Commissioner of Income Tax vs Kerala Balers Limited

T. Kochu Thommen, J.—The following question has been, at the instance of the Revenue, referred to us by the Income Tax Appellate Tribunal, Cochin Bench :

" Whether, on the facts and in the circumstances of the case, the assessee is entitled to set off the deficiency carried forward u/s 80J(3) of the Income Tax Act, 1961, of the earlier assessment years to the extent of Rs. 72,735 in the computation of its income for the assessment year 1974-75 ? "

The assessee is a public limited company carrying on the business in coir and coir products. A new industrial undertaking was set up by the assessee during the accounting year relevant to the assessment year 1968-69. This new undertaking did not earn any income during the assessment years 1968-69 to 1972-73 (both inclusive). Apart from the new industrial undertaking, the assessee also had other units of business. The assessee-claimed the benefit of Section 80J of the Income Tax Act, 1961, in respect of the new industrial undertaking. This claim was quantified by the officer in the sums of Rs. 69,869, Rs. 75,815, Rs. 77,872, Rs. 77,915 and Rs. 11,680, respectively, for the years 1968-69 to 1972-73. However, in the absence of any profit from the new industrial undertaking, the "deficiency" had to be carried forward as required in terms of Section 80J(3). In respect of the new industrial undertaking, development rebate was claimed and allowed for the assessment years 1968-69 to 1970-71 aggregating to Rs. 1,14,297. This sum, for want of sufficient profit to be set off, was carried forward.

The assessee filed a return for the assessment year 1974-75 relevant to the previous year ending December 31, 1973, showing a loss of Rs. 2,99,837. However, the profit and loss account for that year showed a net profit of Rs. 3,90,401 which included the income from the new industrial undertaking in the sum of Rs. 72,735. The Income Tax Officer computed the business income of the assessee, including the said sum of Rs. 72,735, at Rs. 2,33,727. The development rebate of Rs. 1,14,297 relating to the new industrial undertaking for the assessment years 1968-69 to 1970-71 was set off first against Rs. 72,735, being the income of the new industrial undertaking, and the balance against other business income of the assessee. After so setting off the development rebate, there remained a balance taxable business income of Rs. 1,19,430 for the assessment year 1974-75. The assessee had no other heads of income. The assessee then claimed the benefit of Section 80J(3) in relation to its profit from the new industrial undertaking, that is, Rs. 72,735. This claim was rejected by the Income Tax Officer on the ground that in setting off during the relevant year the unabsorbed development rebate for the years 1968-69 to 1970-71 against the profit from the new industrial undertaking, the profit was completely wiped out and, therefore, there was no profit to be adjusted in terms of Section 80J. The appeal by the assessee was allowed by the Appellate Assistant Commissioner and his order was confirmed by the Tribunal.

From the facts disclosed, there is no doubt that the assessee did not derive any income from the new industrial undertaking until the year relevant to 1974-75. It is also clear that to set off the unabsorbed development rebate of the years 1968-69 to 1970-71, in relation to the new industrial undertaking, the assessee had no business income. As a result of this fact, it was only in the year relevant to 1974-75 when there was income that the unabsorbed development rebate was set off, as required by the relevant provisions, first against the income of the new industrial undertaking and the balance against other income. Consequently, the Income Tax Officer had rightly found that there was no profit from the new industrial undertaking which could be adjusted against the claim u/s 80J. In the circumstances, the finding to the contrary by the appellate authorities was, in our view, wrong in law. See the observations of the Supreme Court in CIT v. Patiala. Flour Mills Co. P. Ltd. : [1978]115ITR640(SC) and Rajapalayam Mills Ltd. Vs. The Commissioner of Income Tax, Madras, . Accordingly, we answer the question referred to us in the negative, that is, in favour of the Revenue and against the assessee.

We direct the parties to bear their respective costs in this tax referred case.

A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.