Syed Shah Mohammed Quadri, J.:— These two cases relate to the same assessee, R.C No. 118 of 1987, arises out of the order of assessment for the assessment year 1980-81 and R.C No. 35 of 1988 relates to the assessment year 1981-82. In these cases, at the instance of the Revenue, the following questions of law are referred to this court for opinion under section 256(1) of the Income-tax Act, 1961.
2. In R.C No. 118 of 1987, the following question is referred to this court:
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in directing the grant of relief under section 80J even though no separate set of accounts were maintained?”
3. In R.C No. 35 of 1988 the following two questions are referred to this court:
“(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in directing the grant of relief under section 80J even though no separate set of accounts were maintained and profits of the new unit could not be clearly determined?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the provisions of section 80J(4)(iv) were applicable in this case and the employment test should be understood in the context of normal circumstances and not during periods of abnormalities such as strike, closure of mills and labour unrest?”
4. The following are the facts giving rise to these questions:
“The assessee is a private limited company engaged in the business of manufacture of cotton yarn. It is also carrying on money-lending business. It claimed deduction under section 80J. of the Income-tax Act in respect of the assessment year 1980-81 on the ground that it had fixed rieter ring frames, simplex fly frames, transformer, motors, etc., in a new building. The Income-tax Officer found that there was no identifiable separate unit, so he disallowed the relief under section 80J of the Act. On appeal before the Commissioner of Income-tax (Appeals) also the assessee's appeal was rejected. He then filed the second appeal before the Income-tax Appellate Tribunal. The Tribunal recorded a finding that the assessee kept composite accounts for its old as well as its new unit, and held that the claim based on the ratio of respective turnover for deduction under section 80J of the Act was allowable. It also noted that merely because separate accounts were not maintained the relief under section 80J could not be denied. In that view of the matter, the appeal was allowed. Hence the sole question in R.C No. 118 of 1987 which is the first question in R.C No. 35 of 1988 was referred to us. So far as the second question is concerned it was pointed out that during the accounting year relevant for the assessment year 1980-81, the employees were less than the minimum stipulated as such, the allowance could not be granted.
5. We shall first dispose of the second question. It is not disputed that the fall in the strength of the staff was not during the normal period, but owing to the closure of the mill during the relevant period. As this was an abnormal situation the strength of the staff cannot be taken as a criterion for denying the relief. In such a situation where an undertaking remains closed or could not work either due to closure or strike or due to other valid reasons, the employment days should not be limited to that period for considering the question of allowability of the allowance. The employment days that could be applied is during the normal period and if that is done, it is not disputed, that the number of workers are more than the minimum prescribed. In this view of the matter, we answer the second question in the affirmative, i.e, in favour of the assessee and against the Revenue.
6. Now reverting to the first question that accounts should be maintained separately by the unit, it must be noted that there is no legal obligation on the head office or the units to maintain separate accounts. Section 145 of the Income-tax Act on which reliance is placed by learned standing counsel for the Revenue, prescribes as to how income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” should be computed. It does not cast an obligation on such unit of an undertaking to maintain separate accounts. A similar question arose before the Calcutta High Court in CIT v. Dunlop Rubber Co. (I.) Ltd., [1977] 107 ITR 182. The Dunlop Rubber Co. (I.) Ltd. set up an independent unit during the year 1957-58. However, in the assessment year 1963-64, it claimed exemption and relief allowable under sections 84 and 101 of the Income-tax Act. For that purpose, the capital employed in the new unit had to be ascertained so as to determine six per cent of the capital so employed for the relief. As the company did not maintain separate accounts for the new unit, the Income-tax Officer worked out the capital employed on the profit-sharing ratio. This view was not shared by the appellate authority who held that the assessee was entitled to the relief as claimed and directed the Income-tax Officer to examine the computation and allow the relief. On appeal by the Revenue the Tribunal confirmed the view of the Commissioner (Appeals). On a reference to the High Court it was held by the Calcutta High Court that once the conditions mentioned in section 84 of the Act were found to have been fulfilled what remained was the question of working out the percentage at six per cent, per annum for purposes of computation of capital, rejection of the calculations furnished by the assessee on the basis of the profit by the Income-tax Officer was held to be not legal. It was observed that if the assessee had made the calculations in accordance with Chapter IV-D of the Act and on that basis claimed the relief, the computation had to be accepted. This principle has been applied by the Calcutta High Court in a subsequent judgment. The Bombay High Court took the same view in Mahindra Sintered Products Ltd. v. Commissioner Of Income-Tax., [1989] 177 ITR 111 and Commissioner Of Income-Tax v. Mazagaon Dock Ltd., [1991] 191 ITR 460. The Patna High Court has also taken the same view in CIT v. Hindusthan Malleables and Forgings Ltd., [1991] 191 ITR 70. The same view was shared by the Allahabad High Court in CIT v. Hind Lamps Ltd., [1991] 190 ITR 553 and the Delhi High Court in CIT v. J.K Synthetics Ltd. (No. 1), [1990] 182 ITR 125.
7. Learned standing counsel for the Revenue relied on the judgment of the Kerala High Court in CIT v. Travancore Rayons Ltd., [1987] 164 ITR 134 and submitted that a different view was taken by the Kerala High Court and that we may adopt that view in preference to the view taken by the Calcutta High Court and other High Courts.
8. In that case during the assessment year 1971-72, the assessee established a new industrial undertaking called Cellulose Film Plant. In respect of that plant, relief under section 80J was claimed. The claim was rejected by the Income-tax Officer, but on local investigation the Tribunal came to the conclusion that the plant was integrally connected with the three other plants which were already in existence and recorded a finding that the plant in question and the other plants formed part and parcel of the same undertaking. It recorded a further finding that it was not possible to find out from the accounts, as to what profits were derived by the assessee from the new unit and it was on those facts the Tribunal held that the assessee was not entitled to the relief under section 80J. On a reference the High Court observed that having regard to the findings recorded by the Tribunal the only inference possible was that the new plant was formed by reconstruction of an existing business and that it was not possible to work out the profits and gains derived from the above undertaking, as the assessee had not maintained separate accounts relating to this undertaking and accordingly held that the assessee was not entitled to the relief under section 80J of the Income-tax Act.
9. From the above discussion it is evident that the view taken by the Kerala High Court was based on the findings of fact recorded by the Tribunal. The Kerala High Court, in our view, did not hold that even where profits of the unit is ascertainable with reference to the accounts, on the ground of not maintaining of separate accounts of the unit in respect of which the relief under section 80J was claimed, the assessee's claim would have to be negatived. The case turned on the facts and findings recorded in that case.
10. In the instant case as pointed out above, the establishment of unit as an independent unit and the possibility of working out the profits separately are not disputed. The only ground on which the relief is denied to the assessee is that no separate accounts are maintained. So long as the profits referable to the newly established unit are capable of ascertaining, not maintaining of separate account cannot be a ground to reject the claim under section 80J of the Act.
11. In this view of the matter, we answer the first question in the affirmative, i.e, in favour of the assessee and against the Revenue.
12. The referred cases are accordingly answered.