CENTURY TEXTILES AND INDUSTRIES LTD Vs. INCOME TAX OFFICER
LAWS(IT)-1989-9-7
INCOME TAX APPELLATE TRIBUNAL
Decided on September 13,1989

Appellant
VERSUS
Respondents

JUDGEMENT

S.P. Kapur, Judicial Member - (1.)THE assessment years involved in these appeals, which have been filed by the assessee, are 1983-84 and 1984-85. THE impugned order is that of the learned Commissioner of Income-tax, Central I, Bombay, which is common one for both the assessment years under appeal and has been made under Section 263 of the Income-tax Act, 1961. THE feedback of the fact is to the following effect :-
On a perusal of the assessment records of the above-named assessee it was noticed that the assessment orders passed by the I.T.O. for A.Yrs. 1983-84 and 1984-85 on 14.3.1986 and 30.3.1987 respectively were erroneous in so far as they were prejudicial to the interests of revenue for the following reasons :-

It was seen that the I.T.O. had computed the profits of the Maihar Cement Unit (MCU) at Rs. 3,04,26,996 (A.Yr. 1983-84)/Rs. 3,06,40,129 (A.Yr. 1984-85). THE I.T.O. had determined the amount deductible Under Section 80J at figures higher than those mentioned above and had allowed deduction (Under Section 80J) to the extent of the available profits i.e. of Rs. 3,04,26,996 (A.Yr. 1983-84) and of Rs. 3,06,40,129 (A.Yr. 1984-85). Having regard to the language of Section 80J(1) the profits of MCU ought to have been "reduced by the deduction, if any, admissible to the assessee Under Section 80HH" and deduction Under Section 80J restricted to only Rs. 10,27,740 (A.Yr. 1983-84)/Rs.l1,79,739 (A.Yr. 1984-85) as the assessee had been allowed deduction Under Section 80HH in respect of the Raipur Unit of Rs. 2,93,99,256 (A.Yr. 1983-84)/Rs. 2,94,60,390 (A.Yr.1984-85). It appeared that the I.T.O. had committed an error in allowing deduction Under Section 80J of Rs: 3,04,26,996 (A. Yr. 1983-84)/Rs. 3,06,40,129 (A.Yr. 1984-85) instead of allowing deduction of only Rs. 10,27,740 (A.Yr. 1983-84)/Rs. 11,79,739 (A.Yr. 1984-85).

In the circumstances, a notice Under Section 263 was issued to the assessee on 16.3.1988, asking it to show cause as to why an appropriate direction should not be issued to the I.T.O. in the matter in view of what has been stated in para (1) above.

THE learned Commissioner set aside the assessment orders for the assessment years under appeal on the above issues, viz. deduction allowable to the assessee under Section 80J of the Act with a direction to the Income-tax Officer to re-examine the question and decide the same according to law, of course, after affording the assessee a reasonable opportunity of being heard.

THE stand of the assessee before him being :-

(i) That the order of assessment for the assessment year 1983-84 has merged in the order of Commissioner of Income-tax (Appeals), Central I, Bombay, and, accordingly, in view of the Bombay High Court decision in the case of CIT v. P. Muncherji & Co. [1987] 167 ITR 671 the learned Commissioner had no jurisdiction to invoke Section 263 of the Act; and

(ii) That, on merits, for both of the assessment years, it was the assessee's case that the bracketed words in Section 80J(l) have application only when the profits and gains of the new industrial undertaking were entitled to relief under both the sections, viz. Sections 80HH and 80J; that the profits and gains of such a new industrial undertaking had to be first reduced by the amount of deduction admissible to the assessee under Section 80HH and then deduction under Section 80J was to be allowed; that on the facts of assessee's case, relief is qua -different industrial undertakings and the intention of the Legislature could not have been that the deduction under Section 80J should be effected by first deducting admissible deduction to the assessee under Section 80HH in respect of some other unit - new industrial undertaking.

(2.)The assessee is so very naturally aggrieved, hence these appeals and, on our part, we have heard the learned senior Advocate, Shri N.A. Palkhivala. On behalf of the revenue, Shri R.K. Agarwal, the learned Senior Departmental Representative, addressed us at length. Shri Agarwal emphasised the reasoning of the learned Commissioner, while Shri Palkhivala took us through the relevant sections and particularly Section 80HH(9) to emphasise the assessee's case that when relief is allowable under Section 80HH as also under Section 8QJ to an industrial undertaking, in that case only Section 80J(1) of the Act comes into play, i.e. that when relief under both the sections is to be allowed to an industrial undertaking, first relief shall be worked out and allowed under Section 80HH and then relief under Section 80J. Shri Palkhivala highlighted that relief is qua the industrial undertaking and not the assessee and since an assessee could have very many industrial undertakings, the relief has to be worked qua each unit - new industrial undertaking. He further enlightened us that 80HH relief being not to be carried forward from year to year and 80J relief being so, i.e. has to be carried forward by way of deficiency to subsequent assessment years, the Legislature in its wisdom provided that 80HH relief be allowed to the assessee first and then only 80J relief be allowed and this was provided for in the enactment to give benefit to the assessee. He further highlighted the point that 80J relief is allowable to an industrial 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 arid this was, never the intention, of the 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 or ships or hotel business in certain cases'.' His .emphasis being on words 'industrial undertakings', i.e. a unit to be treated as such as a separate unit and relief is not attributable to the assessee but is allowable qua, each unit - industrial undertaking - to be treated as a separate and distinct unit.
For the purposes of the present appeals, it, is suffice to reproduce Sub-section (9) of Section 80HH as, under:-

(9) In a case where the assessee is entitled also to the deduction under Section 80-I or Section 80J in relation to the profits and gains of an industrial undertaking or the business of a hotel to which this Section applies, effect shall first be, given to the provisions of this section.' Section 80J(l) reads 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 gams (reduced by the deduction, if any, admissible to the assessee under Section 80HH or Section 80HHA 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 manner specified in Sub-section (1 A) 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):

Provided that in relation to the profits and gains derived by an assessee, being a company, from an industrial undertaking which begins to 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, or from the business of a hotel which starts functioning after that date, the provisions of this subsection shall have effect as if for the words "six per cent'', the words "seven and a half percent" had been substituted.

(3.)FROM the above two sections, it is apparent that what is subject matter Of deduction is the 'profits and gains derived from an industrial undertaking' and; accordingly, where a unit treated as an industrial undertaking is eligible for relief under both the sections, deduction shall first be allowed under Section 80HH and then deduction under Section 80J will come into play. But where the industrial undertakings are distinct and separate ones, relief has to be worked separately since each industrial undertaking has to be treated as a unit by itself - a separate and distinct industrial undertaking for the purposes of relief under these sections.
The jurisdictional High Court in the, case of Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO [1973] 92 ITR 241 (Bom.) has had an occasion to discuss relief under Section 80J and the Hon'ble High Court held that, 'in respect of each undertaking the liabilities of the assessee in respect of that industrial undertaking only were to be deducted from the aggregate value of the assets of the same industrial undertaking'. The Hon'ble High Court was concerned with relief under Section 80J and their Lordships were interpreting rule 19A - Income-tax Rules - made thereunder, for work out of relief under Section 80J.



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