1979 (11) TMI 89 - HC - Income Tax

Capital Employed, Deduction In Respect, Manufacture Or Production, Movable Property, New Industrial Undertaking In Backward Area, Profits And Gains

Summary

Issues:
Interpretation of Section 80HH of the Income-tax Act, 1961 regarding the eligibility of the assessee for the benefit provided under the section.

Detailed Analysis:
The High Court of Orissa was directed to consider a common question referred by the Income-tax Appellate Tribunal regarding the eligibility of the assessee for the benefit under Section 80HH of the Income-tax Act, 1961. The cases involved two registered firms engaged in construction projects, and the issue was whether they qualified as industrial undertakings entitled to the benefit provided under the Act. The Commissioner had initially directed the withdrawal of the relief under Section 80HH, stating that the firms were not engaged in manufacturing or production of articles, and were short-lived entities. However, the Tribunal overturned this decision, emphasizing the industrial nature of the activities undertaken by the assessee firms in constructing irrigation projects. The Tribunal found that the firms were engaged in industrial activities, which qualified them for the benefit under Section 80HH. The Court upheld the Tribunal's decision, ruling that the assessees were indeed entitled to the benefit under the Act.

The primary issue revolved around the interpretation of Section 80HH of the Income-tax Act, 1961. The section provides for a deduction from profits and gains derived from an industrial undertaking, subject to certain conditions. The Court examined the conditions laid down in subsection (2) of the section, particularly focusing on whether the assessee firms were engaged in manufacturing or producing articles as required by the provision. The revenue contended that the firms did not satisfy the conditions under sub-section (2) and, therefore, were not eligible for the benefit. However, the assessee argued that the legislative intention behind the provision was not to restrict the benefit only to industrial undertakings engaged in manufacturing or production of articles. The Court agreed with the assessee's interpretation, emphasizing that the concept of an industrial undertaking should not be limited to manufacturing alone. The Court held that the construction of an irrigation project could also qualify as an industrial undertaking, especially considering the substantial labor, machinery, and capital involved in the process.

The Court further analyzed the term "industrial undertaking" and concluded that there was no statutory definition for it. It highlighted that the absence of a statutory definition allowed for a broader interpretation, including activities beyond traditional manufacturing. The Court referenced the Industrial Disputes Act to support the classification of the construction activities as an industrial undertaking. Additionally, the Court rejected the revenue's argument that a dam could not be considered an article, citing the common parlance meaning of the term "article" to include commodities or goods. The Court emphasized that the legislative intent behind Section 80HH was to promote development in backward areas, and the assessee firms' construction projects aligned with this objective. Consequently, the Court affirmed the Tribunal's decision, ruling in favor of the assessees and upholding their entitlement to the benefit under Section 80HH of the Income-tax Act, 1961.

In conclusion, the High Court of Orissa interpreted Section 80HH of the Income-tax Act, 1961 to determine the eligibility of the assessee firms for the benefit provided under the section. The Court's analysis focused on the broad definition of an industrial undertaking, emphasizing that activities such as construction projects could fall within this definition. By considering the legislative intent and the nature of the assessees' operations, the Court upheld the Tribunal's decision, ruling that the firms were indeed entitled to the benefit under Section 80HH.