Commissioner of Income Tax vs Raja Towers (P) Ltd.

In these references u/s 256(1) of the Income Tax Act, 1961 (for short ''the Act'') relevant for the assessment years 1978-79, 1979-80 and 1980-81, the following question of law has been referred for our opinion:

Whether on the facts and in the circumstances of the case, the assessee company is entitled to deduction u/s 80J of the Income Tax Act?

The statement of case records that the assessee is a private limited company carrying on business of construction and sale of commercial flats and shops in multi-storeyed buildings. The assessee claimed to be an "industrial company" within the meaning of Section 2(7)(c) of the Finance Act, 1978 in order to avail of the concessional rate of tax.

The Income Tax Officer rejected the assessee''s claim that it was an industrial company. Consequently, the Income Tax Officer also held that the assessee would not be entitled to any deduction u/s 80J of the Act for the assessment years 1978-79; 1979-80 and 1980-81. The Commissioner (Appeals) by a consolidated order for the three years affirmed the Income Tax Officer''s order that the assessee was not an industrial company. However, the Commissioner (Appeals) directed that a deduction could be allowed subject to satisfaction of the conditions contained therein. Both the revenue and the assessee appealed to the Tribunal, which held that the assessee was industrial undertaking manufacturing and producing articles and, therefore, was entitled to deductions u/s 80J of Act. That is how the present references at the instance of the revenue have been made to us.

Appearing for the revenue, Mrs. Premlata Bansal, learned senior standing counsel submits that the question referred for our opinion is squarely covered by the decision of the Supreme Court in Commissioner of Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, in favour of the revenue and against the assessee. On the other hand, Mr. Kamal Nanda, learned advocate relies upon the decision of the Supreme Court in Commissioner of Income Tax Vs. Sesa Goa Ltd., to contend that the assessee does not cease to be an industrial undertaking only because it constructs flats. He also submits that the question whether a company in the business of construction is an industrial undertaking has been left unanswered in N.C. Budharaja (supra).

We find that the case of the revenue merits acceptance. In N.C. Budharaja (supra) the Supreme Court very categorically held on p. 434 of the report that insofar as Section 32A(2)(b)(iii) of the Act is concerned, it does not comprehend within its ambit construction of a dam, a bridge, a building, a road, a canal and other similar constructions. In other words, the construction industry was outside the ambit of Section 32A of the Act because in the construction of a dam or a bridge or a building, there was no construction, manufacture or production of any article or thing. As will be adverted to shortly after, the provisions of Section 80J(4)(iv) are not very different from Section 32(2)(b)(iv).

An attempt was made in Builders Associations of India Vs. Union of India and others, to persuade the Supreme Court to reconsider the view expressed by it in N.C. Budharaja & Co. (supra). However, this was repelled by the Supreme Court by observing:

We are not persuaded to take a different view from the one taken in the said decision. We are of the considered view that the word ''construction'' occurring in the said sub-clause cannot be dissociated from the following words ''manufacture or production of any article or thing not being an article or thing specified in the list in the Eleventh Schedule''. The context and the structure of the sub-clause does not permit such dissociation of the word ''construction'' from the following words. If that were the intention of Parliament, it would have employed appropriate words to dissociate the word ''construction'' from the following words. There are none. The absence of any such words clearly and conclusively militates against contentions of Shri Palkhivala. As explained in the said judgment, the word ''construction'' was retained in the new sub-clause (iii) because ships continue to be within the purview of present sub-clause: (iii) as they were within the purview of former sub-clause (ii). It is not necessary to repeat the reasoning in Commissioner of Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, over again.

We may note that even though the decisions that we have referred to above have been delivered by the Supreme Court in the context of Section 32A of the Act, the language used in Section 80J of the Act, as it stood at the relevant time, is more or less similar and applies to an industrial undertaking.

Section 80J(4) of the Act reads as follows:

(4) This Section applies to any industrial undertaking which fulfils all the following conditions, namely:

(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;

(iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty-three years next following the 1-4-1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;

(iv) in a case where the industrial undertaking manufactures or produces articles, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power.

Section 80J(4)(iii) and (4)(iv) of the Act makes it clear that the Section applies to any industrial undertaking which fulfills all the conditions mentioned therein, namely, that it manufactures or produces articles, or operates one or more cold storage plant or plants. Since the construction of a building or a flat is not a "manufacture or production of an article or a thing", the view expressed by the Supreme Court in N.C. Budharaja (supra) which interprets the said expression occurring in Section 32A of the Act will equally apply to the interpretation of the same expression used in Section 80J of Act.

The submission of learned counsel for the assessee on the basis of the decision in Sesa Goa Ltd. (supra) is that there is a difference between the words ''production'' and ''manufacture''. It is submitted that while the word ''production'' has a wider connotation than the word ''manufacture'' and that while every manufacture can be characterised as production, every production need not amount to manufacture. There can be no denial that this view has been expressed by the Supreme Court in N.C. Budharaja & Co. (supra) and reiterated in Sesa Goa Ltd. (supra).

However, the facts of Sesa Goa Ltd. (supra) reveal that what was being produced by the assessee by way of extraction was mainly iron ore which had been held to be a ''thing'' by the Supreme Court. It is not possible to extend this to mean that even a building can be held to be an article or a thing. In fact, as already noticed, this very argument was turned down by the Supreme Court in N.C. Budharaja & Co. (supra) and the view expressed in N.C. Budharaja & Co. (supra) was upheld by the Supreme Court in Builders Association of India (supra). It is, therefore, too late in the day to contend that the construction of flats would amount to manufacture or production of an article or a thing.

Under the circumstances, we answer the question referred to us in the negative, in favour of the revenue and against the assessee.

The reference is disposed of accordingly.