Commissioner of Income Tax vs P.R. Alagappan

M.N. Chandurkar, C.J.—At the instance of the Revenue, the following question has been referred to this court for opinion u/s 256(1) of the

Income Tax Act, 1961 :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee is entitled to relief u/s

80J of the Income Tax Act, 1961 ?

The assessee who is a chemical engineer by profession has his only source of income from a business carried on in the Industrial Estate under

the self-employment scheme. For the assessment year 1973-74, he had returned an income of Rs. 20,184 against which he claimed unabsorbed

depreciation and development allowance of earlier years of Rs. 5,163 as well as relief u/s 80J of the Income Tax Act, 1961 (hereinafter referred to

as the ""Act""), to the extent of Rs. 15,869. The Income Tax Officer did not allow the relief u/s 80J as, according to him, the assessee did not satisfy

the condition laid down in section 80J as he could not be considered to be a worker employed in the undertaking as contemplated by section

80J(4)(iv) of the Act.

The appeal filed by the assessee was rejected by the Appellate Assistant Commissioner.

When the matter was taken in appeal to the Tribunal, the Tribunal took the view that though the assessee was a proprietor, he was also engaged

in the working of the plant and, therefore, the undertaking must be treated as having employed the assessee and in that sense, he was also a

worker in the undertaking.

When a contention was advanced before the Tribunal that normally the concept of ""worker"" implied a relationship of master and servant and,

therefore, the proprietor of the undertaking cannot employ himself, the Tribunal observed that this meaning was also possible but took the view that

when two definitions were available, the one in favour of the assessee should be taken.

The two definitions which the Tribunal had in view were of the word ""employed"", which, according to the decision of the Saurashtra High Court

in Dhrangadhra Chemical Works Limited v. State of Saurashtra, AIR 1955 Sau 33, was capable of two meanings, namely, (1) in the sense of

being engaged or occupied; and (2) in the sense of being employed under a contract of service implying the relationship of master and servant

between the employer and workman. It was the first meaning which was accepted by the Tribunal because of its being in favour of the assessee.

The Tribunal, therefore, allowed the appeal. The result was that the assessee was held entitled to the benefit of section 80J. Arising out of this

order of the Tribunal, the question reproduced above falls for consideration.

It is not in dispute that in so far as this case is concerned, the relevant statutory provision is in clause (iv) of section 80J(4) of the Act. The

relevant part of section 80J(4) reads as follows :

This section applies to any industrial undertaking which fulfils all the following conditions, namely :......

(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.

It is not in dispute that if the assessee himself is excluded, then there were only nine other workers in the undertaking which carries on the

manufacturing process with the aid of power.

The crucial question, therefore, is whether the assessee himself can be considered to be a worker employed in the undertaking for the purpose

of section 80J(4)(iv).

Learned counsel, appearing on behalf of the Revenue, contended that since section 80J grants relief, the conditions in section 80J(4)(iv) must

be strictly satisfied. According to learned counsel, there was really no scope for two meanings of the word ""employs"" which is used in section

80J(4)(iv). Learned counsel contends that the word ""employs"" contemplated in the context of the use of the word ""workers"" clearly contemplated

a contract of service. The argument is that the industrial undertaking is not an assessable entity, that the assessable entity is only the assessee who is

the owner in the instant case and that inasmuch as the assessee cannot enter into a contract of employment with himself, the assessee cannot be

considered to be a worker for the purpose of section 80J(4)(iv). Learned counsel contended that the object of the provision with regard to the

relief u/s 80J is to promote new industrial undertakings with a view to remove unemployment and, therefore, any construction to be placed on

section 80J(4)(iv) must carry out that intention of the provision. He has referred to the decision of the Supreme Court in Regional Director,

Employees'' State Insurance Corporation, Trichur Vs. Ramanuja Match Industries, ; in which the ques tion which fell for consideration before the

Supreme Court was whether a partner of a firm is an "" employee "" within the meaning of section 2(9) of the Employees'' State Insurance Act,

1948.

The term ""employee"" was defined in section 2(9) of the said Act to mean ""any person employed for wages in or in connection with the work of

a factory or establishment to which the Act applies"". The term ""employer"" had not been defined in the Act. The Supreme Court observed that in

common parlance, the concept of employee would take within it the correlation of the employer, and pointed out that the position of a partner qua

the firm is not that of a master and servant or employer and employee, which concept involves an element of subordination, but that of equality.

The Supreme Court, therefore, held that a partner cannot be an employee of a firm of which he is a partner.

According to learned counsel for the assessee, all that was necessary to ascertain whether the assessee was entitled to the benefit of section

80J was to see whether ten persons were working and in the undertaking or not and the capacity in which they were working was not relevant, in

the sense that it was not imperative that an employer-employee relationship should exist between the person working and the owner of the

undertaking. According to learned counsel, the definition of ""worker"" in the Factories Act would not be of much relevance because of the well-

established principles of construction of statutes. Definitions in one Act cannot be utilised for the purpose of another statute.

It appears to us that while preferring one meaning of the word ""employs"" to another, the Tribunal has overlooked the fact that clause (iv) of

section 80J(4) refers to employment in the context of ten or more workers in an industrial undertaking. ""Worker"", as commonly understood, is

undoubtedly a person who works and even according to the definition of ""worker"" in the Factories Act, a worker may be a person who works for

wages or without wages. But even then such a meaning will not include the person who is the owner of the establishment in which other people are

working. The owner himself is never referred to as a ""worker"". Merely because a person can work without wages, it does not mean that every

person who works will become a worker for the purpose of a statutory provision because whether a person is a worker within the meaning of the

statutory provision will have to be ascertained with reference to the phraseology used in that provision. It is true that section 80J(4)(iv) uses the

phraseology ""the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power"". However, the

undertaking"" contemplated by section 80J(4)(iv) is neither a unit of assessment nor has it been given jural status. Strictly, therefore, when the

clause refers to ""undertaking employs ten or more workers"", it is not intended to convey that the undertaking is to be treated as an employer

independent of the assessee who owns the undertaking. The provision refers to a part of the income of the assessee arising from the industrial

undertaking which is the undertaking of the assessee. If at all there is a contract of employment, it can be only between the worker and the owner

of the undertaking. That owner may be an individual; it may be a partnership or it may be a company. But it is difficult to imagine that the assessee

who is the owner of the undertaking and puts in some work in the manufacturing process carried on in the undertaking can be described as a

worker employed in the undertaking. When the phraseology used is ""the undertaking employs ten or more workers"", that phraseology must be

read as meaning that the owner of the undertaking has employed ten or more workers for the purposes of that particular industrial undertaking.

Assuming for a moment that the undertaking is owned by a single individual, the single individual will be the owner of the undertaking, and even if

he contributes his own labour in the manufacturing process, he will not divest himself of his capacity as an owner and he will not fall in the category

of a worker. Even though he works in the undertaking, he will continue to be the owner of the undertaking and will never, even in common

parlance, be described as a worker in the undertaking. It is, therefore, clear that when section 80J(4)(iv) contemplates ten or more workers being

employed, those persons are apart from the owner of the undertaking. When the number of persons employed has to be determined for the

purpose of section 80J(4)(iv), from the number of persons who are actually working in the undertaking, the owner will, therefore, have to be

excluded and only those who have been employed by the owner will have to be counted. The only ground on which the Tribunal has allowed relief

to the assessee was that the assessee was engaged in the work of the undertaking and including him the number of persons was ten. That view, in

our opinion, is not justified because unless the person working is a worker as explained earlier, he could not be counted for the purpose of section

80J(4)(iv). In that view of the matter, when the assessee is excluded, admittedly the number of workers is only nine. The assessee does not,

therefore, qualify for the relief u/s 80J in respect of the income from the industrial undertaking in question.

Accordingly, the question referred has to be answered in the negative and in favour of the Revenue. The assessee will pay the costs of this

reference. Costs Rs. 500.