PETITIONER:
COMMISSIONER OF INCOME TAX, PATIALA
Vs.
RESPONDENT:
PATIALA FLOUR MILLS CO. PVT. LTD., PATIALA
DATE OF JUDGMENT:
06/10/1968
BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
TULZAPURKAR, V.D.
PATHAK, R.S.
CITATION:
1979 AIR 216 1979 SCR (2)1128
1979 SCC (2) 621
ACT:
Income Tax Act, 1961, Section 80 J-Interpretation of.
HEADNOTE:
The Respondent-assessee claimed in its assessment to
tax for the assessment year 1970-71 that the amounts of
deficiency under Sec. 801 for the current as well as past
assessment years were liable to be adjusted against the
profit of Rs. 1,51,011/- earned by its cold storage plant
which was a new industrial undertaking to which sub-section
(4) of Sec. 80J of the Income Tax Act applied. The assessee
did not make any profit in the business of cold storage
plant during the assessment years 1967-68, and 1968-69 and
1969-70, but there was profit in the other businesses and
the losses, depreciation allowance and development rebate in
respect of the cold storage plant were adjusted against the
profit from the other businesses in computing the total
income of the assessee chargeable to tax for those
assessment years. The Income Tax officer and in appeal the
Appellate Assistant Commissioner rejected the claim of the
assessee for adjustment. But in further appeal the Tribunal
held that since the losses as well as depreciation allowance
and development rebate in respect of the cold storage
business for the past assessment years were already adjusted
against the profit from other businesses, no part of such
losses, depreciation allowance or development rebate
remained unabsorbed so as to be carried forward and set off
against the profit for the assessment year 1970-71 and hence
the profit of Rs. 1,51,011/- from the cold storage business
was not liable to be reduced by any such set off and the
assessee was entitled to claim that from out of such profit
there should be deducted, first, the amount of Rs. 83,891/-
representing the relevant amount of capital employed during
the previous year and then the amounts of deficiency for the
past assessment years. The High Court on a reference, at the
instance of the Revenue answered the question in favour of
the assessee.
Dismissing the appeal by special leave the Court,
^
HELD: (1) The proper construction of sub-section (1) of
Sec. 80J must, be taken to be that the profits or gains of
the new industrial undertaking must be computed in
accordance with the provisions of the Act in the same manner
as they would be in determining the total income chargeable
to tax and it must follow a fortiori that if the losses,
depreciation allowance and development rebate in respect of
the new industrial undertaking for the past assessment years
have been fully set off against the profit of the assessee
from other business or for the matter of that, against the
income of the assessee under any other head by reason of
sections 70 and 71 read with sub-section (2) of Sec. 32 and
sub-section (2) of Sec. 32A, no part. Of such losses,
depreciation allowance or development rebate would be liable
to be adjusted over again in computing the profits or gains
of the new industrial undertaking for applying the provision
contained in sub-section (1) of Sec. 80J. The same mode of
computation must Prevail also in applying the provision
contained in
1129
sub-section (3) of Sec. 80J, because that sub-section
provides for setting off the carried-forward amount of
deficiency of the past assessment years against "the profits
and gains referred to in sub-section 1" or Sec. 80J, as
computed after allowing inter alia the deduction admissible
under sub-section and, therefore, if, for the purpose of
sub-section ( I ) of Sec. 80J, the profits or gains of the
new industrial undertaking are to be computed in
accordance.. with the provision of the Act and no part of
the losses, depreciation allowance or development rebate for
the past assessment years which has been fully set off
against the profit from other businesses or income under any
other head is liable to be adjusted over again in computing
the profits or gains of the awe industrial undertaking, no
such adjustment would equally be permissible in applying the
provision contained in sub-section of Section 80J.[1136 D-H,
1137-A]
(2) It is clear from the language of sub-section (1) of
Section 80J that the profits or gains of a new industrial
undertaking from which deduction of the relevant amount of
capital employed during a particular assessment year is
allowable under. that provision, are the profits or gains
includible in the computation of the total income chargeable
to tax. Therefore, whatever- be the profits or gains of the
new industrial undertaking computed for the purpose of
arriving at the total income chargeable to tax, would have
to be taken to be the profits or. gains for applying the
provision contained in sub-section (I) of Section 80J. [1135
D-E]
(3) There are no two modes of computation of the
profits or gains of the new industrial undertaking
contemplated by sub-section(1) of Sec. 80J, one for
determining the total income chargeable to tax and the other
for applying the provision contained in that sub-section.
The language of sub-section of Section 80J is clear and
explicit and leaves no doubt that the profits or gains of
the new industrial undertaking for the purpose of allowing
the deduction provided in that sub-section, have to be
computed in the same manner in which they would be in
determining the total income chargeable to tax and a
deduction has then to be made from such profits or gains, of
the relevant amount of. capital employed during the
assessment year in question. It cannot be held by any
process of construction, even by turning and twisting the
language of sub-section ( I ) of Sec. 80J that for the
purpose of allowing the deduction contemplated under that
section the profits or gains of the new industrial
undertaking must be computed in a manner different from that
in which they would be computed in determining the total
income chargeable to tax. Sub-section (1 ) of Section 80J
does not create a legal fiction that for the purpose of
applying the provision contained in that sub-section, the
profits or- gains of the new industrial undertaking shall be
computed as if the new industrial undertaking were the only
business of the asseesee right from the date of its
establishment or the losses, depreciation allowance or
development rebate in respect of the new industrial
undertaking for the past assessment years were not set off
against the profit from other businesses. If the
construction of sub-section (1) of Sec. 80J contended for
and on behalf of the Revenue were accepted, it would lead to
the absurd result that there would be two species of profits
or gains of the new industrial undertaking, one for
inclusion in the total income chargeable to tax and the
other for determining the availability of the deduction
under sub-section ( I ) of Section 80J. That would be
plainly contrary to the express language of sub-section (I)
of Section 80J. [1135 E-H,1136 A-D]
1130
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2395 of
1977.
Appeal by Special Leave from the Judgment and Order
dated 28-10-1976 of the Punjab and Haryana High Court in
I.T. Ref. No. 16/74.
P. A. Francis, B. B. Ahuja and Miss A. Subhashini for
the Appellant.
G. C. Sharma and S. P. Nayar for the Respondent.
Devi Pal, S. R. Banerjee, J. B. Dadachanji, Ravinder
Narain and Mrs A K Verma for the Intervener (The Indian
Aluminium)
R. N. Bajoria, P. V. Kapur, U. K. Khaitat, Praveen
Kumar and R.K. Chaudhary for the Intervener (orient Sugar
Mills)
The Judgment of the Court was delivered by
BHAGWATI, J.-The assessee, a private limited company,
carried on several businesses amongst which there was a
business of cold storage plant. This cold storage plant was
put up in the accounting year relevant to the assessment
year 1967-68 and it was a new industrial undertaking to
which sub-section (4) of section 80J of the Income Tax Act,
1961 applied. The assessee did not make any profit in the
business of cold storage plant during the assessment years
1967-68, 1968-69 and 1969-70, but there was profit in the
other businesses and the losses, depreciation allowance and
development rebate in respect of the cold storage plant were
adjusted against the profit from the other businesses in
computing the total income of the assessee chargeable to tax
for those assessment years. No loss and no part of the
depreciation allowance or development rebate in respect of
the cold storage plant remained unabsorbed so as to be
available for carry forwarded and set off in the assessment
year 1970-71. The business of cold storage plant turned the
corner after the initial teething trouble and it made a
profit of Rs. 1,51,011/- in the assessment year 1970-71
after taking into account the current year’s depreciation
allowance and development rebate. The assessee claimed in
its assessment to tax for the assessment year 1970-71 that
the amounts of deficiency under section 80J for the current
as well as past assessment years were liable to be adjusted
against the pro fit of Rs. 1,51,011/- for that assessment
year. Since the claim was based on section 80J, it would be
convenient at this stage to refer to the relevant provisions
of that section. Section 80J was introduced
1131
in the Act in place of section 84 by Finance Act, 1967
with effect from 1st April, 1968. The material portions of
that section read as under:
“80J. (1) Where the gross total income of an
assessee includes any profits and gains derived from an
industrial undertaking or a ship or the business of a
hotel, to which this section applies, there shall, in
accordance with and subject to the provisions of this
section, be allowed, in computing the total income of
the assessee, a deduction from such profits and gains
(reduced by the deduction, if any, admissible to the
assessee, under section 80HH) of so much of the amount
thereof as does not exceed the amount calculated at the
rate of six per cent per annum on the capital employed
in the industrial undertaking or ship or business of
the hotel, as the case may be, computed in the
prescribed manner in respect of the previous year
relevant to the assessment year (the amount calculated
as aforesaid being hereafter, in this section, referred
to as the relevant amount of capital employed during
the previous year):
(2) The deduction specified in sub-section (1)
shall be allowed in computing the total income in
respect of the assessment year relevant to the previous
year in which the the industrial undertaking begins to
manufacture or produce articles or to operate its cold
storage plant or plants or the ship is first brought
into use or the business of the hotel starts
functioning (such assessment year being hereafter, in
this section, referred to as the initial assessment
year) and each of the four assessment years immediately
succeeding the initial assessment year:
(3) Where the amount of the profits and gains
derived from the industrial undertaking or ship or
business of the hotel, as the case may be, included in
the total income (as computed without applying the
provisions of section 64 and before making any
deduction under Chapter VI-A or section 280-D) in
respect of the previous year relevant to an assessment
year commencing on or after the 1st day of April 1967,
(not being an assessment year or subsequent to the
fourth assessment year as reckoned from the end of the
initial assessment year) falls short of the relevant
amount of
1132
capital employed during the previous year, the amount
of such shortfall, or, where there are no such profits
and gains, an amount equal to the relevant amount of
capital employed during the previous year (such amount,
in either case, being hereafter, in this section
referred to as deficiency) shall be carried forward and
set off against the profits and gains referred to in
sub-section (1) [as computed after allowing the
deductions, if any, admissible under section 80 HH and
the said sub-section (1)] in respect of the previous
year relevant to the next following assessment year
and, if there are no such profits and gains for that
assessment year, or where the deficiency exceeds such
profits and gains, the whole or balance of the
deficiency, as the case may be, shall be set off
against such profits and gains for the next following
assessment year and if so far as such deficiency cannot
be wholly so set off, it shall be set off against such
profits and gains assessable for the next following
assessment year and so on:
Provided that-
(i) in no case shall the deficiency or any part
thereof be carried forward beyond the seventh
assessment year as reckoned from the end of
the initial assessment year;
(ii) where there is more than one deficiency and
each such deficiency relates to a different
assessment year, the deficiency which relates
to an earlier assessment year shall be set
off under this sub-section before setting off
the deficiency in relation to a latter
assessment year:
x x x x x
(4) This section applies to any industrial
undertaking which fulfils all the following conditions,
namely:-
(i) it is not formed by the splitting up, or the
reconstruction, of a business already in
existence;
(ii) it is not formed by the transfer to a new
business of machinery or plan previously used
for any purpose;
(iii) it manufactures or produces articles, or
operates one or more cold storage plant or
plants, in any part of India, and has begun
or begins to operate such plant or plants, at
any time within the period of
1133
thirty-three years next following the 1st day
of April, 1948, or such further period as the
Central Government may, by notification in
the official Gazette, specify with reference
to any particular industrial undertaking;
(iv) in a case where the industrial undertaking
manufactures or produces articles, the
undertaking em ploys ten or more workers in a
manufacturing process carried on with the aid
of power, or employs twenty or more workers
in a manufacturing process carried on without
the aid or power;
Since there was no profit from the cold storage plant in the
assessment years 1967-68, 1968-69 and 1969-70, the whole of
the relevant amount of capital employed during each of the
relevant previous years remained unabsorbed and constituted
deficiency for each of those assessment years and had to be
carried forward from year to year upto the assessment year
1970-71 under sub-section (3) of section 80J. The amounts of
deficiency for the assessment years 1967-68, 1968-69 and
1969-70 came to Rs. 11,155/-, Rs. 1,14,153/- and Rs.
90,228/-. The relevant amount of capital employed during the
previous year relevant to the assessment year 1970-71 was
Rs.83,391/-. The assessee claimed that this amount of Rs.
83,391/ representing the relevant amount of capital employed
in the assessment year 1970-71 was liable to be set off
against the profit of Rs.1,51,011/- derived from the cold
storage business under subsection (1) of section 80J and so
far as the balance of the profit was concerned, the amounts
of deficiency for the past assessment years, namely, Rs.
11,155/-, Rs. 1,14,153/- and Rs. 90,228/- which were carried
forward to the assessment year 1970-71, were liable to be
adjusted against it under sub-section (3) of section 80J.
The Income Tax officer did not dispute the figures of the
relevant amount of capital employed in the assessment year
1970-71 or of the amounts of deficiency for the past
assessment years, but held that there was no profit from the
business of cold storage plant in the assessment year 1970-
71 against which any part of the relevant amount of capital
employed during the assessment year 1970-71 could be
adjusted under sub-section (1) of section 80J or any part of
the carried forward amounts of deficiency for the past
assessment years, deducted under sub-section (3) of section
80J. It was not possible to disagree with the assessee that
the business of the cold storage plant had
1134
resulted in a profit of Rs. 1,51,011/- in the assessment
year 1970-71 and in fact it was conceded that this was the
amount of profit liable to be taken into account in
computing the total income of the assessee chargeable to
tax, but the Income Tax officer took the view that in
computing the profit of the cold storage business for the
purpose of applying the provision contained in sub-sections
(1) and (3) of section 80J, the losses as well as the
depreciation allowance and development rebate in respect of
that business for the past assessment years should be
adjusted against the profit of Rs. 1,51,011/-, since there
was no profit at all from that business in the past
assessment years against which any part of such losses,
depreciation allowance or development rebate could be
absorbed. The Income Tax officer ignored the fact that the
loses as well as the depreciation allowance and development
rebate in respect of the cold storage business for the past
assessment years were already adjusted against the profit of
the assessee from other businesses and no part of the
losses, depreciation allowance or development rebate
remained unabsorbed for being carried forward and set off
against the profit of Rs, 1,51,011/- in the assessment year
1970-71 and proceeded on the assumption that for the purpose
of subsection (1) and (3) of section 80J, the cold storage
business was to be treated in isolation and its profit was
to be computed as if the earlier years’ lossess depreciation
allowance and development rebate had not been set off
against the profit from other businesses. The Income Tax
officer accordingly declined to allow any deduction from the
profit of Rs. 1,51,011/- in respect of the relevant amount
of capital employed in the assessment year 1970-71 under
sub-section (1) of section 80J and in respect of the.
amounts of deficiency for the past assessment years under
sub-section (3) of section 80J and made assessment on the
assessee without permitting such deduction. The assessee
challenged the decision of the Income Tax officer by
preferring an appeal to the Appellate Assistant Commissioner
but the Appellate Assistant Commissioner took the same view
and rejected the appeal. The assessee thereupon carried the
matter in further appeal and in the appeal, the assessee
succeeded in persuading the Tribunal to hold that since the
losses as well as depreciation allowance and development
rebate in respect of the cold storage business for the past
assessment years were already adjusted against the profit
from other businesses, no part of such losses, depreciation
allowance or development rebate remained unabsorbed so as to
be carried forward and set off against the profit for the
assessment year 1970-71 and hence the profit of Rs.
1,51,011/- from the cold storage business was not liable to
be reduced by any such set off and the assessee was entitled
to
1135
claim that from out of such profit there should be deducted,
first, the amount of Rs. 83,891/- representing the relevant
amount of capital employed during the previous year and
then, the amounts of deficiency for the past assessment
years. The Revenue being aggrieved by the order of the
Tribunal made an application for a reference and on the
application, the following question of law was referred for
the opinion of the High Court:
“Whether on the facts and in the circumstances of
the case, the Appellate Tribunal was right in law in
allowing the deduction under section 80J of the Income
Tax Act, 1961?”
The High Court agreed with the view taken by the Tribunal
and answered the question in favour of the assessee and
against the Revenue. The Revenue thereupon preferred the
present appeal with special leave obtained from this Court.
Now it is clear from the language of sub-section of
section 80J that the profits or gains of a new industrial
undertaking from which deduction of the relevant amount of
capital employed during a particular assessment year is
allowable under that provision, are the profits or gains
includible in the computation of the total income chargeable
to tax. Therefore, whatever be the profits or gains of the
new industrial undertaking computed for the purpose of
arriving at the total income chargeable to tax, would have
to be taken to be the profits or gains for applying the
provision contained in sub-section of section 80J. There
are no two modes of computation of the profits or gains of
the new industrial undertaking contemplated by sub-section
of section 80J, one for determining the total income
chargeable to tax and the other for applying the provision
contained in that sub-section. The language of sub-section
(1) of section 80J is clear and explicit and leave no doubt
that the profits or gains of the new industrial undertaking
for the purpose of allowing the deduction provided in that
sub-section, have to be computed in the same manner in which
they would be in determining the total income chargeable to
tax and a deduction has then to be made from such profits or
gains, of the relevant amount of capital employed during the
assessment year in question. It is impossible to see how, by
any process of construction, even by turning, and twisting
the language of sub-section (1) of section 80J, it can be
held that for the purpose of allowing the deduction
contemplated under that section the profits or gains of the
new industrial undertaking must be computed in a
1136
manner different from that in which they would be computed
in determining the total income chargeable to tax. Sub-
section (1) of section 80J does not create a legal fiction
that for the purpose of applying the provision contained in
that sub-section, the profits or gains of the new industrial
undertaking shall be computed as if the new industrial
undertaking were the only business of the assessee right
from the date of its establishment or the lossess,
depreciation allowance or development rebate in respect of
the new industrial undertaking for the past assessment years
were not set off against the profit from other businesses.
If the construction of sub-section (1) of section 80J
contended for and on behalf of the Revenue were accepted, it
would lead to the absurd result that there would be two
species of profits or gains of the new industrial
undertaking, one for inclusion in the total income
chargeable to tax and the other for determining the
availability of the deduction under sub-section (1) of
section 80J. That would be plainly contrary to the express
language of sub-section (1) of section 80J. The proper
construction of sub-section (1) of section 80J must,
therefore, be taken to be that the profits or gains of the
new industrial undertaking must be computed in accordance
with the provisions of the Act in the same manner as they
would be in determining the total income chargeable to tax
and it must follow a fortiori that if the losses,
depreciation allowance and development rebate in respect of
the new industrial undertaking for the past assessment years
have been fully set off against the profit of the assessee
from other businesses or for the matter of that, against the
income of the assessee under any other head by reason of
sections 70 and 71 read with sub-section (2) of section 32
and sub-section (2) of section 32A, no part of such losses,
depreciation allowance or development rebate would be liable
to be adjusted over again in computing the profits or gains
of the new industrial undertaking for applying the provision
contained in sub-section (1) of section 80J. The same mode
of computation must prevail also in applying the provision
contained in sub-section (3) of section 80J, because that
subsection provides for setting off the carried-forward
amount of deficiency of the past assessment years against
“the profits and gains referred to in sub-section (1)” of
section 80J, as computed after allowing inter alia the
deduction admissible under that sub-section and, therefore,
if, for the purpose of sub-section (1) of section 80J, the
profits or gains of the new industrial undertaking are to be
computed in accordance with the provisions of the Act and no
part of the losses, depreciation allowance or development
rebate for the past assessment years which has been fully
set off against the profit from other businesses or income
under any other head is liable to be ad-
1137
justed over again in computing the profits or gains of the
new industrial undertaking, no such adjustment would equally
be permissible in applying the provision contained in sub-
section (3) of section 80J.
Here, in the present case, it was common ground that
the losses as well as deprecation allowance and development
rebate in respect of the cold storage business for the past
assessment years were fully adjusted against the profit of
the assessee from other businesses and no part of such
losses, depreciation allowance or development rebate
remained unabsorbed so as to be carried forward to the
assessment year 1970-71. The profit of Rs. 1,51,011/-
derived from the cold storage business in the assessment
year 1970-71 was, therefore, not liable to be wiped out or
reduced by adjustment of any part of the losses,
depreciation allowance or development rebate for the past
assessment years. The profit of the assessee from the cold
storage business in the assessment year 1970-71 thus came to
Rs. 1,51,011/-and from out of that profit, a sum of Rs.
83,391/-representing the relevant amount of capital employed
in the assessment year 1970-71 was liable to be deducted
under sub-section (1) of section 80J and since that left a
balance of Rs. 67,620/-, the amount of Rs. 11,155/-
representing deficiency for the assessment year 1967-68 was
liable to be deducted first and then, since a part of the
profit, namely, Rs. 56,465/-still remained available for
deduction, the amount of deficiency for the assessment year
1968-69 was liable to be deducted to the extent of Rs.
56,465/-, leaving the profits or gains of the new industrial
undertaking includible in the total income chargeable to tax
as nil. The High Court as well as the Tribunal were,
therefore, right in adjusting the relevant amount of capital
employed during the assessment year 1970-71 as also the
amounts of deficiency for the assessment years 1967-68 and
1968-69 against the profit of Rs. 1,51,011/- derived by the
assessee from the cold storage business and holding that the
profit of the cold storage business was nil in computing the
total income chargeable to tax.
We accordingly uphold the order of the High Court
answering the question referred by the Tribunal in favour of
the assessee and against the Revenue and dismiss the appeal
with costs.
S.R. Appeal dismissed.
1138