Commissioner of Income Tax vs Bhushan Industrial Co. (P.) Ltd.

S.S. Sodhi, J.—The assessee, Bhushan Industrial Co. (P.) Ltd., is a company engaged in the procurement of orders for the manufacture of railway track and other items. On July 1, 1974, it took over Bhushan Steel Rolling Mills and claimed deduction u/s 80J of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), of Rs. 1,16,833 on this account. The Income Tax Officer allowed only proportionate relief u/s 80J(3) of the Act, namely, from the date that the assessee took over Bhushan Steel Rolling Mills.

On appeal, the Appellate Assistant Commissioner allowed the assessee''s claim and this was later upheld by the Tribunal holding that the theory of proportionate relief cannot be imputed or attributed to Section 80J of the Act. It is in this factual background that the following question has been referred to this court :

"Whether, on the facts, the Appellate Tribunal has been in error in holding that irrespective of the period during which the new unit worked during the year, deduction u/s 80J was admissible at 6% of the capital employed ?"

The reference has clearly to be answered in the negative, against the Revenue and in favour of the assessee. In Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, it was held by the High Court of Madras that "the relief of 6 per cent. of the capital employed u/s 80J of the Act is intended for grant of relief for the full year and not only for part of the year in proportion to the period during which the machinery was used." In this behalf, it was further observed at p. 287 : "It is also a well-settled principle of construction that in construing a provision for exemption or relief, it should be liberally construed. The reason behind this rule of interpretation is that the administrative authorities or the courts should not whittle down the plenitude of the exemption or relief granted by Parliament, by laying stress on any ambiguity here or there. The proportion contended for had already been worked out in taking the assets proportionate to the period of user. It was not, therefore, necessary to carry the same idea even in working out the 6%. If this proportion was intended even in relation to 6%, then, more appropriate words as those found in the rules would have been employed, especially when the Act was recast in 1961."

Further, the Board of Revenue has accepted the interpretation of the High Court of Madras in Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, as also the similar view taken by the Hight Court of Karnataka in Commissioner of Income Tax, Karnataka-II Vs. Mysore Petro-chemical Ltd., and has issued Circular No. 378 --See Additional Commissioner of Income Tax, Delhi-II Vs. Rattan Chand Kapoor, dated March 3, 1984, that, "the deduction u/s 80J should not be reduced proportionately with reference to the period for which the business of the undertaking, shop or hotel was not carried on during the relevant previous year."

The reference is answered accordingly. There will, however, be no order as to costs.