Calcutta H.C : Whether, on the facts and in the circumstances of the case and having regard to the fact that the original assessment was completed on March 22, 1974, the Tribunal was justified in law in directing the ITO to allow deductions under ss. 80-I and 80J of the IT Act, 1961, on the basis of the assessee’s claim for such deductions made in its letter dated February 8, 1979, in the course of the reassessment proceedings pending in terms of the Tribunal’s Order in ITA No. 2971 /Cal/74-75 dated June 11, 1976 ?

Counsel Appeared

Sunil Mitra for the Revenue : A.K. Roy Chowdhury for the Assessee.

AJIT K. SENGUPTA, J.:

At the instance of the CIT, West Bengal. VI, the following question of law for the asst. yr. 1971-72 has been referred to this Court under s. 256(1) of the IT Act, 1961 :

“Whether, on the facts and in the circumstances of the case and having regard to the fact that the original assessment was completed on March 22, 1974, the Tribunal was justified in law in directing the ITO to allow deductions under ss. 80-I and 80J of the IT Act, 1961, on the basis of the assessee’s claim for such deductions made in its letter dated February 8, 1979, in the course of the reassessment proceedings pending in terms of the Tribunal’s Order in ITA No. 2971 /Cal/74-75 dated June 11, 1976 ?”

2. In our view, the question has to be refrained as follows:

“Whether, on the facts and, in the circumstances of the case and having regard to the fact that the original assessment was completed on March 22, 1974, the Tribunal was justified in law in directing the ITO to allow deduction under s. 80J of the IT Act, 1961, on the basis of the assessee’s claim for such deduction made in its letter dated February 8, 1979, in the course of the reassessment proceedings ?”

3. The dispute in this reference related to the assessee’s claim for relief under ss. 80J and 80-I of the IT Act, 1961. There was no specific discussion in the order of the ITO but in the appellate order passed by the CIT (A), it was noticed that, in his instructions under s. 144B, the IAC had directed that the assessee had not made any claim in the return or in the computation of its income and hence there was no scope for entertaining this ground. Before the CIT (A), it was argued that, in the reassessment proceedings taken in pursuance of the appellate order passed by the AAC, the assessee had claimed this relief in its letter dated February 8, 1979.The CIT (A), however, rejected this claim on the ground that by the Finance (No. 2) Act, 1980, a new sub-s. 80AA had been inserted with retrospective effect from April 1, 1968, according to which, for the purpose of computing the deductions under Chapter VI of the IT Act, the amount of income which had to be computed in accordance with the provisions of this Act shall be deemed to be the amount of income of that nature in respect of which deductions is to be allowed. Thus, for purpose of deduction under sections 80J and 80-I only the income of the new industrial undertaking was to be taken into account. Considering the assessee’s losses up to the year 1969-70 as well the unabsorbed depreciation and unabsorbed development rebate admissible in respect of the new industrial undertaking for which the deduction under s. 80J and 80-I were claimed, the Supreme Court decision in the case of Rajapalayam Mills Ltd. vs. CIT 1978 CTR (SC) 167 : (1978) 115 ITR 777 (SC), is no longer applicable because of the amended provision. He, therefore rejected the assessee’s contention holding the claim only to be of academic interest inasmuch as no deduction would be available. On second appeal before the Tribunal; the Bench directed that the matter be restored to the ITO for making all necessary deductions in view of the principles laid down in the case of Rajapalayam Mills Ltd. (supra), with the following observations “There is no discussion in the order of the ITO in this behalf and the CIT (A) has noticed that in his instructions under s. 144B, the IAC had mentioned that the assessee had not made any claim in the return or in the computation of income and hence there was no scope for entertaining this ground. It was argued before the CIT (A) that the assessee had made the claim by its letter dated February 8, 1979, in which complete details of the old and new industrial undertakings are mentioned. Paragraph 7 of the letter further shows that the benefit of these reliefs was not claimed earlier because there was no prospect of carry forward of loss under s. 80J(3). It was further claimed before the ITO that, in view of the Supreme Court decision in the case of Rajapalayam Mills Ltd. vs. CIT (supra), the deficiency in the new business could be set off against the profits of the old business and no separate computation with retrospective effect of the depreciation and development rebate was necessary for estimating the profits from the new industrial undertaking. The assessee had further pleaded that the profits be apportioned between the new and the old business according to the capital employed and turnover. The CIT (A), however, summarily rejected this contention because of the Finance (No. 2) Act, 1980; by which a new sub-s. 80AA had been inserted w.e.f. April 1, 1968, according to which, for the purpose of computing the deductions under Chapter VI of the IT Act the amount of income has to be computed in accordance with the provisions of the Act and for the purpose of deductions under ss. 80J and 80-I, only the income of the new industrial undertaking is to be taken into account for the purpose of deduction under this section. According to him, considering the assessed losses up to the asst. yr. 1969-70 as well as unabsorbed depreciation and development rebate in respect of the new industrial unit, there would be no income in any of the years for the new industrial undertaking over which the deductions under ss. 80J and 80-I could be allowed. In view of this amended provision, he declined to go into the assessee’s claim. We are afraid that, here, the CIT (A) has not appreciated the position correctly. Sec. 80AA only refers to deduction under s. 80M which deals with deductions out of dividends from domestic company and it is only when the income from such dividends is included in the gross total income of the assessee and a deduction claimed under s. 80M, that deduction has now to be computed with reference to the income by way of such dividends as are computed in accordance with the provisions of this Act, before making any deduction under this Chapter and not with reference to the gross amount of such dividends. A perusal of the Memo explaining the provisions of the Finance Bill, 1980, would show that the intention behind this provision was that the Supreme Court had recently held that the deduction admissible for intercorporate dividends have to be calculated with reference to the gross amount of dividends received by a domestic company from an Indian company and not with reference to the dividend income as computed in accordance with the provisions of the IT Act. Though in para 8 of the memo, there is a reference to other sections as well, the language of s. 80AA is quite clear and refers only to deductions under s. 80M which deals with intercorporate dividends only. In the present case, there is no question of claiming any deduction under s. 80M. The reliefs sought to be claimed were under ss. 80-I and 80J and s. 80AA does not refer to those reliefs. The decision of the Supreme Court in Rajapalayam Mills Ltd.’s case (supra), therefore, remains good law. This ground of appeal is, therefore, entitled to succeed.”

So far as the absence of claim in the first instance was concerned, the Tribunal referred to the letter dated February 8, 1979, and opined that the same should not be considered to be fatal to the assessee’s claim. While dealing with the application under s. 256(1) of the Act, the Tribunal held that although the application had been contested on the ground that the total income determined in respect of this year will get wiped out if the correct figures of loss carried forward in respect of the year 1969-70 are adopted and adjustments are made for relief allowed in appeal for 1970-71 and 1971-72, consequently, the deficiency under s. 80J(3) would call for set off only in the asst. yr. 1972-73 regarding which the CIT (A) has not contested the Tribunal’s direction given in this behalf and, as such, the question mentioned hereinbefore was referred to this Court which we have refrained as stated before.

The only question which arises for our determination is that although the assessee did not claim the relief under s. 80J before the ITO, whether the assessee is precluded from claiming this benefit on the assessment which has been redone on the basis of the direction of the Tribunal. The assessee, in its letter dated February 8, 1979, informed the ITO as follows: “Assessment years 1970-71, 1971-72 and 1972-73: Claim under ss. 80J and 80-I. You will notice from the directors’ report dated May 11, 1965, in respect of the accounting year ended on December 31, 1964, the following passage : ‘We have installed a new re-rolling mill, for which, we have acquired additional lands and also constructed a new building. Most portions of the expansion work have been completed and the rest is expected to be completed within the current year. The mills, already started production partly since January, 1960.’ You will further notice from the directors’ report dated May 6, 1966, for the calendar year 1965 that the production was 10,819 tonnes as compared with 6,482 tons in the year 1964. The increase of 66per cent is evidently due to the commissioning of the second re-rolling mill. It is also mentioned in the report that expansion work (in respect of the second mill) will be completed by May, 1967.

In the directors’ report dated March 3, 1967, for the calendar year 1966, the following passage occurs: ‘The expansion work scheduled to be completed in May, 1967, has lready been completed well in advance, affording the required facility for increased production and further prospects appear to be promising.’

As on January 1, 1965, the assets of the new industrial undertaking consisted of plant and machinery-Rs. 12,78,326 and building-Rs. 6,66,212. The further additions to the new rolling mill consisted of the following : As on 1-1-1965 Plant and machinery Buildings Rs. Rs. 12,78,326 6,66,312 Additions during calendar year 1965 1,16,637 12,697 1966 1,94,406 48,456

The new industrial undertaking consists of a self-contained unit proucing M.. S. rods and steel sections from ingots, blooms, billets. It is housed in a separate building. Since the old unit also produces similar goods, it has not been possible to keep separate records of production and sale of finished products. Though the new unit is of great production range, in the absence of more precise data, we are agreeable to apportion the total production equally between the two units and also the final trading results between them in the same proportion. Since there was no profit in the asst. yr. 1966-67, there was only question of carry forward of loss under s. 80J(3). The benefit of s. 80J may be made available to us for the asst. yrs. 1967-68, 1968-69, 1969-70 and 1970-71 both under ss. 80J(1) and 80J(3) and necessary carry forward allowed in accordance with law. Necessary computation of the capital employed for each of the said four years is enclosed and it is only a question of arithmetical calculation of 6 per cent. of the capital employed to arrive at the quantum of profit exempt for purposes of both ss. 80J(1) and 80J (3).

It may be respectfully submitted that the maintenance of separate accounts for the precise computation of the profit attributable to the new industrial undertaking lose their importance after the Supreme Court’s decision in Rajapalayam Mills Ltd. vs. CIT (supra), namely, that the deficiency in the new business can be set off against profits from the old business and that no separate recomputation with retrospective effect of the depreciation and development rebate is necessary for ascertaining the profits from the new undertaking. As we have earlier submitted, the profits may be apportioned equally between the new and the old business. We, therefore, request you to compute the appropriate relief under s. 80J due to us. Because we were not properly advised at the time of the original assessments for the year as well as earlier years, we created the necessary development rebate reserve on the footing that we are not a priority industry. We have now been advised about a Full Bench of the Kerala High Court in CIT vs. West India Steel Co. Ltd. 1976 CTR (Ker) 289 (FB) : (1977) 108 ITR 601, to the effect that the manufacture of M. S. rods and steel sections from ingots, blooms, billets, etc., constitutes a priority industry as contemplated in item No. (1) of the Fifth Schedule to the IT Act, 1961. We anticipate that due to continued losses, it will be in order to create the necessary additional development rebate reserve as applicable to a priority industry. We, therefore, request you to rectify and recompute the development rebate due to us from the earlier years. We also pray we may be allowed the necessary deduction under s. 80-I equal to 8per cent of the profit while computing our total income up to and inclusive of the asst. yr. 1971-72 and at 8 per cent for the asst. yr. 1972-73.

Thanking you.”

7. Having regard to the facts and circumstances of the case and the settled principles of law, we are of the view that, in the course of the reassessment proceedings, the assessee is entitled to claim benefit, if it is so entitled, even if it did not claim the same benefit at the time of the original assessment. The benefit claimed in this case is in respect of section 80J of the IT Act, 1961. The Tribunal has directed the ITO to consider it. In our view, the Tribunal has come to a correct conclusion. On the facts and circumstances of this case, we have to answer, the refrained question in the affirmative and in favour of the assessee.

There will be no order as to costs.

K. M. YUSUF, J. :

I agree.

[Citation :181 ITR 427]