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TMI Blog1989 (9) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... th March, 1987 respectively were erroneous in so far as they were prejudicial to the interest of revenue for the following reasons: It was seen that the ITO had computed the profits of he Maihar Cement Unit (MCU) at Rs. 3,04,26,996 (asst. yr. 1983-84)/Rs. 3,06,40,129 (asst. yr. 1984-85). The ITO had determined the amount deductible under s. 80-J at figures higher than those mentioned above and had allowed deduction (under s. 80-J) to the extent of the available profits i.e., of Rs. 3,04,26,996 (asst. yr. 1983-84) and of Rs. 3,06,40,129 (asst. yr. 1984-85). Having regard to the language of s. 80J(1) the profits of MCU ought to have been "reduced by the deduction, if any, admissible to the assessee under s. 80-HH" and deduction under s. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act; and (ii) That, on merits, for both of the assessment years, it was the assessee's case that the bracketed words in s. 80J(1) have application only when the profits and gains of the new industrial undertaking were entitled to relief under both the sections, viz., ss. 80HH and 80J; that the profits and gains of such a new industrial under taking had to be first reduced by the amount of deduction admissible to the assessee under s. 80HH and then deduction under s. 80J was to be allowed; that on the fats of assessee's case, relief is quadifferent industrial undertaking and the intention of the Legislature could not have been that the deduction under s. 80J should be effected by first deducting admissible deduction to the assessee unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking fulfilling the conditions provided for in the said section, whether or not the industrial undertaking is situate in an urban or rural area or else, in a backward area but 80HH relief is allowable to an industrial undertaking situate in backward areas and this was never the intention of Legislature that an industrial undertaking eligible for deduction under both the sections, viz., 80HH and 80J should suffer as against an industrial undertaking not situate in a backward area. In nutshell, Shri Palkhivala made out the point that what is the subject matter of deduction is 'profits and gains from newly established industrial undertakings/hotel in backward areas' and 'profits and gains from newly established industrial undertakings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year): Provided that in relation to the profits and gains derived by an assessee, being a company, from an industrial undertaking which beings to a manufacture or produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976, or from a ship which is first brought into use after that date, the provisions of this sub-section shall have effect as if for the words "six per cent", the words "seven and a half per cent" had been substituted." 4. From the above two sections, it is apparent that what is subject-matter of deduction is the 'profits and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides that in computing the taxable income of an assessee from a newly established industrial undertaking ship or business of a hotel, a deduction shall be allowed at the rate of 6 per cent (w.e.f. 1st April, 1976 at the rate of 7.5 per cent in the case of a company) of the capital employed in the industrial undertaking, ship or business of the hotel. Rule 19A of the IT Rules, 1962 prescribed the manner of computation of the capital employed for this purposes. Sub-r. (2) of r. 19A provided that the aggregate of the amounts representing the value of the assets of the undertaking shall first be ascertained in the manner specified therein. Sub-r. (3) of r. 19A provided that from the amount ascertained under sub-s. (2), the aggregate of the bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort (1977-78) of the Public Accounts Committee, p. 65), which also stand reproduced hereunder: '328. Whether any expenses or other allowances including unabsorbed depreciation should be allowed as set off against profits of any other units or other heads of income in determining profits earned by new industrial undertaking for the purposes of deduction. The Board desire to emphasize that while computing the relief admissible under s. 80J, the profits and gains attributable to the new industrial undertaking should be carefully computed by applying the provisions of ss. 30 to 43A as if the new industrial undertaking is a separate business by itself. In other words, in determining the profits earned by a new industrial under taking for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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