TMI Blog1992 (7) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... calculating relief under section 80J ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income-tax (Appeals) who directed the Inspecting Assistant Commissioner to allow deduction under section 35 of the capital as represented by work-in-progress and machinery in transit and under erection in the assessee's research division ? and 4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income-tax (Appeals) who directed the Inspecting Assistant Commissioner to allow exemption under section 80J on commercial profits ?" There is no dispute that the first three questions are now covered against the Revenue. The first question is practically self-contained about the facts. This court in CIT v. Bangalore Turf Club Ltd. [1984] 150 ITR 23, has held that the assessee is entitled to depreciation on the value of roads, etc. Recently, the Supreme Court has also expressed the same view by pointing out that a building cannot be confined to a structure having walls and roof over it. Roads within the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive of deficiency of past years was Rs. 47,02,207. Similar figures were given regarding other units also. According to the assessee, depreciation and investment allowances should not be deducted while computing the profits and gains derived from the unit in question and that can be shifted to a later stage while considering the total income of the assessee from all sources. The Appellate Tribunal accepted the contention of the assessee and relied on the decision of the Punjab and Haryana High Court in CIT v. Patiala Flour Mills Co. P. Ltd. [1981] 127 ITR 301 as well as an earlier decision of the Supreme Court in CIT v. Patiala Flour Mills Co, P. Ltd. [1978] 115 ITR 640. Learned counsel for the Revenue also relied upon the said Supreme Court decision in support of his contention. Section 80J provides for deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases. We are not concerned with ships or hotel business. The main section reads : " 80J. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or tile business of a hotel, to whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation and investment allowances are taken note of at the end for the purpose of " profit and loss account ", while considering the profits and gains from a particular unit, it need not be considered because section 80J nowhere restricts the concept of profits and gains and, therefore, if there is a commercial profit derived from the particular unit, that should suffice to attract section 80J, subject to the other conditions. Mr. Raghavendra Rao, learned counsel for the Revenue, strongly relied on certain observations of the Supreme Court in Patiala Flour Mills' case [1978] 115 ITR 640. In the said case, the assessee had several units from which the assessee was deriving income. It had put up a cold storage plant during 1967-68. However, the assessee did not make any profit in the business of cold storage plant for several years but there was profit from the other businesses of the assessee. The assessee adjusted its losses, depreciation allowance and development rebate in respect of the cold storage plant against the profit from the other businesses in computing the total income of the assessee during the earlier assessment years and these were completely absorbed. By the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner in which they would be in determining the total income chargeable to tax and a deduction has then to be made from such profits or gains, of the relevant amount of capital employed during the assessment year in question. It is impossible to see how, by any process of construction, even by turning and twisting the language of sub-section (1) of section 80J, it can be held that for the purpose of allowing the deduction contemplated under that section the profits or gains of the new industrial undertaking must be, computed in a manner different from that in which they would be computed in determining the total income chargeable to tax. Sub-section (1) of section 80J does not create a legal fiction that for the purpose of applying the provision contained in that sub-section, the profit or gains of the new industrial undertaking shall be computed as if the new industrial undertaking were the only business of the assessee right from the date of its establishment or the losses, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years were not set off against the profit from other businesses. If the construction of sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying the provision contained in sub-section (3) of section 801. (emphasis supplied). According to Mr. Raghavendra Rao, the profits and gains of the new industrial undertaking, for the purpose of allowing the deduction under section 80J, have to be computed in the same manner in which they would be in determining the total income chargeable to tax and deduction is then to be made, from such profits or gains of the relevant amount of capital employed. Therefore, necessarily, the deductions regarding investment allowance and depreciation will have to be made from the total income of that unit. The implication of this contention is to apply, the provisions of sections 28, 29, 32 and 32A separately to the unit in question. According to Mr. Raghavendra Rao, that is the clear ratio of the Supreme Court decision. The following sentence as per the above observation was emphasised in support of this submission (at page 646): "It is impossible to see how, by any process of construction, even by turning and twisting the language of subsection (1) of section 80J, it can be held that for the purpose of allowing the deduction contemplated under that section the profits or gains of the new in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable under that head are insufficient to cover the depreciation allowance, the amount of the allowance, to the extent to which it is not absorbed, can be set off against profits chargeable under any other head for that assessment year. The approach to be adopted while interpreting a provision like section 15C was pointed out at page 783 : "The law of income-tax in a modern society is intended to achieve various social and economic objectives. It is often used as an instrument for accelerating economic growth and development. Section 15C is provision introduced in the Indian Income-tax Act, 1922, with a view to carrying out this objective and it is calculated to encourage setting up of new industrial undertakings in the country. " As to section 15C(3), the Supreme Court pointed out at page 788 " There is nothing in sub-section (3) of section 15C or in any other provision of the Act which requires that in computing the profits or gains of a new industrial undertaking under section 10, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years should be taken into account, even if it has been set off fully agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial provision restrictively which would affect the purpose behind the enactment of the said provision. The above decision in no way advances the case of the Revenue as contended by its learned counsel. The Punjab and Haryana High Court pointed out that the deduction under section 80J of the Act for the current year has to be allowed before any deficiency of earlier years could be considered. Mr. Kumar, learned counsel for the assessee, relied strongly on the observation of the Calcutta High Court in CIT v. Orient Paper Mills Ltd. [1983] 139 ITR 763. The question arose under section 80-1 of the Act before it was deleted by the Finance Act, 1972. The said section reads thus ( at page 767 ) : " (1) In the case of a company to which this section applies, where the gross total income includes any profits and gains attributable to any priority industry, there shall be allowed in accordance with and subject to the provisions of this section, a deduction from such profits and gains, of an amount equal to eight per cent., thereof, in computing the total income of the company." The question arises as to how to compute the profits and gains attributable to a priority industry. The re ..... 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