1988 (2) TMI 23 - HC - Income Tax

Summary

Issues Involved:

1. Entitlement to deduction u/s 80J.
2. Classification as an industrial company under the Finance Acts.
3. Simultaneous claims for deductions u/s 80J and 80JJ.
4. Deduction u/s 35C for the assessment year 1977-78.
5. Computation of deduction u/s 80JJ based on "commercial profits."

Summary:

1. Entitlement to Deduction u/s 80J:
The court examined whether the assessee, Sri Venkateswara Hatcheries Private Limited, qualifies as a new industrial undertaking engaged in the production of articles as required by section 80J of the Income-tax Act. The assessee's operations involve hatching eggs using scientific methods, producing chicks on a large scale. The Revenue argued that chicks, being living creatures, do not qualify as "articles" u/s 80J(4)(iii). The court, however, interpreted "produce" broadly, concluding that the assessee's efforts in hatching chicks indeed satisfy the requirement of producing articles. Hence, the assessee is entitled to the deduction u/s 80J.

2. Classification as an Industrial Company:
The court addressed whether the assessee qualifies as an industrial company within the meaning of the Finance Acts of 1977 and 1979. Given the court's finding that the assessee is engaged in the production of articles, it affirmed that the assessee qualifies as an industrial company and is entitled to the concessional tax rate.

3. Simultaneous Claims for Deductions u/s 80J and 80JJ:
The court considered whether the assessee could claim deductions under both sections 80J and 80JJ. The Revenue contended that these provisions are mutually exclusive. The court found no legislative indication that these sections are mutually exclusive and held that the assessee could claim deductions under both sections if the requirements are satisfied. Thus, the assessee is entitled to deductions under both sections 80J and 80JJ.

4. Deduction u/s 35C for the Assessment Year 1977-78:
The court declined to answer this question as the assessee had withdrawn its claim for agricultural development allowance u/s 35C for the assessment year 1977-78 due to technical reasons, which had already been rectified.

5. Computation of Deduction u/s 80JJ Based on "Commercial Profits":
The court examined whether the deduction u/s 80JJ should be computed with reference to "commercial profits" rather than the profits computed in accordance with the provisions of the Act. The court rejected the assessee's claim, holding that the deduction must be computed based on the profits and gains derived from the business as determined under the Act, not on "commercial profits."

Conclusion:
Questions 1, 2, and 3 were answered in favor of the assessee. Question 4 was not answered due to the withdrawal of the claim. Question 5 was answered in favor of the Revenue. The Commissioner was directed to pay the assessee's costs.