1988 (8) TMI 92 - HC - Income Tax

Summary

Issues Involved:
1. Justification of Tribunal's direction to allow deductions under sections 80-I and 80J of the Income-tax Act, 1961, based on the assessee's claim during reassessment proceedings.
2. Applicability of section 80AA of the Income-tax Act, 1961, to the assessee's claim.
3. Entitlement of the assessee to claim benefits during reassessment even if not claimed during the original assessment.

Detailed Analysis:

1. Justification of Tribunal's Direction:
The core issue revolves around whether the Tribunal was justified in directing the Income-tax Officer (ITO) to allow deductions under sections 80-I and 80J of the Income-tax Act, 1961, based on the assessee's claim made in a letter dated February 8, 1979, during reassessment proceedings. The Tribunal had restored the matter to the ITO for making necessary deductions in line with the principles laid down in the Supreme Court decision in Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777 (SC). The Tribunal observed that the Commissioner of Income-tax (Appeals) had incorrectly rejected the claim on the grounds of the Finance (No. 2) Act, 1980, which inserted section 80AA with retrospective effect. The Tribunal clarified that section 80AA pertains only to section 80M, dealing with intercorporate dividends, and does not affect deductions under sections 80J and 80-I.

2. Applicability of Section 80AA:
The Commissioner of Income-tax (Appeals) had rejected the claim citing the Finance (No. 2) Act, 1980, which introduced section 80AA, asserting that only the income of the new industrial undertaking should be considered for deductions under sections 80J and 80-I. However, the Tribunal clarified that section 80AA specifically refers to deductions under section 80M and not sections 80J and 80-I. The Tribunal emphasized that the Supreme Court's decision in Rajapalayam Mills Ltd. remains applicable, allowing the set-off of deficiencies in the new business against profits from the old business without separate recomputation of depreciation and development rebate.

3. Entitlement to Claim Benefits During Reassessment:
The Tribunal addressed the issue of whether the assessee could claim benefits during reassessment even if not claimed during the original assessment. The Tribunal noted that the assessee had informed the ITO in a letter dated February 8, 1979, about its claims under sections 80J and 80-I, providing detailed information about the new industrial undertaking and its production. The Tribunal held that the absence of a claim in the original assessment should not be fatal to the assessee's claim during reassessment. The Tribunal concluded that the assessee is entitled to claim all benefits available to it during reassessment, as technicality should not defeat an otherwise eligible claim.

Conclusion:
The High Court agreed with the Tribunal's direction to the ITO to allow the deductions under sections 80-I and 80J based on the assessee's claim during reassessment. The Court clarified that section 80AA does not apply to deductions under sections 80J and 80-I and upheld the Tribunal's interpretation of the Supreme Court's decision in Rajapalayam Mills Ltd. The Court emphasized that the assessee is entitled to claim benefits during reassessment even if not claimed during the original assessment, as technicality should not preclude an eligible claim. Consequently, the reframed question was answered in the affirmative and in favor of the assessee, with no order as to costs.