TMI Blog1979 (7) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... rainage and sewerage within the assessee's factory compounds. The assessee also claimed relief under s. 80-I of the Act on the basis that its income was derived from a priority industry. The ITO allowed 75% of such claim holding that the assessee was entitled to such relief for its income attributable only for manufacture of ingots. Against the aforesaid decisions of the ITO, the assessee preferred an appeal to the AAC who held that the assessee's claim under s. 80J in respect of its foil mill at Kalwa would not be considered in the said assessment year as the losses sustained by the said unit in earlier years had not been determined and carried forward and also because the assessee did not claim such relief in the earlier years when such determination should have been made. Following an earlier appellate order, in the case of the assessee for the assessment year 1966-67, the AAC also sustained the disallowance of depreciation on fencing, culverts, drainage and sewerage. In respect of the assessee's claim for relief under s. 80-I of the Act, the AAC, following earlier appellate orders in the case of the assessee for assessment years 1966-67 to 1969-70, held that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J had been fulfilled, the matter should be remanded to the AAC for re-examination and verification. Construing s. 80J and the decisions cited, the Tribunal held that it was not necessary for the assessee to make a formal claim for relief under the said section in the earlier years in respect of losses suffered as there was no provision in the return for making such a claim. The Tribunal held further that sub-s. (3) of the said section having been introduced under the Finance Act No. 2 of 1967 with effect from the 1st April, 1968, it was not compulsory for the assessee to make a claim and have the deficiency determined in each year before it could claim the benefit of set off in a subsequent year in which it actually earned a profit. The Tribunal found from the materials on record that the Kalwa unit of the assessee was entitled to relief under s. 80J. For the limited purpose of verification of the figures of the working of this unit, the Tribunal remanded the matter to the ITO with a direction to allow relief under s. 80J including that under sub-s. (3) thereof after checking the figures. The assessee also contended before the Tribunal that it was entitled to carry forward the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -I and that of s. 80J were different. Section 80-I permitted a relief on profits and gains as " attributable to " a priority industry while s. 80J granted relief on profits and gains " derived from " a priority industry. It was contended that the expression " attributable " in s. 80-I was wider in scope than the expression " derived " in s. 80J. The Tribunal held that though the memorandum of the assessee permitted investment of its funds, it did not follow that interest from such investments could be attributed to a priority industry. The proposition that money raised for a particular purpose but not in fact utilised for the same should be deemed to have been utilised for such purpose was rejected. The Tribunal also held that there was no evidence that the loans and borrowings of the assessee were meant only for the purpose of investment in a priority industry. Accordingly, the contention of the assessee was rejected. On an application by the assessee under s. 256(1) I.T. Act, 1961, the Tribunal has drawn up a statement of case and referred the following questions of law, stated to have arisen out of its aforesaid order, for the opinion of this court : " 1. Whether, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as priority industry within the meaning of s. 80-I of the I.T. Act, 1961, and the assessee was entitled to deduction under that section in respect of profits and gains arising from sale of aluminium pigment. In support of such contention Dr. Pal cited and relied on : CIT v. West India Steel Co. Ltd. [1977] 108 ITR 601 (Ker) [FB]. In this case, the assessee carried on the business of re-rolling steel and produced mild steel, billets and mild steel ingots as also M. S. rods and steel sections. The question arose whether the assessee was entitled to a higher rate of development rebate as being engaged in the business of production or manufacture of iron and steel (metal) as defined in item (1) of the Fifth Schedule of the I.T. Act, 1961. It was held by a Full Bench of the Kerala High Court that the said M. S. rods and steel sections were basically iron and steel (metal) within the meaning of the said item of the Fifth Schedule of the Act and, therefore, the assessee must be held to be engaged in the business of production or manufacture of iron and steel (metal) and was entitled to a higher rate of development rebate. Mr. A. K. Sengupta, learned counsel for the revenue, contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of the assessee in a priority industry and, therefore, should be held to be income from such priority industry. He also submitted that the interest paid by the assessee in respect of such borrowed fund was being allowed to be deducted by way of a business expenditure. In support of his contentions, Dr. Pal cited the following decisions : (a) Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). The assessee in this case carried on the business of generation and distribution of electricity. During the relevant assessment year, the assessee had sold some of its old machinery and buildings. This resulted in a balancing charge under s. 41(2) of the I.T. Act, 1961, which was computed at Rs. 7,55,807. The ITO treated the said amount as profits attributable to the business of generation and distribution of electricity and allowed deduction at 8% under s. 80E(1) of the Act. In proceedings initiated under s. 263 the Addl. Commissioner held that such deduction had been wrongfully allowed. The order of the ITO was set aside and a fresh assessment was directed to be made. On appeal, the Income-tax Appellate Tribunal held that the said item of balancing charge c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an industrial company within the meaning of s. 2(8)(c) of the Finance Act, 1974. On a reference, the Allahabad High Court held that the import entitlements and cash subsidies were received by the assessee from sources directly connected with the business activity of the assessee and the receipts from the sale of import entitlements were attributable to the activity of manufacture of carpets within the meaning of the said section of the Finance Act, 1974. Mr. A. K. Sengupta, for the revenue, contended that on facts it was not established that interest which the assessee received from its temporary investment was attributable to a priority industry and the onus was on the assessee to establish that such income was attributable to a priority industry. Mr. Sengupta further contended that in any event there has been no apportionment of such interest between the part of the industry of the assessee which was a priority industry and the other part which was not a priority industry and at the stage of reference this court should not direct apportionment of such income. In support of his contentions, Mr. Sengupta cited the following decisions : (a) CIT v. Mewar Textile Mills Ltd. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I and 3 referred at the instance of the revenue, Mr. A. K. Sengupta, for the revenue, confined his submissions only to the right of the assessee to carry forward the deficiency. He submitted that on a proper construction of s. 80J, the deficiency arising in each year had to be claimed and computed in that very year and, unless it was so done, the assessee in a subsequent year could not claim that such past deficiency could be computed for the purpose of being carried forward. In this connection, he referred to ss. 32, 37 and 73 of the I.T. Act providing for the carry forward of loss by an assessee to subsequent years. In support of his contentions, Mr. A. K. Sengupta cited Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1 (SC). In this case, the assessee appealed against an assessment contending that benefit under s. 84 of the I.T. Act, 1961, to which it was entitled had been wrongfully disallowed. The AAC dismissed the appeal on the ground that the assessee had not claimed exemption under the said section before the ITO. On further appeal, the Tribunal held that since the entire assessment was before the AAC there was no reason for not entertaining the claim of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. In the course of any particular assessment, the assessee was entitled to establish that he had suffered loss within the six preceding years and that it had not been possible to set off such loss against the profit of the relevant years or any subsequent year. (b) CIT v. Manmohan Das [1966] 59 ITR 699 (SC). It was laid down in this case that s. 24(2) of, the Indian I.T. Act, 1922, conferred a statutory right on the assessee who should sustain a loss in any year in any business, profession or vocation to carry forward the same to the extent it was not set off under sub-s. (1) of the said section to the following year, and to set it off against his profits and gains, if any, from the same business, profession or vocation for that year. The ITO, who would deal with the assessment of the subsequent year, would have to determine whether the loss of the previous year might be set off against the profits of that year. A decision of the ITO, who would compute the loss in the previous year under s. 24(2) that such loss could not be set off against the income of the subsequent year, was not binding on the assessee. (c) CIT v. Harprasad Co. P. Ltd. [1975] 99 ITR 118 (SC). It was lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ITO, but the assessee's contentions were accepted by the Tribunal. On a reference, the High Court upheld the decision of the Tribunal. On further appeal, the Supreme Court affirmed the order of the High Court and held that the Tribunal was right in law in adjusting the capital employed in the undertaking in the assessment year 1970-71 as also in adjusting the deficiency in the earlier assessment years against the profits in the said assessment year. (f) Addl. CIT v. Sheetalaya [1979] 117 ITR 658 (All). In this case, the assessee carried on the business of running a cold storage. In the assessment year 1972-73, the assessee claimed deduction under s. 80J of the I.T. Act, 1961, as also for deficiency relating to the past three assessment years. The ITO rejected the claim for the past years and allowed the claim only for the current year. On appeal, the AAC sustained the decision of the ITO. On a further appeal, the Tribunal held that losses in the past assessment years had been computed and the failure to make a specific claim for relief under s. 80J did not stand in the way of the same being carried forward as the section did not require that such claim should be made. On a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd compound walls of its building. It was found that it was necessary for the business to have driveways to enable motor vehicles to come to the pumps and it was also necessary to enclose the area by a compound wall. This court held that the word " building " which had not been defined in the I.T. Act, 1961, had to be construed in its ordinary sense having regard to the purpose of user. On the facts found it was held that the driveways as also the compound walls were parts of the building in which the assessee carried on its business. It was held that the assessee was entitled to claim depreciation in respect of the same. (b) Oil India Ltd. v. CIT [1978] 114 ITR 323 (Cal). In this case, the question before this court was whether an assessee was entitled to claim depreciation on drains, culverts, roads, etc. The ITO disallowed such claim on the ground that the assets were not eligible for allowance of depreciation. The AAC on appeal held that the items, namely, drains, culverts and roads came within the ordinary meaning of the word " building " and directed the ITO to allow appropriate depreciation. On further appeal, the Tribunal held that if the word " building " be understood a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing, roads and culverts in law could be included in the expression " building ". The AAC proceeded on the basis that the expression " building " should be given its ordinary meaning, namely, a covered structure or edifice. This limited dispute was considered by the Tribunal. The Tribunal held that the word " building " should be construed broadly and should not be considered in isolation. The revenue did not challenge that the items in dispute, namely, the fencing, roads and culverts were not part of the assessee's factory nor did it call upon the Tribunal to ascertain further facts in this connection. In the aforesaid circumstances, we do not feel that the matter need be remanded for further consideration. The decisions cited at the Bar on this point uniformly support the contentions of the assessee. For the above reasons, we answer the questions referred as follows : A. Questions referred at the instance of the assessee : Question No. 1 is answered in the affirmative and in favour of the revenue. Question No. 2 is also answered in the affirmative and in favour of the revenue. B. Questions referred at the instance of the revenue : Question No. I is answered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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