Commissioner Of Income-Tax v. Hind Lamps Ltd.

1. The controversy involved in the question referred to us is as to whether, on the basis of the profit and loss account submitted by the assessee, the total income of the new unit could be computed for the purpose of deduction under Section 80J of the Income-tax Act. The question referred is quoted below :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is legally correct in holding that the assessee was entitled to exemption in respect of its alleged new unit under Section 80J of the Income-tax Act, 1961 ?"

2. The assessee dealt with production of lamps and for that purpose initially imported lamp caps. Later on, the assessee started manufacturing lamp caps itself for which a new unit was established. In the assessment year 1970-71, the assessee claimed relief under Section 80J of the Act before the Income-tax Officer but that was rejected on the ground that the manufacture of lamp caps was part and parcel of the assessee's existing business of manufacturing lamps and Section 80J was inapplicable. An appeal was filed before the Appellate Assistant Commissioner for the assessment year 1970-71 who also held that the new unit was nothing but a part and parcel of the assessee's existing business. The Appellate Tribunal, however, found that the assessee had established a new industrial undertaking and was entitled to relief under Section 80J. The matter then came up before this court, the reference being CIT v. Hind Lamps Ltd. [1980] 122 ITR 451. The learned judges, after considering the pronouncement of the Supreme Court in Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195, held that the Tribunal was correct in holding that the assessee had established a new unit and was entitled to the relief under Section 80J.

3. In the present case, the dispute relates to the assessment year 1972-73. Learned counsel for the assessee urged that even though no separate profit and loss account and balance-sheet of its new unit of manufacturing lamp caps was submitted before the authorities, the same was prepared by the assessee and it is incorrect that the same were not made available to the Income-tax Officer for working out the amount of deduction. It was further alleged that the submission of separate profit and loss accounts of the new unit was not necessary for working out the deduction under Section 80J of the Income-tax Act.

4. Learned counsel for the Department, on the other hand, vehemently contended before us that as a separate profit and loss account and balance-sheet of the new unit was not available, it would be difficult to compute the assessee's capital and profits of the new unit in accordance with Rule 19 and to separate the common expenses of the existing unit and the new unit and to arrive at a correct figure for adjustment of the claim under Section 80J of the Act.

5. The object of Section 80J is to encourage new industrial undertakings by providing that a certain part of the income should be exempted from tax. This exemption is made available for a certain number of years from the commencement of the working of the new industrial undertaking. The section states that, where any profit and gain is derived from any industrial undertaking, that portion of it to the extent of 6% of the capital employed in the undertaking shall be exempted from tax. The words "profits and gains derived from an industrial undertaking" only mean profits and gains computed in accordance with the provisions of the Act.

6. The provisions of Sub-section (1) of Section 80J make it clear that the profits and gains of a new industrial undertaking from which deduction of the relevant percentage of capital employed during a particular assessment year is allowable under that provision, are the profits and gains includible in the computation of the total income chargeable to tax. There are no two modes of computation of the profits or gains of the new industrial undertaking contemplated by Sub-section (1) of sectin 80J, one for determining the total income chargeable to tax and the other for applying the provision contained in that sub-section, refer CIT v. Patiala Flour Mills Co. Ltd. [1978] 115 ITR 640 (SC).

7. The dispute in the present case has narrowed down and is confined only to whether, on the basis of the profit and loss account submitted by the assessee, the profit and loss of the new unit can reasonably be worked out or not for the purpose of computation of the benefit under Section 80J of the Act.

8. In view of a series of decisions, now there is no dispute that the provisions of Section 80J of the Act do not envisage that separate accounts should be submitted in respect of the new unit and it was also not necessary that separate accounts should be maintained, see International Instruments (P.) Ltd, v. CIT [1980] 123 ITR 11 (Kar) and Mahindra Sintered Products Ltd. v. CIT [1989] 177 ITR 111 (Bom). However, in the present case, separate accounts in the ledger had been kept by the assessee in respect of the new unit on the basis of which, according to him, profits have been determined.

9. Learned counsel for the assessee, Sri V. B. Upadhyaya conceded that the assessee would be entitled to the benefit of Section 80J only after the assessing authority is fully satisfied that, on the basis of the profit and loss account submitted by the assessee, the profit and loss of the new unit could reasonably be worked out and computed in accordance with the provisions of the Act, A similar concession was made before the Tribunal on behalf of the assessee as is apparent from the following observation made by the Tribunal :

"In any event, the assessee has undertaken to give those figures and it will be open to the Income-tax Officer to make such adjustments in the figures as are desirable on the facts and circumstances of the case."

10. In view of the aforesaid stand taken by the assessee and since this exercise is yet to be performed, we refrain from expressing any opinion inasmuch as the entitlement to deduction and its quantum would depend upon the assessee's furnishing sufficient material to the satisfaction of the Income-tax Officer.

11. Thus, the question referred is answered in the affirmative, in favour of the assessee and against the Department.