Gujarat H.C : the assessee is entitled to relief under s. 80J of the IT Act, 1961, on the basis of asst. yr. 1978-79 being considered as the fourth assessment year excluding the initial year

Counsel Appeared

Akil Kureshi with Manish R. Bhatt, for the Petitioner : None, for the Respondent

JUDGMENT

D.M. DHARMADHIKARI, C.J. :

At the instance of the Revenue in relation to assessee’s case of the asst. yr. 1978-79, the following two substantial questions of law have been referred for our opinion under s. 256(1) of the IT Act, 1961 :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal has been right in law in holding that the assessee is entitled to relief under s. 80J of the IT Act, 1961, on the basis of asst. yr. 1978-79 being considered as the fourth assessment year excluding the initial year ?

2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to carry forward deficiency under s. 80J(3) of the IT Act, 1961, and claim the same in the year in which the assessee had profits ?”

Both the above questions arises on the provisions of s. 80J of the IT Act, 1961. The first question is : whether the assessee is entitled to relief under s. 80J on the basis of asst. yr. 197879 and can be considered as the fourth assessment year”.

The facts leading to the reference of question No. 1 are as follows : The assessee started its production in the year 1973-74. The assessee followed financial year as the previous year upto asst. yr. 1976-77. Thereafter the assessee applied to the ITO for change in previous year. Revised previous year was to end on 30th June, 1977, instead of 31st March, 1977. The ITO permitted the change subject to certain conditions. In view of the change, there was no previous year for asst. yr. 1977-78. The assessee claimed that in computing the fourth assessment year immediately succeeding the initial year, the asst. yr. 1978-79 should be treated as the fourth assessment year for granting him relief under s. 80J of the Act. The claim was rejected by the ITO and the CIT confirmed the same. The Tribunal, however, held in favour of the assessee. In the opinion of the Tribunal “since there was no previous year for asst. yr. 1977-78 and the income for that year was subjected to tax in the asst. yr. 1978-79, the assessee was entitled to relief under s. 80J for the asst. yr. 1978-79. It would be profitable to reproduce the reasoning of the Tribunal on question No. 1 which reads as under : “According to the scheme of the IT Act the profits of the previous year are brought to tax for each of the assessment years. In other words the charge of tax in accordance with s. 4 of the Act is on the income of the previous year. As a corollary if any relief is due to the assessee in respect of the total income for the given assessment year the said relief has a reference to the profits which are brought to charge for the corresponding previous year. Therefore, viewed from this angle the claim of the assessee is to claim deduction under s. 80J of the Act in all for a period of five years including the initial year. The period of five effective assessment years would naturally exclude asst. yr. 1977-78 as there was no previous year for that year and the income for that year is subjected to tax for asst. yr. 1978-79. It is trite to say that provisions of s. 80J are intended to give relief to the assessee and it should be so construed as to advance the legislative intent. We rely on the decision of their Lordships of the Gujarat High Court in CIT v. Satellite Eng. Co. Ltd. 1978 CTR (Guj)

199 : (1978) 113 ITR 208 (Guj) : TC 25R.635. It is stated thus : ‘The legislature has also been progressively relaxing the provisions relating to earning of tax benefits by new industrial undertakings, the end in view being to encourage the setting up of new industries by substantial investment of new capital. Any interpretation of such a provision must, therefore, be in consonance with this avowed aim and object of the legislature and not such as would defeat the same.’

In the above view of the matter therefore, we are of the opinion that the assessee is entitled to relief under s. 80J of the Act on the basis of asst. yr. 1978-79 being considered as the fourth assessment excluding the initial year.”

5. In this reference notice was sent and has been served on the assessee, but no one appeared to represent the assessee. Learned counsel appearing for the Revenue very fairly placed the decision of Madras High Court in Rockweld Electrodes India Ltd. vs. CIT (1990) 83 CTR (Mad) : (1990) 185 ITR 62 (Mad) : TC 25R.1143 and the recent decision of Supreme Court in Premier Cable Co. Ltd. vs. CIT (1999) 153 CTR (SC) 172 : (1999) 237 ITR 202 (SC). We find that question No. 1 raised before us in squarely covered by the decisions of the Supreme Court and Madras High Court (supra). In answering a similar question, the Supreme Court held as under : “Sec. 2(9) of the IT Act, 1961, defines the assessment year to be the period of 12 months commencing on the first day of April every year. It is a standard period of 12 months commencing on 1st April of every year. It does not depend upon one or other assessee and whether or not he had a previous year relevant to a particular assessment year. It is as invariable as the calendar year. The “assessment years” mentioned in ss. 33 and 80J must be read in this light. The unabsorbed development rebate under s. 33 and the unabsorbed deduction under s. 80J may be carried forward only for the eight and four assessment years, respectively, that follow the assessment year relevant to the previous year in which the said development rebate and deduction were first earned. The fact that a particular assessee did not have a previous year relevant to a particular assessment year that fell within these spans of eight and four assessment years, respectively, is of no consequence to the calculation of the periods for which the aforesaid development rebate and deduction can be carried forward.”

6. We are also in respectful agreement with the view expressed by Madras High Court in Rockweld Electrodes India Ltd. (supra). As held by Madras High Court, the concept of “assessment year” must be understood in the manner prescribed under the provisions of the IT Act and not with reference to a particular assessee. Whenever the assessee is permitted to get relief for a specified number of consecutive assessment years, the assessment years should be taken in the natural sequence. Irrespective of the change of the assessment year of the assessee, the period of four years will have to be reckoned on the basis of definition of “assessment year” as contained in s. 2

(9) of the IT Act, 1961. Consequently, the question No. 1 is answered against the assessee and in favour of the Revenue.

7. So far as the question No. 2 is concerned, it is related to the assessee’s claim for relief under sub-s. (3) of s. 80J. The assessing authority and the CIT(A) rejected the claim of the assessee based on s. 80J(3) stating that the deficiency was not worked out for the initial year and other immediately succeeding years upto asst. yr. 1976-77. It was held that the assessee could not claim the carry forward of deficiency which was not computed and determined for the earlier years. The Tribunal in allowing the claim relied on its earlier decision and held that the assessee was entitled to carry forward and deficiency for the assessment year. Two decisions directly covering question No. 2 have been brought to our notice. The first is from Calcutta High Court in Hind Wire Industries Ltd. vs. CIT (1992) 105 CTR (Cal) 216 : (1992) 195 ITR 450 (Cal) : TC 25R.1156. The Calcutta High Court answered similar question thus : “The contention of the Revenue that s. 80J(3) does not contemplate any contingency like loss for the purpose of carry forward of deficiency cannot be accepted. If this contention is accepted, the whole object of the section would be made nugatory. It is now well settled that profits and gains would also include negative figure (loss). It may be mentioned that this Court in the case of Indian Aluminium Co. Ltd. vs. CIT (1980) 122 ITR 660 (Guj) : TC 25R.352 considered the question whether the assessee could claim set off of the deficiency relating to earlier years against the profits of the current year. In other words, the question was whether, in a case where the assessee, admittedly, had suffered loss but did not make any claim for carry forward of deficiency and no deficiency was carried forward, in the subsequent years, such deficiency could be allowed against the profits of the year in which such claim was made. This decision would show that the contingency of a loss being suffered by an industrial undertaking is one of the normal and usual incidents of the business which cannot be ignored in construing the provisions of s. 80J(3). The “deficiency” referred to in s. 80J is the amount by which the profits and gains derived by an assessee from the eligible undertaking and included in its gross total income for any assessment year within the “tax holiday” period falls short of the amount calculated at six per cent per annum on the capital employed in the eligible undertaking during the previous year relevant to that assessment year. Where there are no profits and gains, or where there is a loss for any such assessment year, the deficiency in relation to that assessment year is to be taken to be an amount calculated at six per cent per annum on the capital employed in the undertaking during the relevant previous year.”

8. The second decision is from Bombay High Court in CIT vs. T. Maneklal Manufacturing Co. Ltd. (1991) 96 CTR (Bom) 163 : (1991) 192 ITR 268 (Bom) : TC 25R.1175. The Bombay High Court has also taken a similar view and held thus : “Sec. 80J of the Act or the Rules made under the Act do not prescribe any obligation for computation of the s. 80J deficiency in the year to which it pertains as a condition precedent to the carry forward of the said deficiency to the subsequent years and such a condition cannot be implied. Sec. 80J deficiency cannot be equated to computation of loss. The assessee must be held entitled to avail of the benefit of carry forward and set off of s. 80J deficiency in the year of profit even in the absence of computation thereof in the year of loss. Therefore, the Tribunal was right in holding that the deficiency under s. 80J of the IT Act, 1961, in respect of the asst. yr. 1968-69 should be computed and allowed to be carried forward and set off in the asst. yrs. 1971-72 and 1972-73.”

9. Both the Bombay and Calcutta High Courts in the decisions (supra) have taken the view that the obligation of computation of deficiency under s. 80J in the year to which it pertains is not a condition precedent for allowing the carry forward of the said deficiency to the subsequent year and in the absence of clear provision such a condition cannot be read by implication. ‘Deficiency’ referable to s. 80J cannot be equated to ‘computation of loss’ as to require computation as a condition for carrying it forward. The assessee, therefore, became entitled to avail of the benefit of carry forward and set off of s. 80J deficiency in the year of profit even in the absence of computation thereof in the year of loss.

10. We find ourselves in respectful agreement with the views expressed by Calcutta and Bombay High Courts in the decisions (supra). In the result, question No. 2 is answered against the Revenue and in favour of the assessee.

In view of the partial success of this reference and as the assessee is not represented, we make no order as to costs.

Decision in favour of Assessee Partly, Revenue Partly.

[Citation : 252 ITR 697]