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TMI Blog1983 (6) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... 6% on the amount of adjusted capital as on the opening day. On account of labour trouble, the company had worked during the previous year only for two months. The ITO took the view that in view of this fact deduction under s. 80J should be limited to 1/6th of the claim, that being the proportionate part of the year daring which the company worked. He allowed only Rs. 24,982 as deduction under s. 80J of the I.T. Act, 1961. The assessee then filed an appeal to the AAC claiming that the capital employed, being capital as computed under the rule at the beginning of the year, interest should be allowed on the whole amount of the capital so employed and not for only a part of the year. The AAC accepted this contention and allowed the deduction claimed by the assessee. An appeal was filed thereupon to the Income-tax Appellate Tribunal by the Department contending that only 1/6th should have been allowed as deduction. The Tribunal found that the expression " 6% per annum " occurring in s. 80J and sub-rr. (2) to (4) of r. 19A of the I.T. Rules does not warrant the view that the amount may be reduced or restricted in proportion to the period in which the assessee's industrial undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking. He obtains the benefit of tax relief for five assessment years commencing from the year in which the manufacture or production begins. This tax relief is limited to 6% per annum on the capital employed. This is deducted from profits and gains derived from the industrial undertaking included in the gross total income of the assessee. According to us, s. 80J gives no room for doubt that the deduction is six per cent. per annum on the capital employed and not portion of the capital employed, that portion being determined by reference to that part of the year in which the manufacture or production was carried on. On the plain language of the section, we see no reason for a different view. We see no justification in the scheme of things to so limit the deduction, for, evidently, what is intended is that an assessee who commences a new undertaking must get tax relief for a period of 5 years and that tax relief during the five years is six per cent. per annum of the capital employed. Naturally the term " capital employed " will have to be explained with reference to the date on which such capital is taken into account. That is provided for in r. 19A of the I.T. Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y provision of the Act; (b) wealth-tax due under any provision of the Wealth-tax Act, 1957 (27 of 1957); (c) gift-tax due under any provision of the Gift-tax Act, 1958 (18 of 1958); (d) super profits tax due under any provision of the Super Profits Tax Act, 1963 (14 of 1963) (e) surtax due under any provision of the Companies (Profits) Surtax Act, 1964 (7 of 1964); (ii) any liability in respect of tax shall be deemed to have, become due (a) in the case of advance tax due under any provision of the Act, on the date on which such advance tax is payable; and (b) in the case of any other tax, on the first day of the period within which it is required to be paid. (4) The resultant sum as determined under sub-rule (3) shall be diminished by the value, as ascertained under sub-rule (2), of any investments the income from which is not taken into account in computing the profits of the business and any moneys not required for the purpose of the business, in so far as the aggregate of such investments or moneys exceed the amount of the borrowed moneys which under sub-rule (3) are required to be deducted in computing the capital. (5) The capital employed in a ship shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking of the industrial undertaking. The provisions of s. 80J of the Act which are intended to encourage the setting up of a new industrial enterprise have to be construed liberally. Even if a new undertaking has functioned for only a part of an accounting year, the deduction has to be allowed to the full extent and the percentage cannot be reduced in proportion to the part of the year during which the undertaking was in productive operation. We may also advert to a decision of the Madras High Court in CIT v. Simpson and Co. [1980] 122 ITR 283. The court was not concerned with s. 80J in that case, but s. 84 of the I.T. Act, 1961, which was repealed by. Finance (No. 2) Act, 1967. With effect from April 1, 1968, by the same Finance Act, the provision found a place as s. 80J in the Act. Rule 19 in the I.T. Rules dealt with computation of capital employed in an industrial undertaking or a hotel and the rule is for the purpose of s. 84. Rule 19A is a similar provision for the purpose of computation of capital employed for the purpose of s. 80J. But there is an essential difference between these two rules. While sub-r. (2) of r. 19A, as we have already pointed out, deals with determina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking (referred to in the statute as the relevant amount of capital employed). There are two points to be noticed in this connection. The first is that the percentage is to be worked out on a time basis, depending upon the whole or part of the previous year for which any item of capital is employed in the undertaking, at the rate of six per cent. per annum. The second is that the capital employed in the undertaking, ship or hotel during the previous year relevant to the assessment year has to be computed in the manner prescribed. Rules 19 and 19A of the Income-tax Rules set forth the rules governing such computation. In computing the capital employed in an undertaking for the purpose of granting relief to the assessee under this section on the basis of the written down value of the assets, initial depreciation should not be deducted. This was held to be a prima facie view. " In the light of our discussion, we hold that deduction under s. 80J is permissible on the capital employed at six per cent. per annum for the whole year and not for any part of the year as contended by the Revenue. Therefore, we answer the question in the affirmative, i.e., in favour of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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