1997 (10) TMI 45 - HC - Income Tax

Summary

Issues:
Interpretation of section 80J of the Income-tax Act, 1961 regarding deduction on capital employed in new industrial undertakings.

Analysis:
The case involved a dispute regarding the eligibility of the assessee to claim a deduction under section 80J of the Income-tax Act, 1961 for the assessment year 1975-76. The assessee, a registered firm, had constructed additional chambers to its existing cold storage facility and claimed that these new chambers constituted a "new industrial undertaking." The Income-tax Officer initially denied the deduction under section 80J on the capital employed in the new chambers, citing that there was only one electric connection for both the cold storage and the additional chambers. However, the assessee contended that there were two separate electric connections and power meters for the existing cold storage and the new chambers.

Upon further examination, the Income-tax Officer acknowledged in a remand report that the existing cold storage and the additional chambers were indeed fed by two separate power meters. The controversy regarding whether the new chambers qualified as a new industrial undertaking was resolved based on this clarification. The Income-tax Officer, nevertheless, raised an issue regarding the number of persons employed in the new industrial undertaking, as required by clause (iv) to sub-section (4) of section 80J.

The Commissioner of Income-tax (Appeals) analyzed the situation and concluded that the requirement of having 10 or more persons employed in the newly established industrial undertaking applied to manufacturing or production units, not to a cold storage facility. Therefore, the Commissioner held that the deduction under section 80J on the capital employed in the new chambers of the cold storage was permissible. This decision was subsequently upheld by the Appellate Tribunal.

The court referred to clause (iv) to sub-section (4) of section 80J, which mandates that the section applies to industrial undertakings employing 10 or more workers in a manufacturing process carried out with the aid of power. Since the assessee's firm was not involved in manufacturing or production activities but operated a cold storage facility, the court determined that the condition outlined in clause (iv) was not applicable to the assessee's undertaking. Consequently, the court ruled in favor of the assessee, affirming their entitlement to the deduction under section 80J on the capital employed in the new chambers added to the cold storage facility.