COMMISSIONER OF INCOME TAX vs DUNLOP INDIA LTD.

BHAGABATI PRASAD BANERJEE, J. :

The following questions of law have been referred to this Court by the Tribunal under s. 256(1) of the IT Act, 1961 :

"(1) Whether, on the facts and in the circumstances of the case, commission and interest receipts of the assessee formed part of its income from the priority industry and accordingly entitled to relief under s. 80-I of IT Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee company was entitled to weighted deduction under s. 35B of the IT Act, 1961 in respect of expenses incurred for its Export Department ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that cash allowance are to be excluded for the purpose of computing perquisites disallowable under s. 40(c)/40A(5) of the IT Act, 1961 ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is entitled to relief under s. 80J of the IT Act, 1961 in the asst. yr. 1975-76 ignoring the loss worked out for the past years and depreciation allowance and development rebate for the past assessment years in respect of the new unit of the Industrial Undertaking ?"

The assessment year involved in this reference is the asst. yr. 1975-76 for which the relevant period of account is the year ending on 31st March, 1974.

The first question is in two parts relating to receipt of commissions and interests. The points involved in this question are concluded in the assessees own case for earlier assessment year in IT Ref. No. 651 of 1979, judgment delivered on 8th January, 1990. Following the aforesaid decision, the question of law in so far it relates to commission receipts of the assessee is concerned is answered in the negative and the question of law in so far it relates to interest receipts of the assessee is answered in the affirmative and in favour of the assessee.

The second question is also concluded in the assessees own case in IT Ref. No. 651 of 1990, judgment delivered on 8th January, 1990 and following that decision, the question of law is answered in the negative and in favour of the Revenue.

The question No. 3 is also now concluded by the judgment of this Court in the case of Commissioner of Income Tax Vs. Kanan Devan Hills Produce Company Ltd., . Following the aforesaid decision, the question of law is answered, in the affirmative and in favour of the assessee.

The question No. 4 that has been raised is on account of the relief under s. 80J of the IT Act, 1961. The ground Nos. 7 and 8, taken before the AAC was about the computation of relief. The case that was made out was disposed of by the CIT(A) in the following manner :

"Ground Nos. 7 & 8 relate to the computation of relief under s. 80J. The assessees claim was not fully accepted by the ITO on two grounds. Firstly, the contention by that computation of capital employed for the purpose of relief under s. 80J should be made on the basis of the principles laid down by the Calcutta High Court in the case of M/s. Century Enka Mills Ltd. was rejected by the ITO on the ground that the Department has not accepted that decision and has gone on appeal me. I am accordingly directing the ITO to compute the capital employed following the principles laid down by the Calcutta High Court in the case of Century Enka Ltd.. The second contention of the assessee was that the relief under s. 80J should be allowed against the gross total income of the business in which profit attributable to the new units as well as profits attributable to the other units should be included. This contention was rejected by the ITO with the observation that it was a settled fact that relief under s. 80J can only be taken into consideration after taking into consideration earlier years depreciation, development rebate loss, etc. from the initial assessment year onwards. On this point, the learned representative, points out that there is difference in the language in s. 15C of the Indian IT Act, Indian IT Act, 1922 states "the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking to which this section applies".

Se. 80J of the IT Act, 1961, says "where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking" to which this section applies. It is, therefore, contended that development rebate, depreciation, etc., relating to the new industrial undertaking can be separately carried forward and considered separately for the purpose of computing relief under s. 80J. Reliance is placed on the decision of the Supreme Court in the case of CIT vs . Patiala Flour Mills Co. Pvt. Ltd. : [1978]115ITR640(SC) . In this case, the Supreme Court has observed "For the purpose of deduction under s. 80J of the IT Act, 1961, the profits and gains of a new industrial undertaking must be computed in accordance with the provision of the Act in the same manner as they would be in determining the total income chargeable to tax and it must follow a fortieri 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 business or for the mater of that, against the income of the assessee under any other head by reason of s. 70 and 71 read with sub-s. (2) of s. 32 and sub-s. (2) of s. 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 s. 80J. The same mode of computation must prevail also in applying the provision against the profits and gains referred to in sub-s. (1) of s. 80J, as computed after allowing, inter alia, the deduction admissible under that sub-section and, therefore, if for the purpose of sub-s. (1) of s. 80J the profits or gains of the new industrial undertaking are to be computed in accordance with the provisions of the Act and no part of the losses, depreciation allowance or development rebate for the Act and no part of the losses, depreciation allowance or development rebate for the past assessment years has been fully set off against the profit from other business or income under any other head is liable to be adjusted over again in computing the profits or gains of the new industrial undertaking, no such adjustment would equally be permissible in the applying the provision contained in sub-s. (3) of s. 80J, in law these arguments and taking into account the decision of the Supreme Court, I direct the ITO to grant relief under s. 80J as claimed by the assessee."

Therefore, it appears from the order of the CIT(A) that the arguments of the assessee were two fold. The first was about the manner of computation of capital adopted by the ITO and the second grievance was with regard to the calculation of relief on the capital so computed, the grounds that were taken before the Tribunal are as follows :

"That on the facts and in the circumstances of the cause, the learned CIT(A) was not justified in holding that the capital employed for the purpose of relief under s. 80J of the IT Act, 1961 had not been correctly computed ..."

"That the order of the learned CIT(A) may be set aside and that of the ITO may be restored to the extent stated above.

Therefore, so far s. 80J is concerned, only grievance before the Tribunal was that the capital was not correctly calculated for the purpose of relief under s. 80J of the IT Act, 1961. No case was made out before the Tribunal for setting off of losses or depreciation allowance and development rebate for the past assessment year and the Tribunal dismissed the departments appeal, following its earlier judgment in the assessees own case. The question that has been referred to this Court relates to ignoring the losses worked out for the purpose of depreciation allowance, development rebate, etc., for the past assessment year in respect of new industrial undertaking. This question was not argued nor decided by the Tribunal and this point was not even taken in the grounds of appeal before the Tribunal. The only point that was raised was in connection with the method of computation of capital. No question has been raised on this aspect of the matter. Therefore, the controversy sought to be raised in question No. 4 does not arise out of the order of the Tribunal and as such we decline to answer this question.

In view of the above, the reference is disposed of in the following manner :

Question No. 1 is answered as under :

In so far as "Commission receipts of the assessee" is concerned, the same is answered in the negative and in favour of the Revenue. In so far as "interest receipts of the assessee" is concerned, the same is answered in the affirmative and in favour of the assessee.

Question No. 2 is answered in the negative and in favour of the Revenue.

Question No. 3 is answered in the affirmative and in favour of the assessee.

We decline to answer the question No. 4.

There will be no order as to costs.

SUHAS CHANDRA SEN, J. :

I agree.