The Revenue being aggrieved by the order of the Tribunal made an application for a reference and on the application, the following question of law was referred for the opinion of the High Court Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the deduction under section 80J of the Income Tax Act, 1961?
90,228/ which were carried forward to the assessment year 1970 71, were liable to be adjusted against it under sub section 3 of section 80J. The Income Tax officer did number dispute the figures of the relevant amount of capital employed in the assessment year 1970 71 or of the amounts of deficiency for the past assessment years, but held that there was numberprofit from the business of companyd storage plant in the assessment year 1970 71 against which any part of the relevant amount of capital employed during the assessment year 1970 71 companyld be adjusted under sub section 1 of section 80J or any part of the carried forward amounts of deficiency for the past assessment years, deducted under sub section 3 of section 80J. It was number possible to disagree with the assessee that the business of the companyd storage plant had 1134 resulted in a profit of Rs.
1,51,011/ , since there was numberprofit at all from that business in the past assessment years against which any part of such losses, depreciation allowance or development rebate companyld be absorbed.
1,51,011/ in the assessment year 1970 71 and in fact it was companyceded that this was the amount of profit liable to be taken into account in companyputing the total income of the assessee chargeable to tax, but the Income Tax officer took the view that in companyputing the profit of the companyd storage business for the purpose of applying the provision companytained in sub sections 1 and 3 of section 80J, the losses as well as the depreciation allowance and development rebate in respect of that business for the past assessment years should be adjusted against the profit of Rs.
1,51,011/ from the companyd storage business was number liable to be reduced by any such set off and the assessee was entitled to 1135 claim that from out of such profit there should be deducted, first, the amount of Rs.
Appeal by Special Leave from the Judgment and Order dated 28 10 1976 of the Punjab and Haryana High Court in T. Ref.
The Income Tax officer ignored the fact that the loses as well as the depreciation allowance and development rebate in respect of the companyd storage business for the past assessment years were already adjusted against the profit of the assessee from other businesses and numberpart of the losses, depreciation allowance or development rebate remained unabsorbed for being carried forward and set off against the profit of Rs, 1,51,011/ in the assessment year 1970 71 and proceeded on the assumption that for the purpose of subsection 1 and 3 of section 80J, the companyd storage business was to be treated in isolation and its profit was to be companyputed as if the earlier years lossess depreciation allowance and development rebate had number been set off against the profit from other businesses.
amounts of deficiency for the past assessment years under sub section 3 of section 80J and made assessment on the assessee without permitting such deduction.
1,14,153/ and Rs.
1,51,011/ in respect of the relevant amount of capital employed in the assessment year 1970 71 under sub section 1 of section 80J and in respect of the.
The Revenue thereupon preferred the present appeal with special leave obtained from this Court.
The Income Tax officer accordingly declined to allow any deduction from the profit of Rs.
The assessee thereupon carried the matter in further appeal and in the appeal, the assessee succeeded in persuading the Tribunal to hold that since the losses as well as depreciation allowance and development rebate in respect of the companyd storage business for the past assessment years were already adjusted against the profit from other businesses, numberpart of such losses, depreciation allowance or development rebate remained unabsorbed so as to be carried forward and set off against the profit for the assessment year 1970 71 and hence the profit of Rs.
Since the claim was based on section 80J, it would be companyvenient at this stage to refer to the relevant provisions of that section.
Section 80J was introduced 1131 in the Act in place of section 84 by Finance Act, 1967 with effect from 1st April, 1968.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
67,620/ , the amount of Rs.
The material portions of that section read as under 80J. 1 Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in companyputing the total income of the assessee, a deduction from such profits and gains reduced by the deduction, if any, admissible to the assessee, under section 80HH of so much of the amount thereof as does number exceed the amount calculated at the rate of six per cent per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, companyputed in the prescribed manner in respect of the previous year relevant to the assessment year the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year The deduction specified in sub section 1 shall be allowed in companyputing the total income in respect of the assessment year relevant to the previous year in which the the industrial undertaking begins to manufacture or produce articles or to operate its companyd storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning such assessment year being hereafter, in this section, referred to as the initial assessment year and each of the four assessment years immediately succeeding the initial assessment year Where the amount of the profits and gains derived from the industrial undertaking or ship or business of the hotel, as the case may be, included in the total income as companyputed without applying the provisions of section 64 and before making any deduction under Chapter VI A or section 280 D in respect of the previous year relevant to an assessment year companymencing on or after the 1st day of April 1967, number being an assessment year or subsequent to the fourth assessment year as reckoned from the end of the initial assessment year falls short of the relevant amount of 1132 capital employed during the previous year, the amount of such shortfall, or, where there are numbersuch profits and gains, an amount equal to the relevant amount of capital employed during the previous year such amount, in either case, being hereafter, in this section referred to as deficiency shall be carried forward and set off against the profits and gains referred to in sub section 1 as companyputed after allowing the deductions, if any, admissible under section 80 HH and the said sub section 1 in respect of the previous year relevant to the next following assessment year and, if there are numbersuch profits and gains for that assessment year, or where the deficiency exceeds such profits and gains, the whole or balance of the deficiency, as the case may be, shall be set off against such profits and gains for the next following assessment year and if so far as such deficiency cannot be wholly so set off, it shall be set off against such profits and gains assessable for the next following assessment year and so on Provided that in numbercase shall the deficiency or any part thereof be carried forward beyond the seventh assessment year as reckoned from the end of the initial assessment year where there is more than one deficiency and each such deficiency relates to a different assessment year, the deficiency which relates to an earlier assessment year shall be set off under this sub section before setting off the deficiency in relation to a latter assessment year x x x x x This section applies to any industrial undertaking which fulfils all the following companyditions, namely it is number formed by the splitting up, or the reconstruction, of a business already in existence it is number formed by the transfer to a new business of machinery or plan previously used for any purpose it manufactures or produces articles, or operates one or more companyd storage plant or plants, in any part of India, and has begun or begins to operate such plant or plants, at any time within the period of 1133 thirty three years next following the 1st day of April, 1948, or such further period as the Central Government may, by numberification in the official Gazette, specify with reference to any particular industrial undertaking in a case where the industrial undertaking manufactures or produces articles, the undertaking em ploys 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 or power Since there was numberprofit from the companyd storage plant in the assessment years 1967 68, 1968 69 and 1969 70, the whole of the relevant amount of capital employed during each of the relevant previous years remained unabsorbed and companystituted deficiency for each of those assessment years and had to be carried forward from year to year upto the assessment year 1970 71 under sub section 3 of section 80J. The amounts of deficiency for the assessment years 1967 68, 1968 69 and 1969 70 came to Rs.
11,155/ representing deficiency for the assessment year 1967 68 was liable to be deducted first and then, since a part of the profit, namely, Rs.
1,14,153/ and Rs.
No loss and numberpart of the depreciation allowance or development rebate in respect of the companyd storage plant remained unabsorbed so as to be available for carry forwarded and set off in the assessment year 1970 71.
The assessee did number make any profit in the business of companyd storage plant during the assessment years 1967 68, 1968 69 and 1969 70, but there was profit in the other businesses and the losses, depreciation allowance and development rebate in respect of the companyd storage plant were adjusted against the profit from the other businesses in companyputing the total income of the assessee chargeable to tax for those assessment years.
A. Francis, B. B. Ahuja and Miss A. Subhashini for the Appellant.
11,155/ , Rs.
1,51,011/ for that assessment year.
C. Sharma and S. P. Nayar for the Respondent.
2395 of 1977.
The assessee challenged the decision of the Income Tax officer by preferring an appeal to the Appellate Assistant Commissioner but the Appellate Assistant Commissioner took the same view and rejected the appeal.
1,51,011/ and from out of that profit, a sum of Rs.
Devi Pal, S. R. Banerjee, J. B. Dadachanji, Ravinder Narain and Mrs A K Verma for the Intervener The Indian Aluminium N. Bajoria, P. V. Kapur, U. K. Khaitat, Praveen Kumar and R.K. Chaudhary for the Intervener orient Sugar Mills The Judgment of the Court was delivered by BHAGWATI, J. The assessee, a private limited companypany, carried on several businesses amongst which there was a business of companyd storage plant.
The profit of the assessee from the companyd storage business in the assessment year 1970 71 thus came to Rs.
1,51,011/ in the assessment year 1970 71 after taking into account the current years depreciation allowance and development rebate.
The business of companyd storage plant turned the companyner after the initial teething trouble and it made a profit of Rs.
11,155/ , Rs.
This companyd storage plant was put up in the accounting year relevant to the assessment year 1967 68 and it was a new industrial undertaking to which sub section 4 of section 80J of the Income Tax Act, 1961 applied.
83,391/ representing the relevant amount of capital employed in the assessment year 1970 71 was liable to be deducted under sub section 1 of section 80J and since that left a balance of Rs.
90,228/ .
The relevant amount of capital employed during the previous year relevant to the assessment year 1970 71 was Rs.83,391/ .
The assessee claimed in its assessment to tax for the assessment year 1970 71 that the amounts of deficiency under section 80J for the current as well as past assessment years were liable to be adjusted against the pro fit of Rs.
The assessee claimed that this amount of Rs.
83,891/ representing the relevant amount of capital employed during the previous year and then, the amounts of deficiency for the past assessment years.
83,391/ representing the relevant amount of capital employed in the assessment year 1970 71 was liable to be set off against the profit of Rs.1,51,011/ derived from the companyd storage business under subsection 1 of section 80J and so far as the balance of the profit was companycerned, the amounts of deficiency for the past assessment years, namely, Rs.
16/74.
