Commissioner of Income Tax vs Atlas Auto Cycle Ltd.

Ashok Bhan, J.—The Income Tax Appellate Tribunal, Delhi Bench "B", Delhi (hereinafter referred to as "the Tribunal"), has referred the following question of law to this court for opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in affirming the order of the Commissioner of Income Tax (Appeals) allowing deduction u/s 80J for whole of the year even though the capital employed in the industrial undertaking remained only for nine months during the year relevant to the assessment year 1978-79 ?"

The facts, relevant to the aforesaid question, are :

The assessee-company is carrying on the business of manufacturing and sale of powered moped (Atlasolex). The previous year for the assessment year 1978-79 of the assessee-company ended on June 30, 1977. The return of income declaring loss of Rs. 11,63,052 was filed by the assessee on July 27, 1978. The accounting period for the year under consideration is the period from September 27, 1976, to June 30, 1977. The assessee claimed relief u/s 80J of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for the whole of the year on the capital employed during the year. The Inspecting Assistant Commissioner of Income Tax (Assessment) computed the capital employed in the undertaking as on the first day of the accounting year, i.e., September 26, 1976, at Rs. 33,60,305 and allowed relief u/s 80J of the Act at the rate of 71/2 per cent of Rs. 33,60,305 on pro-rata basis for nine months and not for twelve months, i.e., for the whole of the year. Under the provisions of Section 80J of the Act, relief is allowed at the rate of 71/2 per cent, per annum on the capital employed in the industrial undertaking as computed in the prescribed manner.

Aggrieved against the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), which was accepted. It was held by the first appellate authority that the assessee was entitled to deduction u/s 80J of the Act for the full year and not for nine months. In doing so, the Commissioner of Income Tax (Appeals) followed the decision of the Madras High Court in Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, . Against the order of the Commissioner of Income Tax (Appeals), the Revenue filed an appeal before the Tribunal. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal filed by the Revenue. It was held that the assessee would be entitled to the relief for the whole of the year and not for nine months on pro-rata basis as was held by the Assessing Officer.

On the above facts, the question of law as sought by the Commissioner of Income Tax and reproduced in the earlier part of the judgment has been referred to us for our opinion.

Subsequent to the decision in Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, by the Madras High Court, the Karnataka High Court in Commissioner of Income Tax, Karnataka-II Vs. Mysore Petro-chemical Ltd., , has taken the same view. In both these judgments, it has been held that the assessee would be entitled to the relief u/s 80J of the Act for the whole of the year and not on pro-rata basis for the period of productive operation.

In Commissioner of Income Tax, Karnataka-II Vs. Mysore Petro-chemical Ltd., , the assessee-company claimed relief u/s 80J of the Act for the full assessment year 1977-78, although the assessee started production on May 16, 1976, and the assessee''s accounting period ended on June 30, 1976. The Income Tax Officer allowed the relief pro-rata for 11/2 months. The Commissioner of Income Tax (Appeals) upset the decision of the Income Tax Officer and held that the assessee would be entitled to full tax rebate for the whole of the year. The order of the Commissioner of Income Tax (Appeals) was upheld by the Tribunal, against which the Revenue had gone in reference to the High Court. On these facts, it was held by their Lordships as under (taken from the headnote) :

"The terms ''per diem'', ''per mensem'' and ''per annum'' usually indicate the period for which the rate is prescribed and do not necessarily imply that there shall be pro-rating. Pro-rating depends upon the context in which these terms are used. The relief at the rate of 6 or 71/2 per cent, per annum provided u/s 80J of the Income Tax Act, 1961, is an incentive extended to the assessee who has established a new industrial undertaking. That incentive is available for a full period of five years, inclusive of the year in which the manufacturing operations started. The relief depends not only upon the commencement of production but also on the capital employed. Therefore, there can be no pro-rating for the period of productive operation."

The Revenue has accepted the view taken by the Madras and Karnataka High Courts in Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, and Commissioner of Income Tax, Karnataka-II Vs. Mysore Petro-chemical Ltd., , respectively, and issued Circular No. 378, dated March 3, 1984, published in Additional Commissioner of Income Tax, Delhi-II Vs. Rattan Chand Kapoor, , the relevant portion of which is as under :

"2. The Karnataka High Court in the case of Commissioner of Income Tax, Karnataka-II Vs. Mysore Petro-chemical Ltd., , has held that the relief u/s 80J is admissible for the entire year irrespective of the period of operation of the new industrial undertaking in that year. A similar view has been expressed by the Madras High Court in the case of Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, . The Board have accepted the interpretation placed on the phrase ''per annum'' by the Karnataka High Court.

In view of the foregoing, the deduction u/s 80J should not be reduced proportionately with reference to the period for which the business of the undertaking, ship or hotel was not carried on during the relevant previous year."

In view of the acceptance of the view expressed by the Madras and Karnataka High Courts in Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, and Commissioner of Income Tax, Karnataka-II Vs. Mysore Petro-chemical Ltd., respectively, by the Revenue, it is held that the assessee is entitled to deduction u/s 80J of the Act for the whole of the year and not on pro-rata basis for nine months.

For the reasons stated above, the question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

No costs.