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Issues involved: Interpretation of deduction u/s 80J of the Income Tax Act, 1961 for a new industrial undertaking operating for less than 12 months.
Summary: The High Court of Madhya Pradesh addressed a reference u/s 256(1) of the Income Tax Act, 1961 regarding the deduction u/s 80J for a private limited company engaged in bottling and selling soft drinks. The company began production on February 29, 1968. The Income Tax Officer (ITO) calculated the deduction at 6% of the capital for only one month for the assessment year 1968-69. The company's appeal to the Appellate Authority was dismissed, leading to a second appeal before the Tribunal. The Tribunal upheld the company's claim that the deduction u/s 80J should be for the full 12 months, not just one month. The department then sought a reference to the High Court, questioning the Tribunal's decision. Section 80J of the Act allows a deduction at the rate of 6% per annum on the capital employed in the industrial undertaking for the relevant previous year. The section does not provide for reducing the deduction based on the operational duration of the undertaking. The purpose of s. 80J is to promote new industrial enterprises, and thus, the deduction should be granted liberally. Even if the undertaking operates for less than a full year, the deduction should not be curtailed proportionately. The High Court agreed with the Tribunal's interpretation, stating that the deduction at 6% per annum is applicable for the entire year, regardless of the actual duration of operation. Therefore, the reference was answered in favor of the company, directing each party to bear their own costs.
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