At, High Court of Kerala
By, THE HONOURABLE MR. JUSTICE PARIPOORNAN & THE HONOURABLE MR. JUSTICE JAGANNADHA RAJU
P.K. Raveendranatha Menon & N.R.K. Nair For Petitioner C.M. Devan & C.N. Ramachandran Nair For Respondent
At the instance of the Revenue the Income-tax Appellate Tribunal has referred the following question of law for the decision of this Court:
"Whether, on the facts and circumstances of the case, the Tribunal was justified in remanding the matter without considering the question whether the assessee is entitled to the benefit of S.80J for the entire period?"
2. The respondent is a private limited company. We are concerned with the assessment year 1975-76, for which the previous year ended on 31-3-1975. The assessee was carrying on the business of manufacture of dureform. A new unit was, set up in Bangalore for the manufacture of the same product. The plea was that the Unit was set up on 20-1-1975. The Assessing Authority stated that the Unit commenced production only in February 1975. The assessee claimed a deduction of Rs.80,202/- under S.80J calculated at 6% on a sum of Rs. 13,36,700/- as capital employed. The Assessing Authority held that the assessee is not entitled to relief at the average rate of 6%. He took the view that the assessee was entitled to the relief proportionately for-the period during which the industrial undertaking worked in the previous year. He further held that under R.19A, the total value of the assets should be reduced by the liabilities of the assessee. The Income-tax Officer held that the entire capital has been taken from the Head Office and it should be treated only as a loan and so the assessee is not entitled to relief under S.80J'of the Act. In appeal, the Commissioner of Income-tax (Appeals) held that the assessee is entitled to a flat deduction of 6% of the capital employed without any restriction to be made proportionately to the period during which the undertaking, had worked during the previous year. He also held that the entire amount, which has been utilised in the new industrial undertaking should be treated as capital employed by the new undertaking. In second appeal the Income-tax Appellate Tribunal found that the question, as to What extent own capital was employed or deployed in the new industrial undertaking, was not specifically taken before the lower authorities. The Tribunal took theview that the funds belonging to the assessee, invested in the new industrial Unit, though in a different place, would form the capital of the company, and it does not form a borrowal or liability as contemplated in R.19A(3) or S.80J(1A) as wrongly interpreted by the Income-tax Officer. Since there was no precise or definite data to show the extent of borrowals made in the new Industrial unit, the Appellate Tribunal held that the matter required a recomputation of the capital employed in the new industrial undertaking in accordance with law. The matter was remitted to the Assessing Authority. In so ordering a remit, though the Tribunal adverted to the plea, as to whether the assessee is entitled to 6% relief in entirety or only relief proportionate to the period during which the new industrial unit had worked, no definite finding was entered on that score. It is thereafter, at the instance of the Revenue, the question of law formulated hereinabove, has been referred for the decision of this Court.
3. We learned counsel for the Revenue and also for the assessee. In the light of the Bench decision of this Court in Commissioner of Income-tax v. English Indian Clays Ltd. (149 ITR 112), in cases of newly established industrial undertaking, the relief under S.8GJ will be available in full and should not be reduced proportionately for the period for which the industrial undertaking worked for the previous year. In the light of the above Bench decision, the answer to the question referred to us should be in the affirmative and the Tribunal should have held so in its appellate order. The assessee will be entitled to the benefit of S.80J for the entire period, but only subject to the further verification and determination of the actual borrowals by the new industri
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al undertaking and then determine the capital to be computed in accordance with law under S.80J of the Income-tax Act. and then determine the capital to be computed in accordance with law under S.80J of the Income-tax Act. 4. The Reference is answered as above. A copy of this judgment under the seal Of this Court and the signature of the Registrar will be sent to the Income-tax Appellate Tribunal, Cochin Bench.