{"id":62797,"date":"1968-10-06T00:00:00","date_gmt":"1968-10-05T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-patiala-flour-mills-co-pvt-ltd-on-6-october-1968"},"modified":"2016-09-22T20:05:22","modified_gmt":"2016-09-22T14:35:22","slug":"commissioner-of-income-tax-vs-patiala-flour-mills-co-pvt-ltd-on-6-october-1968","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-patiala-flour-mills-co-pvt-ltd-on-6-october-1968","title":{"rendered":"Commissioner Of Income Tax, &#8230; vs Patiala Flour Mills Co. Pvt. Ltd., &#8230; on 6 October, 1968"},"content":{"rendered":"<div class=\"docsource_main\">Supreme Court of India<\/div>\n<div class=\"doc_title\">Commissioner Of Income Tax, &#8230; vs Patiala Flour Mills Co. Pvt. Ltd., &#8230; on 6 October, 1968<\/div>\n<div class=\"doc_citations\">Equivalent citations: 1979 AIR  216, \t\t  1979 SCR  (2)1128<\/div>\n<div class=\"doc_author\">Author: P Bhagwati<\/div>\n<div class=\"doc_bench\">Bench: Bhagwati, P.N.<\/div>\n<pre>           PETITIONER:\nCOMMISSIONER OF INCOME TAX, PATIALA\n\n\tVs.\n\nRESPONDENT:\nPATIALA FLOUR MILLS CO. PVT. LTD., PATIALA\n\nDATE OF JUDGMENT:\n06\/10\/1968\n\nBENCH:\nBHAGWATI, P.N.\nBENCH:\nBHAGWATI, P.N.\nTULZAPURKAR, V.D.\nPATHAK, R.S.\n\nCITATION:\n 1979 AIR  216\t\t  1979 SCR  (2)1128\n 1979 SCC  (2) 621\n\n\nACT:\n     Income Tax Act, 1961, Section 80 J-Interpretation of.\n\n\n\nHEADNOTE:\n     The Respondent-assessee  claimed in  its assessment  to\ntax for\t the assessment\t year 1970-71  that the\t amounts  of\ndeficiency under  Sec. 801  for the  current as well as past\nassessment years  were liable  to be  adjusted\tagainst\t the\nprofit of  Rs. 1,51,011\/-  earned by  its cold storage plant\nwhich was  a new industrial undertaking to which sub-section\n(4) of\tSec. 80J of the Income Tax Act applied. The assessee\ndid not\t make any  profit in  the business  of cold  storage\nplant during  the assessment years 1967-68, and\t 1968-69 and\n1969-70, but  there was\t profit in  the other businesses and\nthe losses, depreciation allowance and development rebate in\nrespect of  the cold storage plant were adjusted against the\nprofit from  the other\tbusinesses in  computing  the  total\nincome\tof   the  assessee   chargeable\t to  tax  for  those\nassessment years.  The Income  Tax officer and in appeal the\nAppellate Assistant  Commissioner rejected  the claim of the\nassessee for  adjustment. But in further appeal the Tribunal\nheld that since the losses as well as depreciation allowance\nand development\t rebate\t in  respect  of  the  cold  storage\nbusiness for the past assessment years were already adjusted\nagainst the  profit from  other businesses,  no part of such\nlosses,\t depreciation\tallowance  or\tdevelopment   rebate\nremained unabsorbed  so as to be carried forward and set off\nagainst the profit for the assessment year 1970-71 and hence\nthe profit  of Rs. 1,51,011\/- from the cold storage business\nwas not\t liable to  be reduced\tby any\tsuch set off and the\nassessee was  entitled to claim that from out of such profit\nthere should  be deducted, first, the amount of Rs. 83,891\/-\nrepresenting the  relevant amount of capital employed during\nthe previous year and then the amounts of deficiency for the\npast assessment years. The High Court on a reference, at the\ninstance of  the Revenue  answered the question in favour of\nthe assessee.\n     Dismissing the appeal by special leave the Court,\n^\n     HELD: (1) The proper construction of sub-section (1) of\nSec. 80J  must, be  taken to be that the profits or gains of\nthe  new   industrial  undertaking   must  be\tcomputed  in\naccordance with the provisions of the Act in the same manner\nas they\t would be in determining the total income chargeable\nto tax\tand it\tmust follow  a fortiori\t that if the losses,\ndepreciation allowance\tand development rebate in respect of\nthe new industrial undertaking for the past assessment years\nhave been  fully set  off against the profit of the assessee\nfrom other  business or\t for the matter of that, against the\nincome of  the assessee\t under any  other head\tby reason of\nsections 70  and 71 read with sub-section (2) of Sec. 32 and\nsub-section (2)\t of Sec.  32A,\tno  part.  Of  such  losses,\ndepreciation allowance or development rebate would be liable\nto be  adjusted over again in computing the profits or gains\nof the new industrial undertaking for applying the provision\ncontained in  sub-section (1)  of Sec. 80J. The same mode of\ncomputation must  Prevail also\tin  applying  the  provision\ncontained in\n1129\nsub-section  (3)  of  Sec.  80J,  because  that\t sub-section\nprovides for  setting  off  the\t carried-forward  amount  of\ndeficiency of the past assessment years against \"the profits\nand gains  referred to\tin sub-section\t1\" or  Sec. 80J,  as\ncomputed after\tallowing inter alia the deduction admissible\nunder sub-section  and, therefore,  if, for  the purpose  of\nsub-section (  I )  of Sec. 80J, the profits or gains of the\nnew  industrial\t  undertaking  are   to\t  be   computed\t  in\naccordance.. with  the provision  of the  Act and no part of\nthe losses, depreciation allowance or development rebate for\nthe past  assessment years  which has  been  fully  set\t off\nagainst the profit from other businesses or income under any\nother head  is liable to be adjusted over again in computing\nthe profits  or gains  of the awe industrial undertaking, no\nsuch adjustment would equally be permissible in applying the\nprovision contained in sub-section of Section 80J.[1136 D-H,\n1137-A]\n     (2) It is clear from the language of sub-section (1) of\nSection 80J  that the  profits or  gains of a new industrial\nundertaking from  which deduction  of the relevant amount of\ncapital employed  during   a particular\t assessment year  is\nallowable under.  that provision,  are the  profits or gains\nincludible in the computation of the total income chargeable\nto tax.\t Therefore, whatever- be the profits or gains of the\nnew industrial\tundertaking  computed  for  the\t purpose  of\narriving at  the total\tincome chargeable to tax, would have\nto be  taken to\t be the\t profits or.  gains for applying the\nprovision contained in sub-section (I) of Section 80J. [1135\nD-E]\n     (3) There\tare no\ttwo  modes  of\tcomputation  of\t the\nprofits\t or   gains  of\t  the  new   industrial\t undertaking\ncontemplated  by   sub-section(1)  of\tSec.  80J,  one\t for\ndetermining the total income chargeable to tax and the other\nfor applying  the provision  contained in  that sub-section.\nThe language  of sub-section  of Section  80J is  clear\t and\nexplicit and  leaves no\t doubt that  the profits or gains of\nthe new\t industrial undertaking\t for the purpose of allowing\nthe deduction  provided in  that  sub-section,\thave  to  be\ncomputed in  the same  manner in  which\t they  would  be  in\ndetermining  the  total\t income\t chargeable  to\t tax  and  a\ndeduction has then to be made from such profits or gains, of\nthe  relevant\tamount\tof.   capital  employed\t during\t the\nassessment year\t in question.  It cannot  be held    by\t any\nprocess of  construction, even\tby turning  and twisting the\nlanguage of  sub-section (  I )\t of Sec.  80J that  for\t the\npurpose of  allowing the  deduction contemplated  under that\nsection\t the   profits\tor   gains  of\tthe  new  industrial\nundertaking must be computed in a manner different from that\nin which  they would  be computed  in determining  the total\nincome chargeable    to tax. Sub-section (1 ) of Section 80J\ndoes not  create a  legal fiction  that for  the purpose  of\napplying the  provision contained  in that  sub-section, the\nprofits or- gains of the new industrial undertaking shall be\ncomputed as  if the new industrial undertaking were the only\nbusiness  of  the  asseesee  right  from  the  date  of\t its\nestablishment  or  the\tlosses,\t depreciation  allowance  or\ndevelopment  rebate   in  respect   of\tthe  new  industrial\nundertaking for\t the past  assessment years were not set off\nagainst\t the   profit  from   other   businesses.   If\t the\nconstruction of\t sub-section (1)  of Sec.  80J contended for\nand on behalf of the Revenue were accepted, it would lead to\nthe absurd result that there would be two species of profits\nor  gains   of\tthe  new  industrial  undertaking,  one\t for\ninclusion in  the total\t income chargeable  to tax  and\t the\nother for  determining\t the availability  of the  deduction\nunder sub-section  ( I\t) of  Section  80J.  That  would  be\nplainly contrary  to the express language of sub-section (I)\nof Section 80J. [1135 E-H,1136 A-D]\n1130\n\n\n\nJUDGMENT:\n<\/pre>\n<p>     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2395 of<br \/>\n1977.\n<\/p>\n<p>     Appeal by\tSpecial Leave  from the\t Judgment and  Order<br \/>\ndated 28-10-1976  of the  Punjab and  Haryana High  Court in<br \/>\nI.T. Ref. No. 16\/74.\n<\/p>\n<p>     P. A.  Francis, B.\t B. Ahuja and Miss A. Subhashini for<br \/>\nthe Appellant.\n<\/p>\n<p>     G. C. Sharma and S. P. Nayar for the Respondent.<br \/>\n     Devi Pal,\tS. R.  Banerjee, J.  B. Dadachanji, Ravinder<br \/>\nNarain and  Mrs A  K Verma  for the  Intervener (The  Indian<br \/>\nAluminium)<br \/>\n     R. N.  Bajoria, P.\t V. Kapur,  U. K.  Khaitat,  Praveen<br \/>\nKumar and  R.K. Chaudhary  for the  Intervener (orient Sugar<br \/>\nMills)<br \/>\n     The Judgment of the Court was delivered by<br \/>\n     BHAGWATI, J.-The  assessee, a  private limited company,<br \/>\ncarried on  several businesses\tamongst which  there  was  a<br \/>\nbusiness of  cold storage plant. This cold storage plant was<br \/>\nput up\tin the\taccounting year\t relevant to  the assessment<br \/>\nyear 1967-68  and it  was a  new industrial  undertaking  to<br \/>\nwhich sub-section  (4) of section 80J of the Income Tax Act,<br \/>\n1961 applied.  The assessee  did not  make any profit in the<br \/>\nbusiness of  cold storage  plant during the assessment years<br \/>\n1967-68, 1968-69  and 1969-70,\tbut there  was profit in the<br \/>\nother businesses  and the losses, depreciation allowance and<br \/>\ndevelopment rebate in respect of the cold storage plant were<br \/>\nadjusted against  the profit  from the\tother businesses  in<br \/>\ncomputing the total income of the assessee chargeable to tax<br \/>\nfor those  assessment years.  No loss  and no  part  of\t the<br \/>\ndepreciation allowance\tor development\trebate in respect of<br \/>\nthe cold  storage plant\t remained unabsorbed  so  as  to  be<br \/>\navailable for  carry forwarded and set off in the assessment<br \/>\nyear 1970-71.  The business of cold storage plant turned the<br \/>\ncorner after  the initial  teething trouble  and it  made  a<br \/>\nprofit of  Rs. 1,51,011\/-  in the  assessment  year  1970-71<br \/>\nafter taking  into account  the current\t year&#8217;s depreciation<br \/>\nallowance and  development rebate.  The assessee  claimed in<br \/>\nits assessment\tto tax\tfor the assessment year 1970-71 that<br \/>\nthe amounts  of deficiency under section 80J for the current<br \/>\nas well\t as past assessment years were liable to be adjusted<br \/>\nagainst the  pro fit  of Rs.  1,51,011\/- for that assessment<br \/>\nyear. Since  the claim was based on section 80J, it would be<br \/>\nconvenient at this stage to refer to the relevant provisions<br \/>\nof that section. Section 80J was introduced<br \/>\n<span class=\"hidden_text\">1131<\/span><br \/>\n     in the  Act in place of section 84 by Finance Act, 1967<br \/>\nwith effect  from  1st April, 1968. The material portions of<br \/>\nthat section read as under:\n<\/p>\n<blockquote><p>\t  &#8220;80J. (1)  Where the\tgross  total  income  of  an<br \/>\n     assessee includes any profits and gains derived from an<br \/>\n     industrial undertaking  or a  ship or the business of a<br \/>\n     hotel, to\twhich this  section applies, there shall, in<br \/>\n     accordance with  and subject  to the provisions of this<br \/>\n     section, be  allowed, in  computing the total income of<br \/>\n     the assessee,  a deduction\t from such profits and gains<br \/>\n     (reduced by  the deduction,  if any,  admissible to the<br \/>\n     assessee, under  section 80HH) of so much of the amount<br \/>\n     thereof as does not exceed the amount calculated at the<br \/>\n     rate of  six per cent per annum on the capital employed<br \/>\n     in the  industrial undertaking  or ship  or business of<br \/>\n     the  hotel,  as  the  case\t may  be,  computed  in\t the<br \/>\n     prescribed manner\tin  respect  of\t the  previous\tyear<br \/>\n     relevant to  the assessment year (the amount calculated<br \/>\n     as aforesaid being hereafter, in this section, referred<br \/>\n     to as  the relevant  amount of  capital employed during<br \/>\n     the previous year):\n<\/p><\/blockquote>\n<blockquote><p>\t  (2) The  deduction specified\tin  sub-section\t (1)<br \/>\n     shall be  allowed in  computing  the  total  income  in<br \/>\n     respect of the assessment year relevant to the previous<br \/>\n     year in  which the the industrial undertaking begins to<br \/>\n     manufacture or  produce articles or to operate its cold<br \/>\n     storage plant  or plants  or the  ship is first brought<br \/>\n     into  use\t or  the   business  of\t  the  hotel  starts<br \/>\n     functioning (such\tassessment year\t being hereafter, in<br \/>\n     this section,  referred to\t as the\t initial  assessment<br \/>\n     year) and each of the four assessment years immediately<br \/>\n     succeeding the initial assessment year:<br \/>\n\t  (3) Where  the amount\t of the\t profits  and  gains<br \/>\n     derived from  the industrial  undertaking\tor  ship  or<br \/>\n     business of  the hotel, as the case may be, included in<br \/>\n     the total\tincome (as  computed  without  applying\t the<br \/>\n     provisions\t of   section  64   and\t before\t making\t any<br \/>\n     deduction under  Chapter  VI-A  or\t section  280-D)  in<br \/>\n     respect of\t the previous year relevant to an assessment<br \/>\n     year commencing  on or after the 1st day of April 1967,<br \/>\n     (not being\t an assessment\tyear or\t subsequent  to\t the<br \/>\n     fourth assessment\tyear as reckoned from the end of the<br \/>\n     initial assessment\t year) falls  short of\tthe relevant<br \/>\n     amount of<br \/>\n<span class=\"hidden_text\">1132<\/span><br \/>\n     capital employed  during the  previous year, the amount<br \/>\n     of such  shortfall, or, where there are no such profits<br \/>\n     and gains,\t an amount  equal to  the relevant amount of<br \/>\n     capital employed during the previous year (such amount,<br \/>\n     in\t either\t case,\tbeing  hereafter,  in  this  section<br \/>\n     referred to as deficiency) shall be carried forward and<br \/>\n     set off  against the  profits and\tgains referred to in<br \/>\n     sub-section  (1)\t[as  computed\tafter  allowing\t the<br \/>\n     deductions, if  any, admissible under section 80 HH and<br \/>\n     the said  sub-section (1)]\t in respect  of the previous<br \/>\n     year relevant  to the  next following  assessment\tyear<br \/>\n     and, if  there are\t no such  profits and gains for that<br \/>\n     assessment year,  or where\t the deficiency exceeds such<br \/>\n     profits  and   gains,  the\t whole\tor  balance  of\t the<br \/>\n     deficiency, as  the case  may  be,\t shall\tbe  set\t off<br \/>\n     against such  profits and\tgains for the next following<br \/>\n     assessment year and if so far as such deficiency cannot<br \/>\n     be wholly\tso set off, it shall be set off against such<br \/>\n     profits and  gains assessable  for the  next  following<br \/>\n     assessment year and so on:\n<\/p><\/blockquote>\n<blockquote><p>\t  Provided that-\n<\/p><\/blockquote>\n<blockquote><p>\t  (i)  in no  case shall  the deficiency or any part<br \/>\n\t       thereof be carried forward beyond the seventh<br \/>\n\t       assessment year\tas reckoned  from the end of<br \/>\n\t       the initial assessment year;\n<\/p><\/blockquote>\n<blockquote><p>\t  (ii) where there  is more  than one deficiency and<br \/>\n\t       each such  deficiency relates  to a different<br \/>\n\t       assessment year, the deficiency which relates<br \/>\n\t       to an  earlier assessment  year shall  be set<br \/>\n\t       off under this sub-section before setting off<br \/>\n\t       the  deficiency\t in  relation  to  a  latter<br \/>\n\t       assessment year:\n<\/p><\/blockquote>\n<blockquote><p>\t  x\t x\tx      x       x<br \/>\n\t  (4)  This   section  applies\t to  any  industrial<br \/>\n     undertaking which fulfils all the following conditions,<br \/>\n     namely:-\n<\/p><\/blockquote>\n<blockquote><p>\t  (i)  it is  not formed by the splitting up, or the<br \/>\n\t       reconstruction,\tof  a  business\t already  in<br \/>\n\t       existence;\n<\/p><\/blockquote>\n<blockquote><p>\t  (ii) it is  not formed  by the  transfer to  a new<br \/>\n\t       business of machinery or plan previously used<br \/>\n\t       for any purpose;\n<\/p><\/blockquote>\n<blockquote><p>\t   (iii) it  manufactures or  produces articles,  or<br \/>\n\t       operates one  or more  cold storage  plant or<br \/>\n\t       plants, in  any part  of India, and has begun<br \/>\n\t       or begins to operate such plant or plants, at<br \/>\n\t       any time within the period of<br \/>\n<span class=\"hidden_text\">1133<\/span><br \/>\n\t       thirty-three years next following the 1st day<br \/>\n\t       of April, 1948, or such further period as the<br \/>\n\t       Central Government  may, by  notification  in<br \/>\n\t       the official  Gazette, specify with reference<br \/>\n\t       to any particular industrial undertaking;\n<\/p><\/blockquote>\n<blockquote><p>\t  (iv) in a  case where\t the industrial\t undertaking<br \/>\n\t       manufactures  or\t  produces   articles,\t the<br \/>\n\t       undertaking em ploys ten or more workers in a<br \/>\n\t       manufacturing process carried on with the aid<br \/>\n\t       of power,  or employs  twenty or more workers<br \/>\n\t       in a manufacturing process carried on without<br \/>\n\t       the aid or power;\n<\/p><\/blockquote>\n<p>Since there was no profit from the cold storage plant in the<br \/>\nassessment years  1967-68, 1968-69 and 1969-70, the whole of<br \/>\nthe relevant  amount of\t capital employed during each of the<br \/>\nrelevant previous  years remained unabsorbed and constituted<br \/>\ndeficiency for\teach of those assessment years and had to be<br \/>\ncarried forward\t from year  to year upto the assessment year<br \/>\n1970-71 under sub-section (3) of section 80J. The amounts of<br \/>\ndeficiency for\tthe assessment\tyears 1967-68,\t1968-69\t and<br \/>\n1969-70\t came  to  Rs.\t11,155\/-,  Rs.\t1,14,153\/-  and\t Rs.<br \/>\n90,228\/-. The relevant amount of capital employed during the<br \/>\nprevious year  relevant to  the assessment  year 1970-71 was<br \/>\nRs.83,391\/-. The  assessee claimed  that this  amount of Rs.<br \/>\n83,391\/ representing the relevant amount of capital employed<br \/>\nin the\tassessment year\t 1970-71 was  liable to\t  be set off<br \/>\nagainst the  profit of\tRs.1,51,011\/- derived  from the cold<br \/>\nstorage business  under subsection (1) of section 80J and so<br \/>\nfar as\tthe balance of the profit was concerned, the amounts<br \/>\nof deficiency  for the\tpast assessment\t years, namely,\t Rs.<br \/>\n11,155\/-, Rs. 1,14,153\/- and Rs. 90,228\/- which were carried<br \/>\nforward to  the assessment  year 1970-71,  were liable to be<br \/>\nadjusted against  it under  sub-section (3)  of section 80J.<br \/>\nThe Income  Tax officer\t did not  dispute the figures of the<br \/>\nrelevant amount\t of capital  employed in the assessment year<br \/>\n1970-71 or  of\tthe  amounts  of  deficiency  for  the\tpast<br \/>\nassessment years, but held that there was no profit from the<br \/>\nbusiness of  cold storage plant in the assessment year 1970-<br \/>\n71 against  which any part of the relevant amount of capital<br \/>\nemployed  during   the\tassessment  year  1970-71  could  be<br \/>\nadjusted under sub-section (1) of section 80J or any part of<br \/>\nthe carried  forward amounts  of  deficiency  for  the\tpast<br \/>\nassessment years,  deducted under sub-section (3) of section<br \/>\n80J. It\t was not possible to disagree with the assessee that<br \/>\nthe business of the cold storage plant had<br \/>\n<span class=\"hidden_text\">1134<\/span><br \/>\nresulted in  a profit  of Rs.  1,51,011\/- in  the assessment<br \/>\nyear 1970-71  and in  fact it was conceded that this was the<br \/>\namount\tof  profit  liable  to\tbe  taken  into\t account  in<br \/>\ncomputing the  total income  of the  assessee chargeable  to<br \/>\ntax, but  the Income  Tax officer  took\t the  view  that  in<br \/>\ncomputing the  profit of  the cold  storage business for the<br \/>\npurpose of  applying the provision contained in sub-sections<br \/>\n(1) and\t (3) of\t section 80J,  the losses  as  well  as\t the<br \/>\ndepreciation allowance\tand development rebate in respect of<br \/>\nthat business  for  the\t past  assessment  years  should  be<br \/>\nadjusted against  the profit  of Rs. 1,51,011\/-, since there<br \/>\nwas no\tprofit\tat  all\t from  that  business  in  the\tpast<br \/>\nassessment years  against which\t any part  of  such  losses,<br \/>\ndepreciation  allowance\t  or  development  rebate  could  be<br \/>\nabsorbed. The  Income Tax  officer ignored the fact that the<br \/>\nloses as  well as the depreciation allowance and development<br \/>\nrebate in  respect of the cold storage business for the past<br \/>\nassessment years were already adjusted against the profit of<br \/>\nthe assessee  from other  businesses  and  no  part  of\t the<br \/>\nlosses,\t depreciation\tallowance  or\tdevelopment   rebate<br \/>\nremained unabsorbed  for being\tcarried forward\t and set off<br \/>\nagainst the  profit of Rs, 1,51,011\/- in the assessment year<br \/>\n1970-71 and proceeded on the assumption that for the purpose<br \/>\nof subsection  (1) and\t(3) of section 80J, the cold storage<br \/>\nbusiness was  to be  treated in isolation and its profit was<br \/>\nto be computed as if the earlier years&#8217; lossess depreciation<br \/>\nallowance and  development  rebate  had\t not  been  set\t off<br \/>\nagainst the  profit from  other businesses.  The Income\t Tax<br \/>\nofficer accordingly declined to allow any deduction from the<br \/>\nprofit of  Rs. 1,51,011\/-  in respect of the relevant amount<br \/>\nof capital  employed in\t the assessment\t year 1970-71  under<br \/>\nsub-section (1)\t of section  80J  and  in  respect  of\tthe.<br \/>\namounts of  deficiency for  the past  assessment years under<br \/>\nsub-section (3)\t of section  80J and  made assessment on the<br \/>\nassessee without  permitting such  deduction.  The  assessee<br \/>\nchallenged  the\t decision  of  the  Income  Tax\t officer  by<br \/>\npreferring an appeal to the Appellate Assistant Commissioner<br \/>\nbut the\t Appellate Assistant Commissioner took the same view<br \/>\nand rejected  the appeal. The assessee thereupon carried the<br \/>\nmatter in  further appeal  and in  the appeal,\tthe assessee<br \/>\nsucceeded in persuading the Tribunal  to hold that since the<br \/>\nlosses as  well as  depreciation allowance  and\t development<br \/>\nrebate in  respect of the cold storage business for the past<br \/>\nassessment years  were already\tadjusted against  the profit<br \/>\nfrom other  businesses, no part of such losses, depreciation<br \/>\nallowance or development rebate remained unabsorbed so as to<br \/>\nbe carried  forward and\t set off  against the profit for the<br \/>\nassessment  year   1970-71  and\t hence\tthe  profit  of\t Rs.<br \/>\n1,51,011\/- from\t the cold storage business was not liable to<br \/>\nbe reduced by any such set off and the assessee was entitled<br \/>\nto<br \/>\n<span class=\"hidden_text\">1135<\/span><br \/>\nclaim that from out of such profit there should be deducted,<br \/>\nfirst, the  amount of Rs. 83,891\/- representing the relevant<br \/>\namount of  capital employed  during the\t previous  year\t and<br \/>\nthen, the  amounts of  deficiency for  the  past  assessment<br \/>\nyears. The  Revenue being  aggrieved by\t the  order  of\t the<br \/>\nTribunal made  an application  for a  reference and  on\t the<br \/>\napplication, the  following question of law was referred for<br \/>\nthe opinion of the High Court:\n<\/p>\n<blockquote><p>\t  &#8220;Whether on  the facts and in the circumstances of<br \/>\n     the case,\tthe Appellate  Tribunal was  right in law in<br \/>\n     allowing the  deduction under section 80J of the Income<br \/>\n     Tax Act, 1961?&#8221;\n<\/p><\/blockquote>\n<p>The High  Court agreed\twith the  view taken by the Tribunal<br \/>\nand answered  the question  in favour  of the  assessee\t and<br \/>\nagainst the  Revenue. The  Revenue thereupon  preferred\t the<br \/>\npresent appeal with special leave obtained from this Court.\n<\/p>\n<p>     Now it  is clear  from the\t language of  sub-section of<br \/>\nsection 80J  that the  profits or  gains of a new industrial<br \/>\nundertaking from  which deduction  of the relevant amount of<br \/>\ncapital employed  during a  particular\tassessment  year  is<br \/>\nallowable under\t that provision,  are the  profits or  gains<br \/>\nincludible in the computation of the total income chargeable<br \/>\nto tax.\t Therefore, whatever  be the profits or gains of the<br \/>\nnew industrial\tundertaking  computed  for  the\t purpose  of<br \/>\narriving at  the total\tincome chargeable to tax, would have<br \/>\nto be  taken to\t be the\t profits or  gains for\tapplying the<br \/>\nprovision contained  in sub-section    of section 80J. There<br \/>\nare no\ttwo modes  of computation of the profits or gains of<br \/>\nthe new\t industrial undertaking\t contemplated by sub-section<br \/>\nof  section  80J,  one\tfor  determining  the  total  income<br \/>\nchargeable to  tax and\tthe other for applying the provision<br \/>\ncontained in  that sub-section.\t The language of sub-section<br \/>\n(1) of\tsection 80J is clear and explicit and leave no doubt<br \/>\nthat the  profits or gains of the new industrial undertaking<br \/>\nfor the\t purpose of  allowing the deduction provided in that<br \/>\nsub-section, have to be computed in the same manner in which<br \/>\nthey would  be in determining the total income chargeable to<br \/>\ntax and a deduction has then to be made from such profits or<br \/>\ngains, of the relevant amount of capital employed during the<br \/>\nassessment year in question. It is impossible to see how, by<br \/>\nany process  of construction,  even by turning, and twisting<br \/>\nthe language  of sub-section  (1) of  section 80J, it can be<br \/>\nheld  that   for  the  purpose\tof  allowing  the  deduction<br \/>\ncontemplated under  that section the profits or gains of the<br \/>\nnew industrial undertaking must be computed in a<br \/>\n<span class=\"hidden_text\">1136<\/span><br \/>\nmanner different  from that  in which they would be computed<br \/>\nin determining\tthe total  income chargeable  to  tax.\tSub-<br \/>\nsection (1)  of section\t 80J does not create a legal fiction<br \/>\nthat for  the purpose of applying the provision contained in<br \/>\nthat sub-section, the profits or gains of the new industrial<br \/>\nundertaking shall  be computed\tas  if\tthe  new  industrial<br \/>\nundertaking were  the only  business of\t the assessee  right<br \/>\nfrom  the   date  of   its  establishment  or  the  lossess,<br \/>\ndepreciation allowance\tor development\trebate in respect of<br \/>\nthe new industrial undertaking for the past assessment years<br \/>\nwere not  set off  against the profit from other businesses.<br \/>\nIf the\tconstruction  of  sub-section  (1)  of\tsection\t 80J<br \/>\ncontended for and on behalf of the Revenue were accepted, it<br \/>\nwould lead  to the  absurd result  that there  would be\t two<br \/>\nspecies\t of   profits  or   gains  of\tthe  new  industrial<br \/>\nundertaking,  one   for\t inclusion   in\t the   total  income<br \/>\nchargeable  to\t tax  and  the\tother  for  determining\t the<br \/>\navailability of\t the  deduction\t under\tsub-section  (1)  of<br \/>\nsection 80J.  That would  be plainly contrary to the express<br \/>\nlanguage of  sub-section (1)  of  section  80J.\t The  proper<br \/>\nconstruction  of   sub-section\t(1)  of\t section  80J  must,<br \/>\ntherefore, be  taken to\t be that the profits or gains of the<br \/>\nnew industrial\tundertaking must  be computed  in accordance<br \/>\nwith the  provisions of\t the Act  in the same manner as they<br \/>\nwould be  in determining  the total income chargeable to tax<br \/>\nand  it\t  must\tfollow\t a  fortiori  that  if\tthe  losses,<br \/>\ndepreciation allowance\tand development rebate in respect of<br \/>\nthe new industrial undertaking for the past assessment years<br \/>\nhave been  fully set  off against the profit of the assessee<br \/>\nfrom other businesses or for the matter of that, against the<br \/>\nincome of  the assessee\t under any  other head\tby reason of<br \/>\nsections 70  and 71  read with sub-section (2) of section 32<br \/>\nand sub-section\t (2) of section 32A, no part of such losses,<br \/>\ndepreciation allowance or development rebate would be liable<br \/>\nto be  adjusted over again in computing the profits or gains<br \/>\nof the new industrial undertaking for applying the provision<br \/>\ncontained in  sub-section (1)  of section 80J. The same mode<br \/>\nof computation\tmust prevail  also in applying the provision<br \/>\ncontained in  sub-section (3)  of section  80J, because that<br \/>\nsubsection provides  for  setting  off\tthe  carried-forward<br \/>\namount of  deficiency of  the past  assessment years against<br \/>\n&#8220;the profits  and gains\t referred to  in sub-section (1)&#8221; of<br \/>\nsection 80J,  as computed  after  allowing  inter  alia\t the<br \/>\ndeduction admissible  under that sub-section and, therefore,<br \/>\nif, for\t the purpose  of sub-section (1) of section 80J, the<br \/>\nprofits or gains of the new industrial undertaking are to be<br \/>\ncomputed in accordance with the provisions of the Act and no<br \/>\npart of\t the losses,  depreciation allowance  or development<br \/>\nrebate for  the past  assessment years\twhich has been fully<br \/>\nset off\t against the  profit from other businesses or income<br \/>\nunder any other head is liable to be ad-\n<\/p>\n<p><span class=\"hidden_text\">1137<\/span><\/p>\n<p>justed over  again in  computing the profits or gains of the<br \/>\nnew industrial undertaking, no such adjustment would equally<br \/>\nbe permissible\tin applying  the provision contained in sub-<br \/>\nsection (3) of section 80J.\n<\/p>\n<p>     Here, in  the present  case, it  was common ground that<br \/>\nthe losses  as well as deprecation allowance and development<br \/>\nrebate in  respect of the cold storage business for the past<br \/>\nassessment years  were fully  adjusted against the profit of<br \/>\nthe assessee  from other  businesses and  no  part  of\tsuch<br \/>\nlosses,\t depreciation\tallowance  or\tdevelopment   rebate<br \/>\nremained unabsorbed  so as  to be  carried  forward  to\t the<br \/>\nassessment  year  1970-71.  The\t profit\t of  Rs.  1,51,011\/-<br \/>\nderived from  the cold\tstorage business  in the  assessment<br \/>\nyear 1970-71  was, therefore,  not liable to be wiped out or<br \/>\nreduced\t by   adjustment  of   any  part   of  the   losses,<br \/>\ndepreciation allowance\tor development\trebate for  the past<br \/>\nassessment years.  The profit  of the assessee from the cold<br \/>\nstorage business in the assessment year 1970-71 thus came to<br \/>\nRs. 1,51,011\/-and  from out  of that  profit, a\t sum of\t Rs.<br \/>\n83,391\/-representing the relevant amount of capital employed<br \/>\nin the\tassessment year\t 1970-71 was  liable to\t be deducted<br \/>\nunder sub-section  (1) of  section 80J and since that left a<br \/>\nbalance\t of   Rs.  67,620\/-,  the  amount  of  Rs.  11,155\/-<br \/>\nrepresenting deficiency\t for the assessment year 1967-68 was<br \/>\nliable to  be deducted\tfirst and  then, since a part of the<br \/>\nprofit, namely,\t Rs. 56,465\/-still  remained  available\t for<br \/>\ndeduction, the\tamount of deficiency for the assessment year<br \/>\n1968-69 was  liable to\tbe deducted  to the  extent  of\t Rs.<br \/>\n56,465\/-, leaving the profits or gains of the new industrial<br \/>\nundertaking includible in the total income chargeable to tax<br \/>\nas nil.\t The High  Court  as  well  as\tthe  Tribunal  were,<br \/>\ntherefore, right in adjusting the relevant amount of capital<br \/>\nemployed during\t the assessment\t year 1970-71  as  also\t the<br \/>\namounts of  deficiency for  the assessment years 1967-68 and<br \/>\n1968-69 against\t the profit of Rs. 1,51,011\/- derived by the<br \/>\nassessee from the cold storage business and holding that the<br \/>\nprofit of the cold storage business was nil in computing the<br \/>\ntotal income chargeable to tax.\n<\/p>\n<p>     We accordingly  uphold the\t order\tof  the\t High  Court<br \/>\nanswering the question referred by the Tribunal in favour of<br \/>\nthe assessee  and against the Revenue and dismiss the appeal<br \/>\nwith costs.\n<\/p>\n<pre>S.R.\t\t\t\t\t   Appeal dismissed.\n<span class=\"hidden_text\">1138<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"<p>Supreme Court of India Commissioner Of Income Tax, &#8230; vs Patiala Flour Mills Co. Pvt. Ltd., &#8230; on 6 October, 1968 Equivalent citations: 1979 AIR 216, 1979 SCR (2)1128 Author: P Bhagwati Bench: Bhagwati, P.N. PETITIONER: COMMISSIONER OF INCOME TAX, PATIALA Vs. RESPONDENT: PATIALA FLOUR MILLS CO. PVT. LTD., PATIALA DATE OF JUDGMENT: 06\/10\/1968 BENCH: [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-62797","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Commissioner Of Income Tax, ... vs Patiala Flour Mills Co. Pvt. 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