TMI Blog1988 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to deduction computed in the manner provided under section 80J of the Act and the Rules framed thereunder. The assessee also claimed that it is an industrial company, as defined in the Finance Acts, 1977 and 1979, and was consequently entitled to be taxed at the concessional rate provided in the Finance Acts for industrial companies. The third claim was that the assessee was entitled to deduction also under section 80JJ of the Act as the requirements of that section were satisfied. For the assessment year 1977-78, there was a further claim that the assessee was entitled to deduction of agricultural development allowance under section 35C of the Act. The assessee's final claim was that the deduction or allowance under section 80JJ of the Act would have to be worked out with reference to the commercial profits earned by the assessee and not with reference to the income computed in accordance with the provisions of the Act. This contention relates only to the assessment year 1979-80. The Income-tax Officer rejected the assessee's principal claim that, being new industrial undertaking, the assessee was entitled to the deduction provided for under section 80J of the Act. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was correct. Accordingly, an application under section 256(1) of the Act was filed by the Commissioner before the Tribunal seeking reference of five questions arising out of the Tribunal's order. The Tribunal agreed to the Commissioner's request for making a reference to this court under section 256(1) of the Act and consequently referred the following five questions for consideration of this court: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that relief under section 80J has to be allowed ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee is an industrial company within the meaning of the Finance Act of the relevant assessment year ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that relief under both sections 80J and 80JJ are to be allowed ? .4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that deduction under section 35C should be allowed for the assessment year 1977-78 ? 5. Whether, on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lie for a period of three days and on completion of the three-day period, chicks come out of the eggs. This, briefly is the process employed by the assessee for hatching the eggs. It is not denied that the operation is on a large scale with the result that the number of chicks secured by the artificial processes employed far out-number the chicks that may be secured through natural process. The Revenue claims that the above operations do not result in any article being manufactured or produced. It is pointed out that the most important requirement under section 80J(4)(iii) is that the undertaking should manufacture or produce articles. The Revenue claims that the chick produced, which is a living creature, is not an article for the purpose of section 80J(4)(iii) and that straightaway disentitles the assessee to claim any deduction. The short question that arises for consideration, therefore, is whether it can be said that the assessee-undertaking is manufacturing or producing any article when its operations are directed towards hatching the eggs. We may perhaps, having regard to the requirements, rule out the possibility of any manufacture so far as the assessee is concerned. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense in which every person understands that expression. It is not necessary to import artificial considerations into the matter. What the Revenue does in the present case is to restrict the meaning of the word "produce" by bringing in artificial considerations. We should understand this expression in its free usage and when we do so, we are bound to say that through the efforts, both of men and machines, the assessee-undertaking produces chicks and that immediately satisfies the requirement in section 80J (4) (iii). Learned standing counsel for the Revenue points out that the assessee undertaking has not brought about any changes in the hatching of eggs inasmuch as it follows the natural process of 21 days' period. No special results have been produced by the assessee-undertaking engaging itself in the hatching of eggs giving birth to chicks. Learned standing counsel states that the assessee merely aids in the natural process and cannot, therefore, be held to be engaged in the production of chicks in the hatchery. We are afraid there is a misconception of the real operations carried on by the assessee. In the first place, it cannot be disputed that a mother-hen is completely excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deny the incentive provided by section 80J of the Act to undertakings which, by their efforts, produce living creatures. The requirement in section 80J(4)(iii) that the assessee-undertaking should be engaged in the production of "articles" should be understood in the larger sense so that the incentive provided by the Legislature is not denied on the ground that what is produced is not an article (inanimate object) but a living organism like chicken. We are, therefore, satisfied that the assessee in the present case satisfies the requirements of section 80J(4)(iii) and is consequently entitled to claim the deduction. The Revenue was in error in rejecting the assessee's claim and the Tribunal was quite justified in directing the deduction in favour of the assessee. The answer to question No. 1 is accordingly in the affirmative, that is to say, in favour of the assessee and against the Revenue. Before we take up the next question, we would like to observe that the record reveals an inconsistent view on the part of the Revenue in regard to eligibility to claim deduction under section 80J. We find that the assessee was allowed investment allowance of Rs. 2,11,590 for the income-tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was allowed as deduction. In any other case, one-fifth of the aggregate amount of such profits and gains or Rs. 15,000 whichever is higher. There is also a proviso added that in computing the aggregate amount of such profits and gains in a case where the profits and gains derived from a business of poultry farming exceed Rs. 75,000, such excess shall be ignored. As can be noticed, the changes are drastic as the maximum amount of deduction is now restricted to Rs. 15,000 and any income from a business of poultry farming in excess of Rs. 75,000 is ignored for the purpose of reckoning the deduction. For the assessment years 1982-83 and 1983-84, the position continued to be the same as in 1981-82. For the assessment year 1984-85, there was again change. In a case where The amount of profits and gains did not exceed in the aggregate Rs. 15,000 the whole of such amount was allowed as deduction. In any other case, 15% of the aggregate amount of such profits and gains or Rs. 15,000, whichever is higher, was allowed as deduction. We now notice that instead of 1/5th of the aggregate amount, it was reduced to 15% in 1984-85. There is also a change in the proviso to the effect that in comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interpret that provisions in both the sections would apply if the requirements of both the sections are satisfied. In the present case, we have already held that the requirements of section 80J are satisfied and, therefore, the assessee was entitled to the deduction under section 80J. Would that have the consequence of the assessee's claim for deduction under section 80JJ being rejected, even if the requirements of that section are satisfied? We do not find anything in the Act to support such a view. Undoubtedly, the requirements of section 80JJ are also satisfied in the present case and the assessee would be entitled to claim the deduction under that provision. We have earlier indicated the amount of deduction allowed under section 80JJ from year to year until the provision was taken out of the statute. While, in the first few years, the amount of deduction was sizeable, it was clear from the assessment year 1981-82 onwards, the maximum deduction was restricted to a paltry sum of Rs. 15,000. Could it be said that this paltry deduction for which provision is made in section 80JJ oust the assessee's claim for deduction under section 80J, which, speaking generally, is high ? We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other assessment year. We may also notice the provisions contained in section 80CC(6) which likewise provides that where a deduction is claimed and allowed under sub-section (1) with reference to the cost of any equity shares, the cost of such shares shall not be taken into account for the purpose of section 54E. We find likewise a total prohibition in section 80HHB(5) which provides that notwithstanding anything contained in any other provision of this Chapter (Chapter VIA), no part of the consideration or of the income-comprised in the consideration payable to the assessee for the execution of a foreign project referred to in clause (a) of sub-section (1) or of any work referred to in clause (b) of that subsection shall qualify for deduction for any assessment year under any such other provision. Finally, we may refer to section 80QQ which provides for the deduction in respect of profits and gains from the business of publication of books. In sub-section (3), it was provided that for the purpose of this section, "books" shall not include newspapers, journals, magazines, diaries, etc., by whatever name called. We have referred above only to the provisions contained in Chapte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deducted allowances like investment allowance, etc., and on the net profits and gains so determined, the deduction was calculated. The assessee claims that the deduction must be calculated with reference to the "commercial profits" of the assessee and not on, the net profits and gains determined in accordance with the provisions of the Act. We already observed that the Tribunal conceded the assessee's claim and directed the Income-tax Officer to compute the deduction accordingly. We are unable to subscribe to the view that section 80JJ requires the deduction to be worked out on "commercial profits" derived from business by an assessee. Sri Dastur, learned counsel for the assessee, invited our attention to the Madras High Court decision in CIT v. K. S. Narayanan [1986] 159 ITR 618. He drew analogy from the decisions of the Madras High Court in CIT v. Madras Motor and General Insurance Co. Ltd. [1975] 99 ITR 243, and Madras Auto Service v. ITO [1975] 101 ITR 589. These two decisions of the Madras High Court related to the relief under section 80K of the Act. The Income-tax Officer held that the relief under section 80K should be granted only on the net dividend income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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