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Interpretation of section 80J for a newly established industrial undertaking. Detailed Analysis: The case involved the interpretation of section 80J of the Income-tax Act for a private limited company engaged in the manufacture of durofoam. The dispute arose regarding the deduction claimed under section 80J for the assessment year 1975-76. The assessing authority initially denied the relief, stating that the assessee was not entitled to the deduction proportionately for the period the industrial undertaking worked in the previous year. Additionally, the assessing authority considered the entire capital as a loan from the head office, thereby disallowing the relief under section 80J. Upon appeal, the Commissioner of Income-tax (Appeals) ruled in favor of the assessee, allowing a flat deduction of 6% of the capital employed without any proportionate restriction. The Commissioner also held that the amount utilized in the new industrial undertaking should be considered as capital employed by the new unit. However, in the second appeal, the Income-tax Appellate Tribunal found that the extent of own capital employed in the new unit was not specifically addressed in the lower authorities. The Tribunal concluded that the funds invested by the assessee in the new unit constituted the company's capital and not a borrowal as interpreted by the assessing officer. The Tribunal remitted the matter to the assessing authority for recomputation of the capital employed in the new unit. The High Court, considering a previous Bench decision, held that the relief under section 80J should be available in full for a newly established industrial undertaking, without proportionate reduction based on the working period. The court directed that the assessee was entitled to the benefit of section 80J for the entire period, subject to verification of actual borrowals by the new unit and computation of capital as per the law. In conclusion, the High Court answered the referred question in the affirmative, affirming that the assessee should receive the benefit of section 80J for the entire period, with further verification required. The judgment was to be communicated to the Income-tax Appellate Tribunal for necessary action.
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