1982 (9) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction under section 80J of the Income-tax Act, 1961.
2. Determination of the first year of eligibility for deduction under section 80J.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80J:

The primary issue was whether the assessee, a registered firm engaged in constructing buildings, is entitled to deduction under section 80J of the Income-tax Act, 1961. The Commissioner (Appeals) had found the assessee eligible, but the department disagreed, arguing that the conditions in section 80J(4) were not satisfied.

The assessee relied on the Bombay High Court decision in CIT v. Pressure Piling Co. (India) (P.) Ltd. and the Orissa High Court decision in CIT v. N.C. Budharaja & Co., asserting that construction activity is an industrial activity. They argued that various engineering processes involved in building construction, such as laying foundations, raising columns, and installing systems, constituted manufacturing.

The department countered that the assessee did not produce or manufacture an article as required by section 80J(4)(i) and (ii). They distinguished the Pressure Piling case, noting it involved a patented method of pile driving, unlike the assessee's general construction activities.

The Tribunal concluded that the assessee is not entitled to the deduction. They emphasized that the requirements under section 80J(4) include the manufacture or production of articles. The Tribunal noted that the terms 'manufacture' and 'articles' must be understood in context, and construction activities do not qualify as manufacturing under the Income-tax Act. They highlighted that other sections of the Act distinguish between 'construction' and 'manufacture,' indicating the Legislature's intent to treat them differently.

2. Determination of the First Year of Eligibility for Deduction:

The second issue was the determination of the first year of eligibility for deduction under section 80J. The Commissioner (Appeals) found it to be the assessment year 1975-76, while the assessee contended it should be 1979-80.

The Tribunal upheld the Commissioner (Appeals)'s finding that the first year of eligibility was 1976-77. They reasoned that the assessee's activities began in the year relevant to the assessment year 1976-77 when they reclaimed the land for building construction. This reclamation marked the start of the activity that eventually produced the 'article' (the building).

The Tribunal dismissed the assessee's reliance on Explanation 2 to section 80J(1), introduced retrospectively by the Finance Act, 1980, stating it pertained only to the computation of capital employed and did not support the assessee's case for a later start year.

Conclusion:

The Tribunal allowed the department's appeal and dismissed the assessee's appeal, concluding that the assessee is not entitled to deduction under section 80J and affirming the first year of eligibility as 1976-77.