Software engineer in a software industry is a workman for the purpose of deduction u/s 80JJAA so long as it does not discharge any supervisory role. It is not required that workman works for entire 300 days in a previous year
ABCAUS Case Law Citation
ABCAUS 3497 (2021) (04) HC
Important case law relied referred:
Ramnath & Co., vs. Commissioner of Income-tax, (2020) 116 taxmann.com 885 (SC)
Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of Income Tax, Calicut, (2021) 123 taxmann.com 161 (SC)
Bosch Ltd. vs. Assistant Commissioner of Income-tax, LTU, Bangalore, (2016) 74 taxmann.com 161
Devinder Singh v. Municipal Council, Sanaur (2011) 6 SCC 584
In the instant case, the Income Tax Department had challenged the order passed by the Income Tax Appellate TribunaI (ITAT/Tribunal) holding that the assessee was eligible for deduction u/s 80JJAA of the Income Tax Act, 1961 (the Act).
The respondent was in the business of manufacture and export of computer software. It filed returns of income for the relevant Assessment Year claiming exemption u/s 80JJAA of the Act in respect of employment of new workmen for the said year.
The Returns was taken up for scrutiny after issuance of statutory notice under Section 143(2) of the Act.
The AO inter alia held that that the Assessee was not eligible for any deduction under Section 80JJ(AA) of the Act on the ground that the workmen as regards whom the Assessee had sought for deduction u/s 80JJ(AA) had not completed 300 days of employment during the previous year.
According to the AO, the deduction u/s 80JJ(AA) could only be claimed if the workman had worked for 300 days within the previous year and not otherwise.
The CIT(A) upheld the order of the AO.
The ITAT held that the employees in software industry are covered by definition of ‘Workman’ in Explanation (iii) to section 80JJAA of the Act read with section 2(s) of the Industrial Dispute Act.
Further, the Tribunal considering that Section 80JJ(AA) was amended by the Finance Act 2018 w.e.f. 1.4.2019 came to the conclusion that the said amendment was a curative and clarificatory amendment, and as such, the continuance of employment in the two financial years for over 300 days was sufficient enough to claim deduction under Section 80JJ(AA) of the Act.
The Hon’ble High Court stated that in terms of section 2(s) of the ID Act, the definition of a workman is very wide inasmuch as the said definition would cover any person who has the technical knowledge, self skilled in an industry. Therefore, the software engineer per se would be a workman; a software engineer rendering supervisory work would not be a workman which was nowhere the case of the Revenue.
The Hon’ble High Court noted that Hon’ble Supreme Court had held held that when a person is employed in an industry for hire or reward for doing manual, unskilled, skilled, operational, technical or clerical work, such a person would satisfy the requirement and would fall within the definition of the ‘workman’.
The Hon’ble High Court pointed out that the concept of the workman has undergone a drastic change and is no longer restricted to a blue collared person but even extends to white collared person. A couple of decades ago, an industry would have meant only a factory, but today industry includes software and hardware industry, popularly known as the Information technology industry. Thus, the undertaking of the Assessee being an industrial undertaking, the persons employed by the Assessee on this count also would satisfy the requirement of a workman under Section 2(s) of the ID Act.
The Hon’ble High Court also rejected the argument of the Revenue that the period of 300 days in a year would mean 300 days in the financial year alone, not in the calendar year or otherwise.
The Hon’ble High Court stated that there is no such criteria that a person is required to be employed for a period of 300 days continuously. If such a restrictive interpretation is given, then any person employed post 5th June of a particular year would not entitle the Assessee to claim any deduction.
The Hon’ble High Court pointed out that absurdity in the argument stating that in that case, in order to claim the benefit under Section 80JJAA, an employer would have to hire the workmen before 5th June of that year.
As a corollary, since the Assessee would not get any benefit if the workmen were engaged post 5th June, the employer/ Assessee may not even employ anyone post 5th June, which would militate against the purpose and intent of Section 80JJ-AA, which is to encourage creation of new employment opportunities.
Accordingly, the Hon’ble High Court held that:
(i) a software engineer in a software industry is a workman within the meaning of Section 2(s) of the Industrial Disputes Act so long as the Software engineer does not discharge any supervisory role.
(ii) The period of 300 days as mentioned under Section 80JJAA of the Act could be taken into consideration both in the previous year and the succeeding year for the purpose of availing benefit under Section 80JJAA. It is not required that the workman works for entire 300 days in the previous year
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