B.P.Jeevan Reddy, C.J. - (1.) A common question is referred by the Income-tax Appellate Tribunal in these two income-tax references under Section 256(1) of the Income-tax Act, 1961. The question is : "Whether, on the facts and in the circumstances of the case, the assembly of parts in a component and of various components resulting in the formation of tractor which has propulsion amounts to manufacture and the assessee was thus an industrial undertaking entitled to relief under Sections 80-I and 80J of the Income-tax Act, 1961 ?"
(2.) In I. T. R. No. 614 of 1977, a further question is referred. It reads thus : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the payment of Rs. 1,06,181 being the additional price paid to the U. P. Government towards the cost of raw material and finished goods was a revenue expenditure and a legitimate deduction from the income of the assessment year 1969-70 ?"
(3.) The facts relevant to the first question are the following : The assessee is U. P. State Agro-Industrial Corporation Ltd., Lucknow. It is a Government company as defined in the Companies Act, The assessment years relevant to I. T. R. No 1268 of 1977 are 1970-71, 1971-72 and 1972-73 whereas the assessment year concerned in I. T. R. No. 614 of 1977 is 1969-70. During the relevant previous years, though the assessee did not itself manufacture tractors or any parts thereof, it received tractors from Czechoslovakia in a knocked down or semi-knocked down condition. In the words of the Tribunal, "there are innumerable parts which go to make a tractor. Broadly speaking, it consists of 23 components each of which in turn consists of numerous parts. These components also were not received as such, but were received in a knocked-down or semi-knocked-down condition. The nature of the assessee's business, therefore, was that in the first instance, it assembled the components and then assembled those components so as to complete the tractor." The tractor was known as Zetor 2011. On the above facts, the question arose whether the assessee is an "industrial undertaking". Both Sections 80-I and 80J provide for certain deductions. Deductions are allowable where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking subject to and in accordance with these sections. For the availability of the deductions, however, the total income of the assessee must include profits and gains derived from an industrial undertaking. The assessee claimed the said deduction, which was disallowed by the Income-tax Officer. The Tribu-nal, however, held that the assessee is an "industrial undertaking" in so far as it was engaged in assembling of tractors. It is this view which is questioned by the Revenue before us.;