9911796707
TMI Blog1983 (9) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------ Rs. Rs. Rs. Watch Factory III, Srinagar 62,17,831 21,58,739 47,02,207 Horological machinery division, Bangalore. 10,77,267 (-) 1,04,581 10,36,147 Hair springs, main springs and shock absorbers division, Bangalore 14,18,784 (-) 4,99,855 57,701 Dye casting division, Bangalore 4,19,025 (-) 15,36,836 19,59,048 --------------------------------------------------------------------------------------------------------------------------------------------------- 6(2) According to the assessee, where the income from the new units was positive before deduction of depreciation and investment allowance and the profit of the assessee from other businesses or under the other heads of income were sufficient to absorb such allowances, the assessee was entitled to relief under section 80J in the light of the decision of the Punjab and Haryana High Court in CIT v. Patiala Flour Mills Co. (P.) Ltd. [1981] 127 ITR 301. Alternatively, it was also contended that relief under section 80J must be admitted on the basis of the commercial profit of the new industrial undertaking by which it meant the profits according to the audited statements. The following figures were submitted bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no positive figures of income after deduction of allowance for current depreciation. 8. He next considered whether depreciation to be deducted is the one under the Act or depreciation as deducted by the auditors of the company on commercial principles. Having regard to the Circular of the CBDT Circular No. 2-P(LXXX-5), dated 15-5-1963 [see Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p. 86] with regard to section 11 and further introduction of section 80AB of the Act by the Finance (No. 2) Act, 1980, clarifying that the profits and gains for purposes of section 80J were those determined in accordance with the Act, he held that prior to this amendment profits and gains for purposes of section 80J could only be commercial profits and, accordingly, directed the ITO to grant relief on that basis. The revenue is in appeal. 9. The learned departmental representative submitted that section 80J envisages computation of the income of each industrial unit separately for the purposes of relief. He, therefore, submitted that the depreciation, development rebate, investment allowance, etc., allowable in respect of each unit have to be deducted before ascertaining the income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her incomes. The revenue authorities attempted to resurrect what had already been set off in the earlier years and again set it off against the income of the particular unit itself and, hence, attempted to reduce the income on which relief was available, which the Supreme Court held was not permissible. In the present case, there is no such complication. He urged that the income of each unit has to be determined separately by giving due deductions and then if there is still a positive income, the assessee would be entitled to relief. 11. He also objected to the finding of the commissioner (Appeals) that relief should be given on the basis of the determination of profits and gains derived from a new industrial undertaking on commercial principles. He submitted that reference to Circular No. 2-P(LXXX-5), dated 15-5-1963 was misplaced. The circular was dealing with section 11 and in section 11 application of income assumes importance as income applied for charitable purposes alone would get exemption. The institution should be in possession of income which it could apply for charitable purposes. In that context, the Board directed that income for the purposes of section 11 cannot hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase was on all fours with the case in hand and so the order of the Commissioner (Appeals) should not be disturbed. He further referred to the observations of the Calcutta High Court at page 770 in the case of CIT v. Orient Paper Mills Ltd. [1983] 139 ITR 763. According to the Calcutta High Court if the gross total income computed in that manner includes profits and gains attributable to priority industry, then such profits and gains must be computed in the commercial sense and not in accordance with the provisions of the Indian Income-tax Act, 1922. He submitted that the order of the Commissioner (Appeals) should be upheld. 13. We have considered the rival submissions. The issues before us are : 1. Whether the income of each unit has to be computed separately in accordance with the provisions of the Act before giving relief under section 80 ? 2. Whether the profits of each unit entitled to relief under section 80J is the commercial profit and not the profit computed in accordance with the Act after due allowance of depreciation, according to rules ? 14. We take up the first issue. The decision of the Punjab and Haryana High Court in Patiala Flour Mills Co. (P.) Ltd.'s case is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated on the figure arrived at called 'gross total income'. The term 'gross total income' has been defined in section 80B(5) of the Act as follows : 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter or under section 280-O. From this definition itself, it is to be noticed that the figure of gross total income has to be arrived at after computation of total income in accordance with the provisions of this Act, before making any deduction under Chapter VI-A or under section 280-O of the Act. It would thus be seen that while calculating gross total income the benefits as are permissible under section 33(1)(c) and 33(2) of the Act, are to be allowed and only then the figure regarding gross total income will be arrived at. It is on this figure that the deduction in respect of profits and gains from a newly established industrial undertaking are to be allowed. If the deductions, as are permissible as depreciation or development rebate, have already been adjusted against the profits or income from other business concerns, the said development rebate cannot again be readjusted against the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the losses, depreciation allowance and development rebate in respect of the new industrial undertaking for the past assessment years have been fully set off against the profit of the assessee from other businesses or for the matter of that against the income of the assessee under any other head by reason of sections 70 and 71 read with sub-section (2) of section 32 and sub-section (2) of section 32A, no part of such losses, depreciation allowance or development rebate would be liable to be adjusted over again in computing the profits or gains of the new industrial undertaking for applying the provision contained in sub-section (1) of section 80J.... " Therefore, we have to understand the context in which the Supreme Court made those observations. Further, the Supreme Court was categorical in stating that the profits or gains of the new industrial undertaking cannot be computed as if the new industrial undertaking were the only business of the assessee right from the date of its establishment and the losses and allowances were not to be set off against the profit from other businesses. The following observations of the Supreme Court make the position clear : " ...It is imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. " It is to be noticed that the section is not made retrospective. Therefore, in the period prior to 1-4-1981, it is possible to take the view that the gross total income of the assessee for the purposes of section 80J relief is not the income computed in accordance with the Act but the commercial profits. It is, thus, obvious that two interpretations regarding the application of section 80J insofar as it related to computation of profits is concerned, were possible before 1-4-1981 and after 1-4-1981 only the interpretation as set out in section 80AB prevails. Hence, for the year under appeal there were two interpretations regarding the profit entitled to relief under section 80J. One is, for the purposes of section 80J, on which relief is given, the profit computed according to the provisions of the Act and the other is the profit computed according to commercial principles. It is axiomatic that in such circumstances the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'the profits and gains attributable to priority industry' must be computed in the commercial sense and not in accordance with the provisions of the Indian Income-tax Act, otherwise the Legislature would not have used the expression 'profits and gains attributable to priority industry' if not in contradistinction to, at least differently from the expression 'total income' in 'gross total income'. Furthermore, the Legislature had not made the expression 'gross total income' or 'total income' synonymous with the 'profits and gains attributable to priority industry' because that would have defeated the purpose of giving such relief or incentive to priority industry, as we have mentioned hereinbefore.... " This decision also supports the stand of the assessee. 18. In the result, we agree with the Commissioner (Appeals). Since the Commissioner (Appeals) has held that current depreciation has to be set off before section 80J relief is considered and the assessee has not challenged this in appeal, we wish to clarify that section 80J relief has to be worked out after debiting current depreciation and not other debits towards investment allowance, initial depreciation, development rebate, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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