2004 (12) TMI 59 - HC - Income Tax

Deduction under section 80J regular production vis-a-vis trial production - production/manufacture - Whether Tribunal was justified in holding that the assessee-company was entitled to deduction under section 80J of the Income-tax Act 1961? - To avail of the benefit of deduction under section 80J of the Act it is essential that regular production should take place during the previous year relevant to the assessment year in question. This aspect of the matter was not considered by the Tribunal. It lost sight of the fact that there is a difference between the trial production and the production of goods or articles. Section 80J of the Act talks about regular production and not about trial production - Tribunal was not correct in holding that the assessee-company was entitled to deduction

Summary

Issues:
- Interpretation of deduction under section 80J of the Income-tax Act, 1961 for an assessee-company.
- Whether trial production qualifies as beginning to manufacture or produce articles for the purpose of claiming deduction under section 80J.
- Comparison of trial production with regular production for eligibility of deduction under section 80J.

Analysis:
The judgment by the High Court of Allahabad addressed the interpretation of deduction under section 80J of the Income-tax Act, 1961 for an assessee-company. The case involved a company claiming deduction under section 80J, which was initially disallowed by the assessing authority due to no regular production during the relevant assessment year. The Tribunal directed the Income-tax Officer to allow the deduction if other conditions were met. The Revenue contended that as no regular production occurred during the previous year, the Tribunal erred in granting the deduction under section 80J. The court examined section 80J(2) of the Act, emphasizing that the deduction is allowed when the industrial undertaking begins regular manufacturing or production of articles, not just trial production.

The court referred to a judgment by the Bombay High Court in CIT v. Hindustan Antibiotics Ltd., which clarified that trial production does not constitute the commencement of manufacturing articles. The legislative intent behind section 80J is to incentivize new industrial undertakings engaging in regular production. The court also cited a judgment by the Madras High Court in Addl. CIT v. Southern Structurals Ltd., emphasizing that the mere manufacture of a prototype does not qualify as production of articles eligible for relief under section 84. The court highlighted the distinction between trial production and regular production, stating that section 80J pertains to regular production for commercial purposes.

Ultimately, the court concluded that the Tribunal erred in allowing the deduction under section 80J as regular production did not occur during the relevant assessment year. The court emphasized that the benefit of deduction under section 80J requires regular production, not trial production. The Tribunal's reliance on apex court decisions on the concept of "manufacture" was deemed irrelevant to the case at hand. Therefore, the court ruled in favor of the Revenue, stating that the assessee was not entitled to the deduction under section 80J due to the absence of regular production during the relevant assessment year.