1983 (9) TMI 110 - AT - Income Tax

Assessment Year Commercial Profit Initial Depreciation Investment Allowance New Industrial Undertaking Profits And Gains

Issues Involved:

1. Computation of income of each unit separately for section 80J relief.
2. Determination of profits for section 80J relief based on commercial profits versus profits computed under the Act.

Detailed Analysis:

Issue 1: Computation of Income of Each Unit Separately for Section 80J Relief

The core issue was whether the income of each unit must be computed separately in accordance with the provisions of the Act before granting relief under section 80J. The assessee argued that if the income from new units was positive before the deduction of depreciation and investment allowance, and the profits from other businesses or other heads of income were sufficient to absorb these allowances, relief under section 80J should be granted. This argument was supported by the decision in CIT v. Patiala Flour Mills Co. (P.) Ltd. [1981] 127 ITR 301.

The Commissioner (Appeals) agreed with the assessee, holding that the deduction under section 80J should be allowed on new industrial undertakings with positive figures of income before the deduction of investment allowance. The Commissioner rejected the claim for relief under section 80J before the deduction of current depreciation, stating that the appellant would not be entitled to the relief if there were no positive figures of income after deducting current depreciation.

The Tribunal affirmed the Commissioner (Appeals)'s decision, noting that the income of each unit must be computed separately, and the profits or gains of the new industrial undertaking must be computed in accordance with the provisions of the Act. The Tribunal referenced the Supreme Court's observations in Patiala Flour Mills Co. (P.) Ltd.'s case, emphasizing that losses, depreciation allowance, and development rebate for past assessment years should not be adjusted again in computing the profits or gains for section 80J relief.

Issue 2: Determination of Profits for Section 80J Relief Based on Commercial Profits Versus Profits Computed Under the Act

The second issue was whether the profits of each unit entitled to relief under section 80J should be the commercial profit or the profit computed in accordance with the Act after due allowance of depreciation. The Commissioner (Appeals) held that prior to the amendment introduced by section 80AB of the Act, profits and gains for section 80J relief could be considered as commercial profits. This interpretation was supported by the decision of the Calcutta High Court in CIT v. Orient Paper Mills Ltd. [1983] 139 ITR 763, which held that profits and gains attributable to priority industries must be computed in the commercial sense.

The Tribunal agreed with this interpretation, noting that the amendment to section 80AB, effective from 1-4-1981, clarified that profits and gains for section 80J relief should be computed in accordance with the Act. However, for the period prior to this amendment, the interpretation favorable to the assessee should be followed, as supported by the Supreme Court's decision in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192.

The Tribunal concluded that section 80J relief should be worked out after debiting current depreciation but not other debits towards investment allowance, initial depreciation, development rebate, etc. The appeal filed by the revenue was dismissed, affirming the decision of the Commissioner (Appeals).

Conclusion:

The Tribunal upheld the decision of the Commissioner (Appeals), affirming that the income of each unit must be computed separately in accordance with the provisions of the Act before granting relief under section 80J. Additionally, for the period prior to the amendment introduced by section 80AB, the profits for section 80J relief could be considered as commercial profits. The appeal by the revenue was dismissed.

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