1992 (7) TMI 58 - HC - Income Tax

Depreciation Expenditure On Scientific Research New Industrial Undertaking Special Deduction

Summary

Issues Involved:
1. Depreciation on value of roads, walls, and fences.
2. Inclusion of work-in-progress, machinery, and equipment in transit and under erection in the computation of capital for relief u/s 80J.
3. Deduction u/s 35 of capital represented by work-in-progress and machinery in transit and under erection in the assessee's research division.
4. Exemption u/s 80J on commercial profits.

Summary:

Issue 1: Depreciation on Value of Roads, Walls, and Fences
The High Court upheld the Appellate Tribunal's decision that the assessee is entitled to depreciation on the value of roads, walls, and fences. This decision follows the precedent set in CIT v. Bangalore Turf Club Ltd. [1984] 150 ITR 23 and the Supreme Court's view in CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 196 ITR 149, where roads within factory premises are considered part of the building. The question is answered in the affirmative and against the Revenue.

Issue 2: Inclusion in Computation of Capital for Relief u/s 80J
The court affirmed the Tribunal's decision to include the value of work-in-progress, machinery, and equipment in transit and under erection in the computation of capital for relief u/s 80J. This follows the decision in Ravi Machine Tools (P.) Ltd. v. CIT [1978] 114 ITR 459. The question is answered in the affirmative and against the Revenue.

Issue 3: Deduction u/s 35 for Work-in-Progress and Machinery in Transit
The High Court upheld the Tribunal's decision allowing deduction u/s 35 of the capital represented by work-in-progress and machinery in transit and under erection in the assessee's research division. This decision is consistent with the court's earlier rulings. The question is answered in the affirmative and against the Revenue.

Issue 4: Exemption u/s 80J on Commercial Profits
The court provided a detailed consideration of the fourth issue. The assessee claimed relief u/s 80J based on commercial profits, not profits computed under the Income-tax Act. The Tribunal upheld this claim, relying on earlier orders and decisions, including CIT v. Patiala Flour Mills Co. P. Ltd. [1981] 127 ITR 301 and the Supreme Court's decision in CIT v. Patiala Flour Mills Co. P. Ltd. [1978] 115 ITR 640. The court discussed the interpretation of section 80J, emphasizing that profits and gains for the purpose of this section should be computed in the same manner as for determining total income chargeable to tax. The court rejected the Revenue's contention that deductions for depreciation and investment allowances must be made from the unit's total income. The decision aligns with the Supreme Court's rulings in Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777 and the Calcutta High Court's observation in CIT v. Orient Paper Mills Ltd. [1983] 139 ITR 763. The fourth question is answered in the affirmative and against the Revenue.