Commissioner of Income Tax vs Delhi Cloth and General Mills Co. Delhi

Arun Kumar, J.—In respect of the assessment year 1970-71, the Income Tax Appellate Tribunal has referred the following questions for the opinion of this Court, at the instance of the Revenue:

i. Whether on the facts and in the circumstances of the case, the expenditure of Rs. 9,068/- incurred by the assessed on the foreign tour of Dr. Bharat Ram to attend the meetings of the International Chamber of Commerce was deductible in computing its business income for the assessment year 1970- 71 ?

ii. Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the expenditure of Rs. 65,746/- incurred by the assessed for running the D.C.M. Football Tournament was an admissible deduction for arriving at its profits from business ?

iii. Whether on the facts and in the circumstances of the case, was the Tribunal right in confirming the Appellate Assistant Commissioner''s order in which relief u/s 80-J was ordered for the full accounting period even though the industrial undertaking M/s. Shri Ram Fertilizers worked only for a period of 5 months ?

The first question is to be answered in favor of the assessed in view of the decision of this Court in the case of the assessed itself, relating to the assessment year 1969-70, reported as Delhi Cloth and General Mills Co. Ltd. Vs. Commissioner of Income Tax, The question is accordingly answered in the affirmative i.e. in favor of the assessed and against the Revenue.

Similarly, in view of the decision of this Court in the case of the assessed itself in respect of the assessment year 1965-66, reported as Delhi Cloth and General Mills Co. Ltd Vs. Commissioner of Income Tax, , question No. 2 is also required to be answered in favor of the assessee. The question is accordingly answered in the affirmative i.e. in favor of the assessed and against the Revenue.

As regards question No. 3, the assessed company claimed relief u/s 80-J of the Income Tax Act, 1961 (for short the Act) at 6% of the capital employed for the full assessment year 1970-71, for the period ended on 30th June, 1969, although it had commenced production on 1st February, 1969. The Income Tax Officer, however, computed the relief under the said section on pro-rata basis for the actual period of five months in which the industrial undertaking had worked during the year. The Appellate Assistant Commissioner and the Tribunal did not agree with the view taken by the Income Tax Officer and thus, allowed the relief as claimed by the assessed for the whole year. On these facts, the aforenoted question has been referred for the opinion of this Court.

The short question for consideration is as to what meaning is to be ascribed to the phrase "6% per annum" as appearing in Section 80-J of the Act. In other words, whether the relief under the said Section has to be worked out on pro-rata basis for the period of actual working of the undertaking or should it be allowed for the full year in which the capital was employed, though the actual production in the new industrial undertaking was only for a part of the year.

A similar question came up for consideration before the Madras High Court in Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Sanghi Beverages (Pvt.) Ltd., and the Karnataka High Court in Commissioner of Income Tax, Karnataka-II Vs. Mysore Petro-chemical Ltd., and all the three Courts, while observing that provisions of Section 80-J of the Act, which were intended to encourage the setting up of new industrial enterprises have to be construed liberally, opined that the deduction under the said Section has to be allowed in full without reducing the same in proportion to the part of the year during which the undertaking was not in productive operation. Besides, it has also been brought to our notice by learned counsel for the assessed that the Central Board of Direct Taxes has accepted the interpretation placed on the phrase "per annum" by the Madras and Karnataka High Courts and vide its Circular No. F No. 178/227/83-IT(AI), dated 3rd March, 1984, has issued instructions that deduction u/s 80J should not be reduced proportionately with reference to the period for which the business of the undertaking was not carried on during the relevant previous year.

Following the views expressed in the aforenoted decisions, with which we are in respectful agreement and in the light of the circular issued by the Board, we also hold that the assessed was entitled to relief u/s 80-J of the Act for the whole year ended on 30th June, 1969 irrespective of the fact that it had commenced production only on 1st February, 1969. Accordingly, the third question is also answered in the affirmative i.e. in favor of the assessed and against the Revenue.

There will be no order as to costs.