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1996 DIGILAW 280 (KER)

Kar Mobiles Ltd v. Commissioner of Income Tax

1996-07-05

P.A.MOHAMMAD, V.V.KAMAT

body1996
Judgment :- Mohammed, J. These Income tax Reference Cases are coming up before us at the instance of the assessee, M/s. Kar Mobiles Ltd., Bangalore. The references relate to the assessment years 1980-'81 and 1981-82. 2. The questions referred to us for decision are as follows: I.T.R. No. 86/91: Whether the Income tax appellate Tribunal was right in law and on facts in holding that the applicant was not entitled to relief under S.80J of the Act for the assessment year 1980-'81? ITR No. 87/91: Whether the Incometax appellate Tribunal was right in law and on the fasts in holding that the applicant was not entitled to carry forward the deficiency u/S.80J of the Act in respect of the assessment year 1980-'81 to the assessment year 1981-'82? 3. The facts leading to the above references can briefly be stated thus: The assessee-company was originally engaged in the distribution of electricity in Cochin till 3.12.1980. However, the Company started a new industrial unit for the manufacture and sale of valves and its commercial production started in the year 1975. The first accounting year for the new industrial unit ended on 31.3.1975. The assessee claimed deduction under S.80J for the assessment years 1975-76 and 1976-77, the relevant accounting years ended on 31.3.1975 and 31.3 1976 respectively. This claim was allowed by the Income tax Officer. The assessee thereafter changed its accounting year from the financial year to the year ending 30th September 1977 and consequently the first accounting year was from 1.4.1976 to 30.9.1977. Because of this change, there was no previous year for the assessment year 1977-78; on the other hand for the assessment year 1978-79 the previous year consisted of eighteen months commencing from 1.4.1976 and ending 30.9.1977. The assessee has voluntarily filed a return showing Nil income on 16.12.1977 in respect of the assessment year 1977-78, though there was no previous year and claimed carry forward of all allowances from the previous assessment year. According to the Income tax Officer, no claim was made in the Annexure regarding the deduction under S.80J. In view of the return the Officer closed the assessment year 1977-78 as N.A. on 21.11.1979. The assessee again took up the matter and contended that it was entitled to deduction under S.80J for the assessment year 1977-78 to be notionally determined and carried forward. In view of the return the Officer closed the assessment year 1977-78 as N.A. on 21.11.1979. The assessee again took up the matter and contended that it was entitled to deduction under S.80J for the assessment year 1977-78 to be notionally determined and carried forward. However, the Incometax Officer did not accede to the above request of the assessee in view of the fact that there was no previous year to the assessment year 1977-78 and as such there was no computation period for the purpose of S.80J. 4. As far as the assessment year 1980-'81 is concerned, the assessee' s case is that since the assessment year 1977-78 got skipped on account of the change of the previous year from March to September, it was the fourth assessment year immediately succeeding the initial assessment year 1975-76. This contention was not accepted by the Income tax Officer, the Commissioner of Income tax (Appeals) Ernakulam and the Tribunal. The main point for consideration before the Tribunal was whether the assessee was eligible for deduction under S.80J for the assessment years 1980-'81 and 1981-'82. The Tribunal ultimately found that the assessee was not entitled to deduction under S.80J for the assessment years 198041 and to carry forward and set off of the deficiency of the deduction to the assessment year 1981-82. It is against the said findings of the Tribunal the assessee filed the application for reference. That is how the matter came up before us for answering these references. 5. In order to discuss the questions raised herein, it would be profitable to reproduce S.80J(2) of the Income tax Act, 1961, as it stood then. "(2) The deduction specified in sub-s.(1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning (such assessment year being hereafter, in this section, referred to as the initial assessment year) and each of the four assessment years immediately succeeding the initial assessment year: Provided that in the case of an assessee, being a co-operative society, the provisions of this sub-section shall have effect as if for the words "four assessment years", the words "six assessment years" had been substituted". S.80J deals with deduction in respect of profits and gains derived from newly established industrial undertaking or ships or hotel business in certain cases. Sub-s.(2) States that the deduction specified in sub-s.(1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles. Sub-s.(2) does not say that new industrial undertakings are entitled to exemption for a period of five years. What the Section provides is that after the commencement of the production the assessee is entitled to deduction for the initial assessment year and each of the four assessment years immediately succeeding the initial assessment year. In this case, the date of commencement of the manufacture or production is not available. However, the initial assessment year is 1974-75. 6. The above provision came up for interpretation before a Division Bench of this Court in Premier Cable Co. Ltd. v. CIT (1992) 193 ITR 719). The facts of that case are more or less similar to the present one in hand. In that case, an additional claim under S.33(2)(ii) was raised by the assessee. The following observation contained in page 731 of the decision is apposite here: "The deduction under S.80J(2) can be allowed in respect of an assessment year and each of the four assessment years immediately succeeding the initial assessment year. So, for relief under S.33(2)(ii) relating to assessment year 1967-68,1975-76 will be the 8th assessment year. Similarly, for relief under S.80J(2), the last assessment year will be 1975-76. This is by applying the normal arithmetical rule of calculation of eight and four years respectively. If 1975-76 happened to be the last assessment year for both the above reliefs, the assessee will not be entitled to the deductions as held by the Commissioner of Income Tax and the Tribunal". The fact of the present case will have to be tested in view of the principles laid down by the Division Bench of this Court in Premier Cable Company's case supra. The five assessment years for which the assessee was entitled to 80J relief in the present case are the assessment years 1975-76,1976-77,1977-78, 1978-79 and 1979-80. Consequently, the assessee was not entitled to relief under S.80J for the assessment year 1980-81. The five assessment years for which the assessee was entitled to 80J relief in the present case are the assessment years 1975-76,1976-77,1977-78, 1978-79 and 1979-80. Consequently, the assessee was not entitled to relief under S.80J for the assessment year 1980-81. The fact that the assessee had changed with effect from 1.4.1976 the previous year or the financial year to the year ending 30th September and the previous year for the assessment year 1978-79 was consequently from 1.4.1976 to 30.9.1977 and there was no previous year for the assessment year 1977-78 will not advance the case of the assessee for claiming relief under S.80J for the assessment year 1980-81 also. It was only because there was no previous year for the assessment year 1977-78 and consequently, there was no computation period for the purpose of relief under S.80J for that assessment year, the assessee could not get any relief under S.80J for the assessment year 1977-78. The said position cannot make the assessee entitled to get the relief under S.80J for the assessment year 1980-81. Thus, the conclusion arrived at by the Tribunal in mis case is just and proper and in consonance with the decision of the Division Bench of this Court referred to above. We do not see any error in the order passed by the Tribunal. 7. Now coming to the questions of law referred to us for answer, the question in ITR 86/91 relating to the year 1980-81 is answered in the affirmative, that is to say, in favour of the Revenue and against the assessee. In view of the answer given above, the question raised in ITR 87/91 relating to the year 1981-82does not arise for consideration and we therefore, decline to answer the said question. A copy of this judgment under the seal of this Court and the signature of the Registrar will be forwarded to the Incometax appellate Tribunal, Cochin Bench.