JUDGMENT
D.R. Dhanuka J.
1. The Income-tax Appellate Tribunal has referred the following three questions to this court for decision under section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax. The said questions read as under :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing that the deficiency under section 80J of the Income-tax Act, 1961, in respect of the assessment year 1968-69, which was neither claimed by the assessee nor allowed in the assessment order for 1968-69, should be computed and allowed to be carried forward and set off in the assessment years 1971-72 and 1972-73 ?
(2) Whether the Tribunal was right in law in holding that provision for gratuity amounting to Rs. 1,70,000 is an allowable expenditure for the assessment year 1972-73 under the Income-tax Act ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that technical fees amounting to Rs. 86,643 paid as per collaboration agreement is revenue expenditure allowable in the assessment year 1972-73 ?”
2. The relevant assessment years are 1971-72 and 1972-73.
3. Counsel are agreed that the answer to question No. 2 is covered by the judgment of the Hon’ble Supreme Court in CIT v. Andhra Prabha P. Ltd., , and so the question is required to be answered in the affirmative and in favour of the assessee. We, accordingly, answer question No. 2 in the affirmative and in favour of the assessee.
4. Counsel are also agreed that the answer to question No. 3 is covered by the judgment of our court in LIC v. CIT [1978] 115 ITR 45 (sic), and so the question is required to be answered in the affirmative and in favour of the assessee. We, accordingly, answer question No. 3 in the affirmative and in favour of the assessee.
5. As regards question No. 1, the matter has been argued at some length by learned counsel on both sides as it involves an important question of law in respect of carry forward and set-off of deficiency of earlier years under section 80J(3) of the Income-tax Act, 1961, for the purpose of set-off against the profits of the assessment year under consideration, even though such deficiency was neither claimed by the assessee in the earlier year nor computed by the Income-tax Officer in that year. There is a conflict of judicial opinion amongst various High Courts on this question as indicated below. There is no judgment of the Hon’ble Supreme Court or of our High Court on the point. The matter shall have, therefore, to be examined in detail.
6. The assessee set up a new industrial unit for manufacture of rubber goods in Ahmedabad during the accounting year relevant to the assessment year 1968-69. The said year was an initial year. In the return of income and statement filed for the assessment year 1968-69, the assessee did not claim benefit of section 80J of the Income-tax Act, 1961, as the unit had suffered loss, and there was no scope for any set-off of section 80J benefit against the income and gain of that year, as there was none. During the two succeeding years, i.e., assessment years 1969-70 and 1970-71, as a matter of abundant caution, the assessee furnished particulars of its claim under section 80J to the Income-tax Officer concerned and the amount of section 80J deficiency was computed by the assessing authorities at Rs. 1,63,867 and Rs. 2,03,582 for being carried forward to the succeeding year for set-off against the profits of the succeeding year. During the assessment year 1971-72, the unit made profit. During this year, the assessee claimed benefit of deduction under section 80J for the current year as well as the carry forward deficiency of the assessment years 1968-69, 1969-70 and 1970-71 in terms of section 80J(3). The assessee claimed deduction of Rs. 1,02,845, Rs. 1,63,867 and Rs. 2,03,582, respectively, on account of section 80J deficiency. The Income-tax Officer allowed deduction of the deficiency carried forward for the assessment years 1969-70 and 1970-71 in addition to the claim for the current year aggregating to Rs. 6,22,907. The Income-tax Officer, however, rejected the claim of the assessee for deduction in respect of section 80J deficiency for the assessment year 1968-69 on the ground that the assessee had failed to make the necessary claim during the relevant assessment year, i.e., assessment year 1968-69, and such deficiency could not be, therefore, computed by the Income-tax Officer during that assessment year. The Income-tax Officer came to the conclusion that section 80J deficiency for the assessment year 1968-69 could not be verified, computed or allowed during the assessment year 1971-72 and the Assessing Officer, for the assessment year 1971-72, had no jurisdiction to do so. The Income-tax Officer held that the assessee had lost the right to claim benefit of carry forward and set-off of the said deficiency by reason of its own default.
7. In appeal, the Appellate Assistant Commissioner took the same view and held that the assessee was not entitled to the set-off of the unascertained and uncomputed deficiency under section 80J of the Income-tax Act, 1961, pertaining to the assessment year 1968-69 against the current profits of the assessee for the assessment year 1971-72. The Income-tax Appellate Tribunal in appeal, however, came to the conclusion that the assessee was entitled to the benefit of the carry forward of section 80J deficiency on the ground that there was no provision under the Income-tax Act, 1961, or under the Income-tax Rules, 1962, prescribing an obligation to the effect that the assessee must actually claim the deficiency in the year of deficiency and get the same computed by the Income-tax Officer during the relevant assessment year before the same was allowed to the carried forward for the purpose of set-off against profits of the subsequent year. During the course of its judgment, the Tribunal, by analogy, also referred to the view which was prevalent in respect of carry forward of the loss until section 22 of the Indian Income-tax, 1922, was amended by insertion of sub-section (2A) in the said section. During the course of its judgment, the Tribunal compared and contrasted the provisions for carry forward and set-off of the loss in Chapter VI of the Income-tax Act, 1961, with the provisions for carry forward and set-off of section 80J deficiency and observed that the assessee’s right to carry forward and set-off of section 80J deficiency under section 80J(3) was not subject to the procedural requirement of computation in the previous year as held by the Income-tax Officer and the Appellate Assistant Commissioner. In this view of the matter, the Tribunal granted the claim of the assessee to set off the section 80J deficiency also for the assessment year 1968-69. The Tribunal directed the Income-tax Officer to compute the deficiency under section 80J, if any, for the assessment year 1968-69 and allow carry forward and set-off thereof under the terms of section 80J(3) as more particularly set out in its judgment.
8. Section 80J(1) of the Income-tax Act, 1961, confers a valuable right on an assessee to claim deduction from the profits and gains of an industrial undertaking, etc., to the extent of the amount calculated at the prescribed rate of percentage of capital employed in the industrial undertaking per annum. The Legislature conferred the said right on the assessee as a measure to provide an incentive to the entrepreneurs to set up new industries, as is obvious from the said provision. Section 80J(3) of the Income-tax Act, 1961, reads as under :
“80J. (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) in respect of the previous year relevant to an assessment year commencing on or after April 1, 1967 (not being an assessment year prior to the initial 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 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 80HH or section 80HHA 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 and 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 later assessment year :
Provided further that in the case of an assessee being a co-operative society, the provisions of this sub-section shall have effect as if for the words ‘fourth assessment year’, the words ‘sixth assessment year’ had been substituted.”
9. Section 80J(3) confers a substantive right on the assessee to carry forward the deficiency to the subsequent years subject only to the limitations set out in the said section. The said right can be availed of by the assessee if the amount of benefit available to the assessee cannot be absorbed in the year of deficiency for lack of requisite profits and gains. Section 80J of the Act or the Rules made under the Act do not prescribe any obligation for computation of section 80J deficiency in the year to which it pertains as a condition precedent to the carry forward of the said deficiency in the subsequent years and such a condition cannot be implied. The question which arises before this court is whether, in the absence of an express provision in this behalf, it can be reasonably argued that the assessee has lost its right to the benefit of carry forward and set-off of the deficiency in the subsequent year merely because the assessee has not made the claim in the previous year for computation of such deficiency. In other words, the question to be asked is whether the assessee is under a legal obligation to claim the computation of section 80J deficiency in the very same year to which it pertains before the right to carry forward the deficiency and set-off is exercised by the assessee in the subsequent year in accordance with section 80J(3) of the Act. The question to be asked is whether the Income-tax Officer assessing the assessee during the subsequent year has no jurisdiction to compute the said deficiency which had occurred in the earlier year. The provisions for set-off or carry forward and set-off of losses form part of a separate Chapter under the Income-tax Act, 1961, being Chapter VI. Section 80J forms part of a separate chapter, i.e., Chapter VI-A of the Income-tax Act, 1961. Dr. Balasubramaniam, learned counsel for the Revenue, invites the attention of the court to section 80 of the Income-tax Act, 1961. Section 80 provides that the benefit of carry forward and set-off of loss cannot be claimed by the assessee, unless the loss has been first determined by the Income-tax Officer in pursuance of a return filed by the assessee under the Act. Computation of section 80J deficiency cannot be equated to computation of loss. The two provisions are different and distinct. Section 80, with respect, has no relevance for the purpose of interpreting section 80J(3). If an analogy is to be applied, which appears to us to be unnecessary, the provisions of law contained in the Indian Income-tax Act, 1922, prior to the incorporation of section 22(2A) therein, may perhaps have some relevance. Section 22(2A) was inserted in the Indian Income-tax Act, 1922, by section 14 of the Indian Income-tax (Amendment) Act, 1953, with effect from April 1, 1952. By the said section, it was for the first time provided that the assessee shall have to file a loss return before the assessee could claim the benefit of carry forward and set-off of such loss. Section 80 of the Income-tax Act, 1961, has no bearing on computation of section 80J deficiency.
10. Dr. Balasubramaniam, learned counsel for the Revenue, has relied upon the judgment of the High Court of Karnataka in CIT v. Sree Valliappa Textiles Ltd., [1987] 166 ITR 548, and has contended that in the absence of computation of section 80J deficiency by the Assessing Officer during the relevant assessment year, i.e., the year of deficiency, the benefit of carry forward and set-off of such deficiency cannot be allowed in subsequent assessment years. Learned counsel for the Revenue has submitted that the Income-tax Officer in charge of the assessment for the subsequent year has no jurisdiction to compute such deficiency of previous year in the subsequent year and permit set-off thereof against the profits thereof for the subsequent year. As against this, Shri S. J. Mehta, learned counsel for the assessee, has relied upon the judgments of the High Court of Allahabad, Calcutta, Madras, Andhra Pradesh, Jammu and Kashmir, Madhya Pradesh and Punjab in support of his interpretation to the effect that the assessee cannot be denied the benefit of carry forward and set-off of section 80J deficiency merely because the same was not claimed by the assessee during the assessment year 1968-69, in view of the concerned unit having suffered losses. We have examined the contentions of learned counsel on both sides in the light of the authorities cited before us and also independently of the authorities in the light of the relevant provisions of the Act and the Rules.
11. In Addl. CIT v. Sheetalaya [1979] 117 ITR 658, the High Court of Allahabad held that sub-section (1) of section 80J applied only when the profits and gains were included in the total income of the assessee. It was held that sub-section (3) of the said section provided that the assessee was entitled to carry forward the deficiency till it was adjusted against the profits and gains up to a limit of seven years. It was held that there was no requirement in any part of section 80J that the assessee must make a claim to carry forward of section 80J deficiency in the year of deficiency and that the Income-tax Officer must compute the same in the very same year. In other words, the assessee need not necessarily go through the aforesaid exercise in the year of loss by making a claim for section 80J deficiency and getting the same computed in the year of loss. The assessee may do so. The substantive right conferred on the assessee to carry forward and set off section 80J deficiency under section 80J(3) cannot be defeated merely by reason of an omission on the part of the assessee in that behalf where there is no legal obligation to follow a particular procedure and there is no provision in the Act and the Rules obliging the assessee to follow a particular procedure, as contended by the Department. The facts of this case and the issue involved are similar to the facts of the above-referred judgment of the High Court of Allahabad.
12. In Indian Aluminium Co. Ltd. v. CIT [1980] 122 ITR 660, the High Court of Calcutta took the same view on the subject. The Hon’ble Division Bench observed during the course of this judgment that the Income-tax Rules, 1962, did not prescribe any procedure for prior determination of such deficiency and the income-tax return form did not have even a column for making such a claim. These were the additional reasons provided by the said judgment for the purpose of coming to the conclusion that the assessee was entitled to the benefit of carry forward and set-off of section 80J deficiency in the year of profit and the said right was not defeated merely by reason of its omission to make the claim in the earlier year. The Hon’ble Division Bench referred to its earlier judgment in CIT v. Govindalal Dutta [1958] 33 ITR 630 (Cal), in this behalf and also the judgment of the Hon’ble Supreme Court in CIT v. Manmohan Das , in support of the view which it took. As a matter of fact, in the judgment of the Hon’ble Supreme Court in Manmohan Das’s case [1966] 59 ITR 699, it was clearly observed that it was the duty of the assessing authority in the subsequent year to decide and determine the question of carry forward of the loss in the subsequent year, as the set-off of the said loss was claimed by the assessee in the subsequent year. All these cases pertained to the assessment years when section 22 of the Indian Income-tax Act, 1922, prior to its amendment by incorporation of sub-section (2A) therein existed in the statute book.
13. In CIT v. Bluemount Ceramics Ltd., [1980] 123 ITR 384, the High Court of Madras took the same view as was taken by the High Court of Allahabad in Addl. CIT v. Sheetalaya .
14. In CIT v. Veljan Hydrair (P.) Ltd., [1985] 151 ITR 734, the High Court of Andhra Pradesh was required to deal with a similar problem. The High Court held that it was not obligatory on the part of the assessee to make a claim for deduction in the previous assessment year when no profit was made and that the assessee was entitled to the deduction for all the assessment years in the assessment year 1972-73 in which the assessee for the first time made a profit. In this case, the assessee had made a claim for deduction of section 80J deficiency for three preceding years in the assessment year 1972-73. It was held that the assessee was entitled to the benefit of carry forward and set-off of section 80J deficiency even though the same was not computed in the earlier years.
15. The High Court of Andhra Pradesh followed the earlier judgments of the High Courts of Madras, Allahabad and Calcutta on the subject to which a reference is already made. Shri Mehta, learned counsel for the assessee, has invited our attention to the judgment of the High Court of Punjab in CIT v. Amrit Lal [1989] 180 ITR 251. In this case, the High Court of Punjab agreed with all the judgments of different High Courts on the subject other than the judgment of the High Court of Karnataka and observed as under (at p.255) :
“With respect, the view of the High Court of Allahabad in Sheetalaya’s case is indeed to be preferred as, in our view, there is no bar to the Income-tax Officer dealing with the assessment for the subsequent year to compute the loss in the previous year for the purpose of section 80J of the Act.”
16. We are in respectful agreement with the view taken in the above-referred case cited by Shri Mehta, learned counsel for the assessee. Shri Mehta has also relied on the judgments of other High Courts in CIT v. Mattoo Worsted Spinning and Weaving Mills [1983] 139 ITR 1020 (J & K) and CIT v. Caps and Caps [1989] 179 ITR 235 (MP). The Hon’ble High Courts of Jammu and Kashmir and Madhya Pradesh have taken the same view as the High Court of Punjab. With respect, we are unable to agree with the view taken by the High Court of Karnataka. We prefer to follow the view of the majority of the High Courts after going through each of the cases, as the interpretation of the relevant provisions given in these decisions appeals to us. Several good reasons have been set out in the various judgments of other High Courts in support of the view that the assessee must be held entitled to avail of the benefit of carry forward and set-off section 80J deficiency in the year of profit even in the absence of computation thereof in the year of loss. We concur with the reasoning and conclusion in each of the judgments cited before us, except the above-referred judgment of the Karnataka High Court in the case of CIT v. Sree Valliappa Textiles [1987] 166 ITR 548. We respectfully differ from the Karnataka view.
17. In view of the above discussion, we answer question No. 1 also in the affirmative and in favour of the assessee.
18. In the result, to repeat, the questions are answered as follows :
Question No. 1 : In the affirmative and in favour of the assessee.
Question No. 2 : In the affirmative and in favour of the assessee.
Question No. 3 : In the affirmative and in favour of the assessee.
19. There shall be no order as to costs of the reference.