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CIT v. M/s Bhatia Impex - INCOME TAX REFERENCE No. 51 of 1986 [2004] RD-AH 1562 (1 December 2004)


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Income Tax Refeence No.51 of  1986

Commissioner of Income Tax, Lucknow    Vs.    M/s. Bhatia Impex (India), Moradabad.

Hon'ble  R.K. Agrawal, J

Hon'ble P.Krishna, J

(Delivered by Hon.P.Krishna, J)

The Income Tax Appellate Tribunal, Delhi, at the instance of the department has referred the following question of law under section  256 (2) of the Income Tax Act  1961 (hereinafter referred to as the Act) for opinion to this Court:-

"Whether on the facts and in the circumstances of the case, the assessee,s case fell under the definition of "Small Scale Industrial Unit" as mentioned in the Explanation to section 35 B (1A) of the Income-tax Act, 1961?"

The assessment year involved is 1979-80. The assessee, a registered firm deals in business of export of brassware and it claimed weighted deduction under section 35 B (1 A) amounting to Rs.1,30,349/-. It claimed to be a  Small Scale Exporter within the meaning of  section 35 B (1 A) as inserted by the Finance Act 1978 w.e.f. Ist of April, 1978. The claim was denied by the Income Tax Officer on the ground that the assessee did not have manufacturing license or power connection or plant and machinery. In the balance sheet the fixed assets had been shown at Rs.53,995/- only. It was found by the Income Tax Officer that the assessee was getting finished goods from artisans and was only having them polished, engraved and finished by others on payment of wages and that the assessee was not carrying on any manufacturing activities as its main business was to get the exportable items ready through the agency of others and then to export them. The Tribunal found that the assessee purchased raw material in moulded forms described as "Kora Mal" i.e. prepared matter in a raw and unfinished condition but not the final product. The "Kora Mal" was soldered in the assessee's factory and engraved and polished there. The assessee paid the wages which is born out from the fact that the assessee maintained the establishment where soldering, polishing, plating, engraving and packing were done with the help of workers or labourers and to whom the wages were paid. On these facts the Tribunal held that the assessee was entitled to be treated as a "Small Scale Exporter" and to be entitled to the weighted deduction under section 35 B of the Act.

We in  Income Tax Reference No.34 of 1986 : Orient Arts and Crafts  Vs. Commissioner of Income Tax, decided today have held that it  is sine qua non for assessee to be a "Small Scale Exporter" to own the plant and machinery as defined in clause (1 A) of Section 35 B.

The Tribunal has not set aside the findings recorded by the authorities below that the assessee do not own any plant or machinery. It granted the relief on the basis of its order passed in the case of M/s. Talwar  & Khullar (P) Ltd., ITA Nos. 2400 and 2401 (Del) of 1981  decided on 9th November, 1982. A copy of the said judgment has been filed as Annexure - D. A perusal of the said order of the Tribunal shows that in that case the Tribunal was considering the deduction under section 80 J & 80 HH of the Act with reference  to an "Industrial Company". The said order of the Tribunal is not applicable so far as the interpretation of "Small Scale Exporter" is concerned.

In view of the finding that not only the manufacturing of production is necessary but such manufacturing of production should have been done in the assessee's own undertaking and in the present case it is an accepted position that the assessee itself does not own any undertaking where manufacturing of production activity can be done; the Tribunal committed illegality in granting weighted deduction under section 35 B of the Act to the assessee.

In the result we answer the above question in negative i.e. in favour of the Department and against the assessee and it is held that the assessee's case does not fall under the definition of "Small Scale Industrial Unit". However, there shall be no order as to costs.

Dt. 1st December, 2004



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