Allahabad High Court : Security Guards Employed must be Considered as part of Workers Engaged in Manufacturing Process for the Purpose of Sec 80IB: ITAT


In ACIT v. Tripti Menthol Industries, the ITAT, Ahmedabad bench held that Security Guards employed by the assessee-unit must be considered as part of the workers engaged in the manufacturing process for the purpose of giving benefit under Section 80IB(2)(iv) of the Income Tax Act. 
In the instant case, assessee was aggrieved by the order of the AO denying deduction under section 80IB(2)(iv) of the Income Tax Act on ground that assessee does not fulfilled the conditions prescribed under the Act. what section 80IB(2)(iv) mandates is that industrial undertaking for claiming deduction under this section would employ ten or more workers in manufacturing process carried out by it with the aid of power, or employ twenty or more workers in a manufacturing process carried on without the aid of power. In the instance case, assessee admitted that it appointed nine workers and two guards in its unit. 


Accordingly, AO denied the benefit of section 80IB. The bench relied upon the decision in ACIT Vs.MS. Richa Chadha wherein the Tribunal while considering an identical issue, observed that manufacturing process means not only manufacturing activity, but also such other activities supporting the main manufacturing process. Thus, in a chemical factory, if certain workers are employed for bringing chemicals to the site, and they were employed for maintaining and preserving the final product or its transportation, can also be said to be employed in the manufacturing process. Allowing the plea of the assessee based on a plethora of decisions, the bench said that “security guards employed by the assessee in the case before us would also be considered as part of the workers engaged in the manufacturing process. Apart from these two cases, decision of the Hon’ble Allahabad High Court in the case of CIT Vs. Sultan & Sons Rice Mill (Supra) was also brought to our notice. The assessee was a registered firm manufacturing rice and dealing in foodgrains. It had claimed deduction under section 80HH and 80J. 

This deduction was disallowed by the AO on the ground that the assessee’s rice and rice bran process was automatic and did not employ ten or more workers in the manufacturing process. The Hon’ble High Court has held that expression “manufacturing process” is to be construed liberally and process would be considered as started with procurement of raw-material and terminates with production of the finished articles. Thus, all the workers engaged throughout the process would be considered to be employed in the manufacturing process of rice and rice bran. 

The Hon’ble High Court has upheld conclusion of the Tribunal that workers who were engaged in palledar, hulling labour, bhoosi hatwai, fataknewala were also to be counted in the list of workers employed in manufacturing process. The Hon’ble Bombay High Court has also concurred with this view of Hon’ble Allahabad High Court in the case of CIT Vs. Jyoti Plastics Works P.Ltd. (supra). Thus, Manager, supervisor and security guards are also to be counted in the list of workers.”