B.K.MEHTA, J. -
(1.) THESE two references, one at the instance of the assessee and another at the instance of the Commissioner of Income -tax, Gujarat, arise out of the same order of the Income -tax Appellate Tribunal, Ahmedabad, and we, therefore, intend to dispose of them by this common judgment. Shortly stated, the facts leading to these two reference are as under :
(2.) THE assessee -company carries on business of manufacturing cement at its factory situate at Ranavav in Saurashtra. The capacity of the first cement plant of the assessee -company was 600 tonnes per day. In the year of account, relevant to the assessment year 1968 -69, the capacity was expanded and it was raised to 1,600 tonnes per day. The assessee -company, therefore, made a claim for relief under s. 80J of the I.T. Act, 1961, with reference to the capital employed in the expansion of the plant and machinery. The claim, as originally made before the ITO, was to the tune of Rs. 8,95,471 being 6% of the net capital employed to the tune of Rs. 1,49,24,526. The ITO concerned allowed the said claim for the assessment year 1968 -69. It appears, however, that for the assessment year 1969 -70, which is under reference, three question arose before the ITO. The first related to whether the relief granted under s. 80J for the assessment year 1968 -69 should be continued in the year under reference, that is, 1969 -70 or not. The second question related to deduction of an amount of Rs. 1,051 being the value of the cement bags donated by the assessee -company to a public charitable trust in Baroda under s. 80G of the I.T. Act, 1961. The third question related to the claim of Rs. 88,701 being the amount spent for repair to the guest house of the assessee -company occupied by the managing director of the company at Ranavav -whether it was in the nature of revenue expenses or capital expenditure. The ITO disallowed the assessee's claim as in his opinion the expansion of cement manufacturing unit did not amount to setting up a new industrial undertaking, inasmuch as the activities of the expanded part of the unit as well as those of the original units were much interconnected. He, therefore, held that the assessee could not be said to have set up a separate unit from the existing one. He also disallowed the claim on the ground that no separate books of accounts were maintained for the business activities pertaining to the expanded unit and, therefore, it could not be precisely ascertained as to how much capital had been invested in the expanded unit. The ITO disallowed the deduction of Rs. 1,051 being the value of the cement bags donated as the donation was in kind and not in cash as required under s. 80G. He also disallowed the claim of Rs. 88,701 as revenue expenses since in his opinion the assessee -company had constructed completely a new building and, therefore, the expenditure was in the nature of capital expenditure.
The assessee -company, therefore, carried the matter in appeal before the AAC. The AAC found that the assessee -company had increased the capacity of the plant from 600 tonnes to 1,600 tonnes per day. The AAC was of the opinion that in the absence of there being any specific provision in the Act that the new unit should be altogether distinct and even physically at a distance from the old unit, and that, if the relief as admissible for assessment year 1968 -69, in respect of the expended unit of the assessee -company, that relief would continue to be available to the assessee -company for the subsequent period of four years, the claim would be ex facie admissible since the relief granted in the initial year of assessment, viz., 1968 -69, had not been withdrawn. He, however, with the assessee's consent modified the figure of relief by reducing it from Rs. 8,95,471 to Rs. 8,73,269. The AAC also upheld the claim of the assessee so far as it related to the donation as in his opinion the assessee would have been entitled to the deduction under s. 80G if it had made a cash donation and, therefore, following the decision of the Bombay High Court in CIT v. Associated Cement Co. Ltd. 0043/1967 : 68ITR478(Bom) , he allowed the deduction on the amount of Rs. 1,051 being the value of the cement donated. As regards the third claim, the AAC was of the opinion that the ITO was right in holding that virtually the entire bungalow was reconstructed and, therefore, the expenditure could not be treated as revenue expenditure. The AAC, however, accepted the alternative contention urged on behalf of the assessee that the claim should be allowed as a terminal allowance under s. 32(1)(iii) since the condition for the allowance that the deficiency was written off in the books of accounts was fulfilled. He, therefore, upheld the claim of the assessee -company fully to the extent of Rs. 88,701.
(3.) AT the instance of the ITO, the matter was carried in further appeal before the Income -tax Appellate Tribunal, which was rejected since in the opinion of the Tribunal unless the assessment for the assessment year 1968 -69 was disturbed by withdrawal of the relief, there could be no substance or justification in the revenue's attempt to withdraw the claim under s. 80J of the I.T. Act, 1961, for the subsequent year, i.e., assessment year 1969 -70. The Tribunal also upheld the order of the AAC so far as the deduction on the amount of Rs. 1,051 being the value of the cement bags donated was concerned. The Tribunal did not find any justifying reasons to interfere with the order of the AAC because it would not make any difference merely because the assessee had made the donation in kind and the AAC was, therefore, justified, having regard to the decision of the Bombay High Court in Associated Cement Co.'s 0043/1967 : 68ITR478(Bom) , in granting the deduction under s. 80G of the Act. As regards the allowance of Rs. 88,701 granted by the AAC as terminal allowance under s. 32(1)(iii), the Tribunal was of the view that allowance should be subject to the ceiling prescribed under s. 40(a)(v), as it stood at the relevant time, and, therefore, directed the ITO to obtain figures of salary payable to the managing director, who was occupying the said bungalow and to work out the amount of disallowance to be made under s. 40(a)(v) subject, however, to a maximum allowance of Rs. 12,000. In other words, the Tribunal held that the minimum disallowance would be to the extent of Rs. 76,701. In that view of the matter, which the Tribunal took, in the appeal preferred by the ITO, the CIT sought reference, and the assessee also sought reference since the Tribunal had confirmed the order of the AAC in favour of the assessee on two question while partially reversed the order of the AAC on the third question. The question which have been referred to us at the instance of the Commissioner are as under :
'(1) Whether, on the facts, the Tribunal was right in law in holding that there was no case for the revenue to withdraw the assessee's claim under section 80J for the year under reference, when such claim had been accepted in the earlier assessment year, which assessment had not been disturbed ? (2) Whether the relief under section 80G of the Act is available in respect of donations made in kind ?' ;