surmise rt and conjecture. Except for what is recorded in para-5.5 of ou order, Assessing Officer did not record any other reason for rejecting contention of assessee, with C regard to employment of requisite number of persons. 14. If number of persons employed as h Foremen are accounted for, assessee would be in ig compliant of statutory provisions, entitling him for statutory deductions. H 15. CIT (A), while recording his findings on question of fact with regard to employment of requisite number of workers, holding assessee entitled to benefits under Section 80IB of Act, returned its ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 6 findings after ascertaining factual matrix on basis of inspection carried out on 21.08.2002, on premises of assessee. Now significantly, inspection took place . in presence of Assessing Officer, when entire record .P was inspected and upon thorough examination of books H of account, factum of employment of foremen, as claimed by assessee, was found to be factually of correct. It is in this backdrop, that Appellate Authority observed as under:- 3(xii) rt In light of above legal and factual discussions and having regard to ou judicial mandates, on issue in question, it is evident that compliance with statutory condition of section 80IB(2)(iv) of Act, is to be considered in terms of evidences documentary or C otherwise on record, plain relevant provisions of Act, direct decisions of various courts/tribunals h and not in terms of suspicions, surmises and conjectures. It is only empirical evidence and not ig mathematical exercise that is relevant and decisive, in ascertaining compliance with H relevant statutory condition. It is not statutorily incumbent on appellant to explain and justify day to-day employment of such workers, based on product or outcome of various statistical formulations. Therefore, having regard to submissions made by appellant, relevant record and above discussions, it is evident that ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 7 appellant has substantially complied with said statutory condition of employment of workers. Consequently, such findings of A.O., based on pure surmises and suspicion are not . sustainable and, hence, found unacceptable. .P 16. Perusal of order dated 17.11.2008 H (Annexure P-3) passed by Tribunal, only reveals aforesaid findings to have been affirmed. of 17. While contending that in fact Tribunal had concurred with findings of Assessing Officer, Ms. Vandana Kuthiala, learned counsel, invites our attention rt to para-10 of order, which we reproduce as under:- ou 10. It is evident from above decisions that, what is necessary is substantial compliance of condition provided under section 80IB(2)(iv) of C Act. In other words, assessee need not to have employed ten or more employees during entire year to claim deduction under section h 80IB(2)(iv) of Act. In instant case, ig assesse has furnished chart showing number of persons employed by assesee. It would be seen from chart as placed on record by H assessee that it has substantially complied with condition as provided under section 80IB(2)(iv) of Act. In fact, it is seen that assessee has employed ten or more workers for substantial part of year. contention of AO that foremen cannot be treated as part of ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 8 manufacturing process is unfounded and incorrect. In case of assessee, we find that, for five complete months, there are ten or more employees and even for other months, . though at time, during month, assessee .P may not have employed ten or more person yet even during those months, assessee had intermittently employed ten or more workers. We, H thus, in light of above judicial pronouncements and facts of case hold that assessee of has satisfied statutory pre-condition for claiming deduction under section 80IB(2)(iv) of Act and we hereby confirm findings of CIT(A), who on basis of relevant record has rt also found that, assessee has substantially ou complied with statutory pre-condition of employment of workers and, findings of AO are not based correct appreciation of evidence on record and, provisions of law. C 18. Careful perusal of aforesaid findings only h reveals Tribunal to have independently formed opinion, based on correct, complete and proper ig appreciation of entire material, that assessee had in H fact employed more than ten workers for substantial part of year. Findings of fact cannot be said to be arbitrary, illegal, erroneous or unreasonable. 19. As to whether foremen were employed in process of manufacture or not was not issue either ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 9 before Assessing Officer or before CIT (A). only issue being as to whether Foremen were employed in undertaking or not. It is in this backdrop, . Tribunal found it appropriate not to answer .P contention of revenue that in fact foreman is not H treated as part of manufacturing process. In fact, Tribunal was not even required to answer same, for of there was no dispute as to whether undertaking of assessee is engaged in activity of manufacture or that foremen were not employed for process of rt manufacture, in particular undertaking of ou assessee, for which, benefit under Section 80IB(2)(iv) was sought. C 20. Though this Court, after having gone through material adduced on record by appellant-department vis-a-vis h impugned order passed by learned Appellate Tribunal, is ig of view that no substantial question of law arises for determination of this Court, but otherwise also, as has been H discussed hereinabove, learned Tribunal has correctly dealt with each and every aspect of matter, taking into consideration law laid down by Hon ble Apex Court as well as rule occupying field. ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 10 21. This Court, after having carefully examined text of questions of law formulated in appeal vis-a-vis findings recorded by learned Appellate Tribunal, finds that . questions framed by appellant-department are pure .P questions of fact, which definitely cannot be looked into in present proceedings, and as such present appeal deserves to H be dismissed. 22. Section 260-A of Income Tax Act, 1961 of provides that appeal shall lie to High Court from every order passed in appeal by Appellate Tribunal before rt date of establishment of National Tax Tribunal, if High Court is satisfied that case involves substantial question ou of law. 23. Taking note of aforesaid provision of law, C foremost question for consideration is as to whether any substantial question of law arises in this case or not. h 24. In this regard reliance is placed upon Kondiba ig Dagadu Kadam vs. Savitribai Sopan Gujar, (1999) 3 SCC 722, wherein Hon ble Apex Court has held as under:- H 6. If question of law termed as substantial question stands already decided by larger bench of High Court concerned or by Privy Council or by Federal Court or by Supreme Court, its merely wrong application on facts of case would not be termed to be substantial question of law. Where point of law has not been pleaded or is found to be arising between parties in absence of any factual format, litigant should not be ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 11 allowed to raise that question as substantial question of law in second appeal. mere appreciation of facts, documentary evidence or meaning of entries and contents of document cannot be held to be raising substantial question of law. But where it is found that first appellate court has . assumed jurisdiction which did not vest in it, .P same can be adjudicated in second appeal, treating it as substantial question of law. Where first appellate court is shown to have exercised its discretion in judicial manner, it H cannot be termed to be error either of law or of procedure requiring interference in second appeal. This Court in Reserve Bank of India v. Ramakrishan Govind Morey, AIR (1976) SC 830 of held that whether trial court should not have exercised its jurisdiction differently is not question of law justifying interference. 25. Inrt Panchugopal Barua v. Umesh Chandra Goswami, (1997) 4 SCC 713, it has been laid down by Hon ble ou Apex Court that existence of substantial question of law is sine qua non for exercise of jurisdiction. Hon ble Apex Court has held as under:- C 7. bare look at Section 100 C.P.C. shows that jurisdiction of High Court to entertain second appeal after 1976 amendment is h confined only to such appeals as involve substantial question of law, specifically set out ig in memorandum of appeal and formulated by High court. Of course, proviso to Section shows that nothing shall be deemed to take away or abridge power of Court to H hear, for reasons to be recorded, appeal on any other substantial question of law, not formulated by it, if Court is satisfied that case involves such question. proviso presupposes that court shall indicate in its order substantial question of law which it proposes to decide even if such substantial question of law was not earlier formulated ate by it. existence of "substantial question of law" is thus, sine-qua-non for exercise of ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 12 jurisdiction under amended provisions of Section 100 C.P.C. 26. In Santosh Hazari v. Purushottam Tiwari, (2001) 3 SCC 179, court reiterated statement of law that . .P High Court cannot proceed to hear second appeal without formulating substantial question of law. H 9. High Court cannot proceed to hear second appeal without formulating substantial question of law involved in appeal and if it does so it acts illegally and in abnegation or of abdication of duty cast on Court. existence of substantial question of law is sine qua non for exercise of jurisdiction under amended Section 100 of Code. [See Kshitish Chandra Purkait Vs. Santosh rt Kumar Purkait, (1997) 5 SCC 438, Panchugopal Barua Vs. Umesh Chandra Goswami, (1997) 4 SCC 413 and Kondila Dagadu Kadam Vs. ou Savitribai Sopan Gujar, (1999) 3 SCC 722]. 10. At very outset we may point out that memo of second appeal filed by plaintiff- appellant before High Court suffered from serious infirmity. Section 100 of Code, as C amended in 1976, restricts jurisdiction of High Court to hear second appeal only on substantial question of law involved in case . obligation is cast on appellant to precisely state in memorandum of appeal h substantial question of law involved in appeal and which appellant proposes to ig urge before High Court. High Court must be satisfied that substantial question of law is involved in case and such question has then to be formulated by High Court. Such H questions or question may be one proposed by appellant or may be any other question which though not proposed by appellant yet in opinion of High Court arises as involved in case and is substantial in nature. At hearing of appeal, scope of hearing is circumscribed by question so formulated by High Court. respondent is at liberty to show that question formulated by High Court was not involved in case. In spite of substantial question of law ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP 13 determining scope of hearing of second appeal having been formulated by High Court, its power to hear appeal on any other substantial question of law, not earlier formulated by it, is not taken away subject to twin conditions being satisfied: (i) High Court feels satisfied that case involves such . question, and (ii) High Court records reasons .P for its such satisfaction. 27. All aforesaid judgments have been referred to H in later judgment of K. Raj and Anr. v. Muthamma, (2001) 6 SCC 279. statement of law has been reiterated regarding of scope and interference of court in second appeal under Section 100 of Code of Civil Procedure. 28. rt Consequently, in view of detailed discussion made hereinabove, it cannot be said that any question of law much ou less substantial, is involved in this appeal, which needs adjudication by this Court. Therefore, order passed by C learned Appellate Tribunal is upheld and present appeal dismissed. h All interim orders are vacated and all miscellaneous pending applications are disposed of. ig H (Sanjay Karol), Acting Chief Justice. August 3, 2017 (Sandeep Sharma), (Purohit) Judge. ::: Downloaded on - 21/08/2017 10:20:29 :::HCHP Commissioner of Income-tax, Shimla v. Him Knit Feb