1985 (12) TMI 26 - HC - Income Tax

Developement Rebate, New Industrial Undertaking, New Industrial Undertaking In Backward Area, Special Deduction

Summary

Issues:
1. Whether borrowed moneys are considered capital for section 80J deduction.
2. Eligibility of plant and machinery for development rebate.
3. Claiming section 80HH deduction without setting off losses.
4. Interpretation of entry 31 of the Vth Schedule to the Income-tax Act for development rebate.

Analysis:
1. The court addressed the issue of borrowed moneys being considered capital for computing section 80J deduction. Referring to the decision in Lohia Machines Ltd. v. Union of India, the court ruled against the assessee, favoring the Revenue. However, for the second question related to interpreting section 80J, the court favored the assessee based on the decision in CIT v. English Indian Clays Ltd.

2. The judgment focused on whether plant and machinery used for extracting oil by the solvent extraction process qualify for development rebate at a higher rate. The Income-tax Officer rejected the claim for 25% rebate, allowing only 15% due to the machinery not being used for direct extraction from seeds. The appellate authorities, however, interpreted the entry broadly, allowing the higher rebate. The court disagreed with this interpretation, stating that the entry must be read restrictively as per legislative intent, thereby ruling in favor of the Revenue.

3. Regarding the entitlement to claim section 80HH deduction without setting off losses, the court clarified the question by removing the word "losses" as it did not arise from the Tribunal's order. Citing Distributors (Baroda) P. Ltd. v. Union of India, the court ruled in favor of the Revenue, stating that the deduction cannot be claimed without setting off earlier years' losses.

4. The court extensively analyzed the interpretation of entry 31 of the Vth Schedule to the Income-tax Act for development rebate. The court emphasized that legislative entries must be construed according to the language used, reflecting legislative intent. Despite the assessee's argument that the entry should apply to oil extraction from oil cakes, the court held that the entry is confined to direct extraction from seeds, not oil cakes. Consequently, the court ruled in favor of the Revenue, emphasizing the need to adhere strictly to the language of the legislative entry.