COMMISSIONER OF INCOME-TAX VS DELHI CLOTH AND GENERAL MILLS CO.
2001 P T D 2799
[240ITR9]
[Delhi High Court (India)]
Before Arun Kumar and D. K. Jain, JJ
COMMISSIONER OF INCOME‑TAX
versus
DELHI CLOTH AND GENERAL MILLS, CO.
Income‑tax Reference No. 183 of 1978, decided on 13/07/1999.
(a) Income‑tax‑‑‑
‑‑‑‑Business expenditure‑‑‑Travel‑‑‑Expenditure on foreign tour of Director to attend meeting of International Chamber of Commerce ‑‑‑Deductible‑‑ Indian Income Tax Act, 1961, S..37.
The provisions of section 80J of the Income Tax Act, 1961, which are intended to encourage the setting up of new industrial enterprises have to be construed liberally. The deduction under that section has to be allowed in full without reducing the same in proportion to the part of the year during which the undertaking was not in productive operation. The Central Board of Direct Taxes has accepted the interpretation placed on the phrase "per annum" by the Madras and Karnataka High Courts and vide its Circular No. F No.178/227/83‑IT(Al), dated March 3, 1984, has issued instructions that deduction under section 80J should not be reduced proportionately with reference to the period for which the business of the undertaking was not carried on during the relevant previous year.
CIT v. Simpson & Co. (1980) 122 ITR 283 (Mad.); CIT v. Mysore Petro‑Chemical Ltd. (1984) 145 ITR 416 (Kar.) and CIT v. Sanghi Beverages (Pvt.) Ltd. (1982) 134 ITR 623 (MP) for.
Held, (i) that the expenditure incurred by the assessee on the foreign tour of Dr. B to attend the meetings of the International Chamber of Commerce was deductible in computing its business income for the assessment year 1970‑71.
Delhi Cloth and General Mills Co. Ltd. v. CIT (1986) 158 ITR 64 (Delhi) fol.
(ii) that the expenditure incurred by the assessee for running the D.C.M. Football tournament was an admissible deduction for arriving at its profits from business.
Delhi Cloth and General Mills Co. Ltd. v. CIT (1992) 198 ITR 500 (Delhi) fol.
(b) Income‑tax‑‑‑
‑‑‑‑Business expenditure‑‑‑Expenditure on running football tournament‑‑ Deductible‑‑‑ Indian Income Tax Act, 1961, S.37.
(c) Income‑tax‑‑‑
‑‑‑‑New industrial undertaking‑‑‑Special deduction‑‑‑Special deduction allowable for entire accounting year although undertaking worked only for part of the year‑‑‑Indian Income Tax Act, 1961, S.80J.
Ajay Jha for the Commissioner.
Ms. Monica Singal for the Assessee,
JUDGMENT
ARUN KUMAR, J.‑‑‑In respect of the assessment year 1970‑71, the Income‑tax Appellate Tribunal has referred the following questions for the opinion of this Court, at the instance of the Revenue:
"(1) Whether, on the facts and in the circumstances of the case, the expenditure of Rs.9,068 incurred by the assessed on the foreign tour of Dr. Bharat Ram to attend the meetings of the International Chamber of Commerce was deductible in computing its business income for the assessment year 1970‑71?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the expenditure of Rs.65‑746 incurred by the assessee for running the D.C.B. Football Tournament was an admissible deduction for arriving at its profits from business?
(3) Whether, on the facts and in the circumstances of the case, was the Tribunal right in confirming the Appellate Assistant Commissioner's order in which relief under section 80J was ordered for the full accounting period even though the industrial undertaking Shri Ram Fertilizers worked only for a period of five months?"
The first question is to be answered in favour of the assessee in view of the decision of this Court in the case of the assessee itself, relating to the assessment year 1969‑70, reported as Delhi Cloth and General Mills Co. Ltd. v. CIT (1986) 158 ITR 64. The question is accordingly answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
Similarly, in view of the decision of this Court in the case of the assessee itself in respect of the assessment year, 1965‑66, reported as Delhi Cloth and General Mills Co. Ltd. v. CIT (1992) 198 ITR 500, Question No.2 is also required to be answered .in favour of the assessee. The question is accordingly answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
As regards Question No.3, the assessee‑company claimed relief under section 80‑J of the Income Tax Act, 1961, (for short "the Act"), at 6 per cent. of the capital employed for the full assessment year 1970‑71, for the period ended on June 30, 1969, although it had commenced production on February 1, 1969. The Income‑tax Officer, however, computed the relief under the said section on pro rata basis for the actual period of five months in which the industrial undertaking had worked during the year. The Appellate Assistant Commissioner and the Tribunal did not agree with the view taken by the Income‑tax Officer and thus, allowed the relief as claimed by the assessee for the whole year. On these facts, the aforenoted question has been referred for the opinion of this Court.
The short question for consideration is as to what meaning is to be ascribed to the phrase "6 per cent. per annum. "as appearing in section 80‑J of the Act. In other words, whether the relief under the said section has to be worked out on pro rata basis for the period of actual working of the undertaking or should it be allowed for the full year in which the capital was employed, though the actual production in the new industrial undertaking was only for a part of the year.
A similar question came up for consideration before the Madras High Court in CIT v. Simpson & Co. (1980) 122 ITR 283, the Madhya Pradesh High Court in CIT v. Sanghi Beverages (Pvt.) Ltd: (1982) 134 ITR 623 and the Karnataka High Court in CIT v. Mysore Petro‑Chemical Ltd. (1984) 145 ITR 416. and all the three Courts; while observing that the provisions of section 80‑J of the Act, which were intended to encourage the setting up of new industrial enterprises have to be construed liberally, opined that the deduction under the said section has to be allowed in full without reducing the same in proportion to the part of the year during which the undertaking was not in productive operation. Besides, it has also been brought to our notice by learned counsel for the assessee that the Central Board of Direct Taxes has accepted the interpretation placed on the phrase "per annum" by the Madras and Karnataka High Courts and vide its Circular F. No.178/227/83‑IT(AI) See (1984) 149 ITR (St.) 1), dated March 3, 1984, has issued instructions that deduction under section 80J should not be reduced proportionately with reference to the period for which the business of the undertaking was not carried on during the relevant previous year.
Following the views expressed in the aforenoted decisions, with which we are in respectful agreement and in the light of the circular issued by the Board, we also hold that the assessee was entitled to relief under section 80‑J of the Act for the whole year ended on June 30, 1969, irrespective of the fact that it had commenced production only on February 1, 1969. Accordingly, the third question is also answered in 'the affirmative, i.e., in favour of the assessee and against the Revenue.
There will be no order as to costs.
M.B.AJ285/FC Order accordingly.