1983 (6) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 80J of the Income-tax Act, 1961.
2. Proportionate deduction under Section 80J based on the operational period of the company.
3. Computation of capital employed as per Rule 19A of the Income-tax Rules, 1962.

Detailed Analysis:

1. Interpretation of Section 80J of the Income-tax Act, 1961:
The primary issue revolves around whether the Income-tax Appellate Tribunal was correct in holding that the assessee-company is entitled to a deduction of the entire amount of Rs. 1,47,495 under Section 80J of the Income-tax Act, 1961, and not just 1/6th of the amount as determined by the Income-tax Officer (ITO). Section 80J(1) provides for a deduction of 6% per annum on the capital employed in an industrial undertaking, computed in the prescribed manner. The court emphasized that the section aims to grant tax relief for five assessment years starting from the year in which the manufacture or production begins, and this relief is limited to 6% per annum on the capital employed.

2. Proportionate deduction under Section 80J based on the operational period of the company:
The ITO had limited the deduction to 1/6th of the claim, arguing that the company worked only for two months during the previous year due to labor trouble. However, the Appellate Assistant Commissioner (AAC) accepted the assessee's contention that interest should be allowed on the whole amount of the capital employed, not just for a part of the year. The Tribunal upheld this view, stating that the expression "6% per annum" in Section 80J and Rule 19A does not suggest that the deduction should be proportionate to the period the industrial undertaking was operational. The court agreed, noting that the term "per annum" is meant to convey that the deduction is for each of the five years, not proportionate to the operational period within a year.

3. Computation of capital employed as per Rule 19A of the Income-tax Rules, 1962:
Rule 19A outlines the method for computing the capital employed in an industrial undertaking for the purposes of Section 80J. It specifies that the value of assets should be determined as on the first day of the computation period. The court found no justification in limiting the deduction to a portion of the capital employed based on the period the company was operational. The term "capital employed" should be understood with reference to Rule 19A, which does not support a proportionate reduction based on operational duration. The court referenced similar views expressed by the Madhya Pradesh High Court in CIT v. Sanghi Beverages (Pvt.) Ltd. and the Madras High Court in CIT v. Simpson and Co., both of which supported the full deduction irrespective of the operational period within the year.

Conclusion:
The court held that the deduction under Section 80J is permissible on the capital employed at 6% per annum for the whole year, not proportionate to the period of operation. The judgment was in favor of the assessee and against the Revenue, affirming that the assessee-company is entitled to the full deduction of Rs. 1,47,495. The court directed that a copy of the judgment be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.