Commissioner of Income Tax vs Sanghi Beverages (P.) Ltd.

Sohani, J.—By this reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the Income Tax Appellate Tribunal, Indore Bench, Indore, has referred the following question of law to this court for its opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the decision of the Commissioner of Income Tax (Appeals) allowing deduction u/s 80J of the Act to the assessee at the rate of 6% per annum for the entire accounting year ?"

The material facts giving rise to this reference, as set out in the statement of the case, are briefly, as follows :

The assessee is a private limited company carrying on the business of bottling and selling soft drinks. During the assessment year 1976-77, relevant to the accounting year ending on March 31,1976, the assessee installed a barge on March 29, 1976. The assessee claimed deduction u/s 80J of the Act. The Income Tax Officer allowed the claim for a period of three days only and rejected the claim of the assessee for deduction at the rate of 6% per annum for the entire accounting year. On appeal, the claim of the assessee in that behalf was allowed. The Revenue, therefore, filed a second appeal before the Tribunal. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal. Hence, at the instance of the Revenue, the aforesaid question of law has been referred to this court for its opinion.

At the time of hearing, learned counsel for the Revenue conceded that the matter was covered by a decision of this court in Commissioner of Income Tax Vs. Sanghi Beverages (Pvt.) Ltd., . In that case, it was held as follows (at pages 624 & 625) :

"Section 80J of the Act lays down that where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking to which the provisions of that section apply, there shall, in accordance with and subject to the provisions of that section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent, per annum on the capital employed in the industrial undertaking computed in the prescribed manner in respect of the previous year relevant to the assessment year. Section 80J of the Act nowhere further provides for reduction of the amount of deduction on time basis, with reference to the working of the industrial undertaking The provisions of Section 80J of the Act which are intended to encourage the setting up of a new industrial enterprise have to be construed liberally. Even if a new undertaking has functioned for only a part of an accounting year, the deduction has to be allowed to the full extent and the percentage cannot be reduced in proportion to the part of the year during which the undertaking was in productive operation. The Tribunal, in our opinion, was, therefore, justified in holding that for the purpose of allowing deduction u/s 80J of the Act, the deduction at 6 per cent, per annum was admissible for the full year even though the undertaking of the assessee has actually worked during the year for less than twelve months."

In view of the aforesaid decision, the Tribunal, in our opinion, was justified in upholding the decision of the Commissioner of Income Tax (Appeals), allowing the deduction u/s 80J of the Act to the assessee at the rate of 6% per annum for the entire accounting year.

For all these reasons, this reference is answered in the affirmative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.