1995 (11) TMI 3 - SC - Income Tax

While interpreting a provision similar to section 84(5) of the Act this court has held that the profits and gains from an industrial undertaking to which the section applies have to be computed in accordance with the provisions contained in Chapter IV-D of the Act and the development rebate has first to be deducted from the total income and it is only thereafter if any profits and gains remain from this business that the benefit under section 84(1) of the Act would be applicable

Summary

Issues:
1. Interpretation of section 84 of the Income-tax Act regarding the eligibility for relief for a new industrial undertaking.
2. Determination of the commencement year for claiming relief under section 84.
3. Applicability of development rebate deduction in computing profits and gains for the purpose of section 84.

Analysis:

Issue 1:
The case involved an appeal against the Madras High Court's judgment regarding the eligibility for relief under section 84 of the Income-tax Act for a new industrial undertaking. The appellant had gradually increased its production capacity by replacing billiter cells with hooker cells. The key contention was whether the appellant was entitled to relief under section 84 for the assessment year 1962-63. The court analyzed the conditions of section 84, which provide for relief on profits derived from industrial undertakings. It was found that the appellant had begun manufacturing articles by March 31, 1957, with thirty hooker cells, making the undertaking newly established. The court held that the first year for claiming relief was the assessment year 1957-58, as the relief could not be claimed in the sixth assessment year, 1962-63.

Issue 2:
Regarding the second question raised, the appellant argued that relief should be available for the thirty hooker cells installed in the year 1958-59. However, the court determined that the industrial undertaking had commenced commercial manufacture in the year 1957-58 with the initial thirty hooker cells, making the unit eligible for relief from that year onwards. The court rejected the idea of partial relief or splitting the relief based on the installation of additional cells in subsequent years.

Issue 3:
The third question pertained to the deduction of development rebate in computing profits and gains for section 84 relief. The appellant contended that development rebate should not be deducted as it did not affect the business profits of the industrial undertaking. The court referred to a previous decision and held that development rebate must be deducted before applying section 84 relief. It dismissed the argument that development rebate should not be considered in computing profits and gains, emphasizing that the benefit under section 84 is applicable only if profits remain after deducting development rebate.

In conclusion, the Supreme Court dismissed the appeal, upholding the judgments of the lower courts. The court affirmed that relief under section 84 could not be claimed for the assessment year 1962-63, as the industrial undertaking was deemed newly established in the assessment year 1957-58. The court also clarified the application of development rebate deduction in determining profits and gains for section 84 relief, emphasizing the precedence of deducting development rebate before applying the relief provision.