1979 (7) TMI 54 - HC - Income Tax

Depreciation On Building, Income Tax Act, Income Tax Act, Income Tax Rules, New Industrial Undertaking, Priority Industry

Issues Involved:
1. Deduction under Section 80-I in respect of sales of pigments.
2. Deduction under Section 80-I on interest income.
3. Relief under Section 80J for Kalwa Foil Mill unit.
4. Relief under Section 80J for Belgaum Smelter Unit.
5. Requirement to claim and compute deficiency under Section 80J(3) in each year.
6. Depreciation on fencing, culverts, and drainage within the factory compound.

Detailed Analysis:

1. Deduction under Section 80-I in respect of sales of pigments:
The Tribunal upheld the decision of the AAC that the assessee was not entitled to deduction under Section 80-I for sales of aluminium pigments. The Tribunal cited the case of Indian Steel and Wire Products Ltd. v. CIT, which held that processed iron and steel in certain forms could be considered raw materials, but after further processing, they became finished products and did not qualify for deduction under Section 80-I. The Tribunal found no evidence that aluminium pigment was aluminium metal in its primary form. The High Court affirmed this decision, agreeing with the Tribunal and AAC.

2. Deduction under Section 80-I on interest income:
The Tribunal held that interest income from surplus funds temporarily invested did not qualify for deduction under Section 80-I. The Tribunal reasoned that the interest earned was not attributable to a priority industry. The High Court upheld this decision, stating that the interest income arose because the surplus funds were not employed in the priority industry, and there was no direct or indirect connection to the priority industry.

3. Relief under Section 80J for Kalwa Foil Mill unit:
The Tribunal found that the Kalwa Foil Mill unit was entitled to relief under Section 80J, including the carry forward of deficiencies from earlier years. The Tribunal noted that it was not necessary for the assessee to make a formal claim for relief in earlier years as there was no provision in the return for making such a claim. The High Court upheld this decision, agreeing that the assessee was entitled to carry forward the deficiency without prior determination each year.

4. Relief under Section 80J for Belgaum Smelter Unit:
The Tribunal held that the Belgaum Smelter Unit was also entitled to relief under Section 80J. The Tribunal directed the ITO to examine the facts and figures, determine the quantum of the deficiency, and set it off against the profits of the current year. The High Court affirmed this decision, noting that the unit was a new industrial undertaking and entitled to relief.

5. Requirement to claim and compute deficiency under Section 80J(3) in each year:
The Tribunal held that it was not obligatory for the assessee to make a claim under Section 80J(3) in each year and get the deficiency determined and carried forward. The High Court agreed, stating that the section did not provide for prior determination of loss and deficiency each year, and there was no procedure or form for making such a claim.

6. Depreciation on fencing, culverts, and drainage within the factory compound:
The Tribunal accepted the assessee's claim for depreciation on fencing, culverts, and drainage within the factory compound at the rate applicable to first-class factory buildings. The High Court upheld this decision, noting that the items in question were parts of the factory and should be considered as buildings for depreciation purposes.

Conclusion:
The High Court affirmed the Tribunal's decisions on all issues. The assessee was not entitled to deductions under Section 80-I for sales of pigments and interest income. However, the assessee was entitled to relief under Section 80J for both the Kalwa Foil Mill and Belgaum Smelter Units, including the carry forward of deficiencies without the need for annual claims. Additionally, the assessee was entitled to depreciation on fencing, culverts, and drainage within the factory compound. The reference was disposed of with no order as to costs.

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