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Issues involved: Interpretation of relief under section 80J of the Income Tax Act for a new industrial undertaking working for a partial period.
Summary: The High Court of Karnataka addressed the issue of whether relief under section 80J should be pro-rated for the period of working of the undertaking or allowed for the full year in which the capital was employed, even if production was only for a short duration. The court considered the arguments presented by both parties and analyzed the relevant legal provisions and precedents. The court examined the provisions of section 80J of the Income Tax Act, which provides for tax rebate to new industrial undertakings based on the capital employed and the period of production. The court emphasized that the relief under section 80J is an incentive for new industrial undertakings and should be available for a full period of 5 years, including the year in which manufacturing operations commenced. The court rejected the idea of pro-rating the relief based on the period of productive operation, emphasizing the importance of capital employment and production commencement. Referring to the judgment of the Madras High Court in CIT v. Simpson and Company, the court highlighted that the relief under section 80J should not be reduced proportionately to the period of working of the undertaking. The court also cited the decision of the Madhya Pradesh High Court in CIT v. Sanghi Beverages (Pvt.) Ltd., which emphasized the need to interpret the provisions of section 80J liberally to encourage new industrial enterprises. While acknowledging a conflicting observation by the Delhi High Court in Addl. CIT v. Gedore Tools (India) P. Ltd., the Karnataka High Court concluded that the legislative purpose underlying section 80J does not support pro-rating the relief based on the period of working of the undertaking. Therefore, the court answered the question in the affirmative, ruling against the Revenue. In conclusion, the court held that relief under section 80J should be granted for the full year in which the capital was employed, irrespective of the duration of production, in line with the legislative intent to incentivize new industrial undertakings. No costs were awarded in the case.
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