2005 (12) TMI 53 - HC - Income Tax

Relief under section 80J - 1. Whether, even after finding that the production could not come out in a final shape, the Appellate Tribunal was legally justified in holding that the mill had started manufacturing goods during the year under reference within the meaning of section 80J? 2. Whether, the finding of the Appellate Tribunal that the initial year in the case of the assessee for getting benefit under section 80J was the assessment year 1971-72 is legally sustainable? 3. Whether assessee is entitled to relief under section 80J for the assessment year 1976-77? - We have no doubt, in the context in which section 80J has been incorporated. The intention is clear, namely, the expression begins to manufacture is used as a noun and that is when the undertaking achieves the end product out of the process of manufacture. We are thus unable to accept the contention of the Department. Question No. 1 is answered in the negative, i.e., in favour of the assessee and against the Department. Questions Nos. 2 and 3 are consequential questions and they are covered by the answer given under question No. 1.

Summary

Issues Involved:
Interpretation of section 80J of the Income-tax Act, 1961 regarding the commencement of manufacturing goods for claiming relief under the Act for a specific assessment year.

Detailed Analysis:

1. Issue 1 - Commencement of Manufacturing Goods:
The case involved a dispute regarding the commencement of manufacturing goods by an assessee for the purpose of claiming relief under section 80J of the Income-tax Act, 1961. The assessee, a flour mill unit, claimed relief under section 80J for the assessment year 1976-77. The Income-tax Officer disallowed the claim, stating that the mill had not started manufacturing goods within the required timeline. The Commissioner of Income-tax (Appeals) allowed the claim, but the Income-tax Appellate Tribunal overturned this decision. The key question was whether the mill had begun manufacturing goods in the assessment year 1971-72 or 1972-73. The interpretation of the term "manufacture" in section 80J was crucial to determine the eligibility for relief.

2. Interpretation of Section 80J:
Section 80J provides a deduction for profits and gains from newly established industrial undertakings, ships, or hotel businesses under specific conditions. The section allows for a deduction based on the capital employed in the industrial undertaking. The dispute in this case revolved around the interpretation of the term "begins to manufacture" as used in the section. The assessee argued that the term should be understood in conjunction with "to produce articles," indicating the completion of the manufacturing process to qualify for the deduction.

3. Legislative Intent and Definitions:
The court delved into various definitions of "manufacture" and "produce" from legal glossaries and dictionaries to ascertain the legislative intent behind the usage of these terms in the statute. The definitions highlighted that "manufacture" could be used as both a verb and a noun, with the noun form indicating the completion of the manufacturing process. By comparing the language used in different sections of the Act, the court inferred that the intention was to consider the end product of manufacturing to qualify for the deduction under section 80J.

4. Court's Decision:
After a detailed analysis of the statutory provisions and relevant definitions, the court concluded that the expression "begins to manufacture" in section 80J should be understood as a noun, signifying the completion of the manufacturing process to produce goods. The court rejected the Department's contention and ruled in favor of the assessee, answering the questions posed in the negative, thereby allowing the assessee's claim for relief under section 80J for the assessment year 1976-77. The consequential questions were also decided in favor of the assessee based on the primary interpretation provided.

In conclusion, the judgment clarified the interpretation of section 80J of the Income-tax Act, 1961 concerning the commencement of manufacturing goods for claiming relief under the Act, emphasizing the importance of understanding the legislative intent behind the terminology used in the statute.