Commissioner Of Income-Tax v. Asian Cables Corporation Ltd. (No. 1)

J.P Devadhar, J.:— In this reference relating to the assessment years 1979-80 and 1980-81, the Income-tax Appellate Tribunal at the instance of the Revenue has referred the following questions for opinion under section 256(1) of the Income-tax Act, 1961:

Common question for both the assessment years 1979-80 and 1980-81:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the value of the work-in-progress has to be treated as part of the capital employed for the purpose of relief under section 80J of Income-tax Act, 1961?”

For the assessment year 1979-80 only:

“2. Whether, on the fads and in the circumstances of the case, the Tribunal was justified in law in holding that the deduction under section 80-0 of the Act should be calculated on the gross fees received by the assessee-company?”

2. The facts relevant for the purpose herein are as follows:

In the assessment year in question the assessee claimed relief under section 80J of the Income-tax Act, 1961, by reference to the capital employed in the new business undertaking inclusive of the amount of the value of work-in-progress. The Assessing Officer rejected the contention of the assessee and computed the deduction under section 80J by excluding the value of the work-in-process in the capital employed.

3. Being aggrieved by the aforesaid order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) who accepted the claim of the assessee.

4. The Tribunal following the judgment of this court in the case of CIT v. Alcock Ashdown and Co. Ltd., [1979] 119 ITR 164 upheld the order of the Commissioner of Income-tax (Appeals) and directed that the value of work-in-progress is to be treated as a part of capital employed in working out the relief under section 80J. Hence this reference at the instance of the Revenue.

5. When the reference was taken up for final hearing, counsel on both sides agreed that the decision of this, court in the case of CIT v. Alcock Ashdown and Co. Ltd., [1979] 119 ITR 164 has been affirmed by the apex court reported in CIT v. Alcock Ashdown and Co. Ltd., [1997] 224 ITR 353. In this view of the matter, question No. 1 is answered in the affirmative and in favour of the assessee, i.e, the cost of work-in-progress is to be treated as part of the capital employed for the purpose of relief under section 80J of the Income-tax Act, 1961.

6. Question No. 2 relates to the assessment year 1979-80 only. In this assessment year the assessee sought deduction under section 80-0 on the gross earning instead of net income. The Income-tax Officer did not accept the claim of the assessee and allowed deduction only on the net earning. On appeal, the Commissioner of Income-tax (Appeals) accepted the claim of the assessee by following the decision of the Madras High Court in the case of Addl. CIT v. Isthmian India Maritime (P.) Ltd., [1978] 113 ITR 570 and held that the deduction under section 80-0 should be calculated on the gross fees received by the assessee-company. The Tribunal confirmed the order of the Commissioner of Income-tax (Appeals). Hence, this reference at the instance of the Revenue.

7. At the final hearing of this reference, Mr. Desai, learned counsel appearing on behalf of the Revenue, fairly stated that the bare reading of section 80-0 of the Income-tax Act makes it clear that gross income is to be taken into account and not the net income for the purpose of calculation of deduction under section 80-0 of the Income-tax Act. In this view of the matter, question No. 2 is answered in the affirmative and in favour of the assessee.

8. The reference is accordingly disposed of, by answering both the questions in the affirmative that is in favour of the assessee and against the Revenue, with no order as to costs.