R.C. Mankad, J.
1. The assessee is a public limited company carrying on business at Ahmedabad and Bombay. The assessee is keeping accounts according to financial year ending on 31st March. The assessment years under consideration are assessment years 1968-69 to 1970-71. The assessee-company has a unit at Ahmedabad in which textile goods are manufactured. It has another unit at Ahmedabad in which caustic soda is manufactured. This unit is engaged in the manufacture of calcium carbide, caustic soda and polyvinyl chloride articles. The assessee has plants or units for production of the following items :
1. Calcium carbide, 2. Polyvinyl chloride resin, 3. Polyvinyl chloride compound, 4. Polyvinyl acetate, and 5. Polyvinyl chloride. jCalcium carbide is not a petrochemical product. The plants or units at serial No. 2 and 4 produce PVC resin acetate and PV acetate. Plants or units at serial No. 3 produce PVC compound by mixing PVC resin with chalk powder. PVC resin used in plant at serial No. 3 was supplied by plant at serial No. 2. Plant at serial No. 5 manufactures plastic articles using PVC resin and PVC compound. It would thus appear that the article or item produced in plant at serial No. 2 was used for manufacturing or producing articles or items by plants at serial Nos. 3 and 5. In the course of the income-tax assessment proceedings for the years under consideration, the assessee claimed deduction in respect of profits and gains under section 80-I of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), attributable to products manufactured at plant at serial No. 2. It may be mentioned here that section 80-I of the Act has been deleted by the Finance Act, 1972, with effect from April 1, 1973. However, so far as the years under consideration are concerned, this section under which the assessee claimed relief was in existence. It further appears that apart from captive consumption of product or item manufactured in plant at serial No. 2 by plants at serial Nos. 3 and 5, this product was sold in the open market. The assessee claimed the benefit of deduction under section 80-I of the Act in respect of the entire production of plant at serial No. 2 including the product which was sold in the open market. Section 80-I under which the assessee claimed deduction reads as follows :
'80-I. Deduction in respect of profits and gains from priority industries in the case of certain companies. - (1) In the case of a company to which this section applies, where the gross total income includes any profits and gains attributable to any priority industry, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company.
(2) This section applies to a domestic company, save in a case where such company is a company which is referred to in section 108 and has a gross total income of fifty thousand rupees or less.
(3) Where a company to which this section applies is entitled also to the deduction under section 80H, the deduction under sub-section(1) of this section shall be allowed with reference to the amount of the profits and gains attributable to the priority industry or industries as reduced by the deduction under section 80H in relation to such profits and gains.'
2. It may be mentioned here that the topic covered by section 80-I was dealt with by original section 80E, which was inserted by the Finance Act, 1966, with effect from April 1, 1966. That section, i.e., section 80E, was deleted and in its place the above section 80-I was introduced by the Finance (No. 2) Act, 1967, with effect from April 1, 1968. The Income-tax Officer accepted the plea of the assessee that plant at serial No. 2, which manufactured polyvinyl chloride resin, was a priority industry and, therefore, the assessee was entitled to deduction in respect of profits and gains from such industry. He, however, held that such deductions could be allowed only in respect of the profits derived by the assessee by selling the product manufactured in plant at serial No. 2 in the open market. According to the Income-tax Officer, the assessee was not entitled to such deduction in respect of the products used by its plants at serial No. 3 and 5. The Appellate Assistant Commissioner having confirmed the view taken by the Income-tax Officer, the assessee carried the matter before the Income-tax Appellate Tribunal (hereinafter referred to asj'the Tribunal'). The Tribunal upheld the contention of the assessee and held that it was entitled to deduction in respect of the profits and gains attributable to the product manufactured in plant at serial No. 2 irrespective of the fact whether the product was sold in the market or was used for captive consumption. In the result, the Tribunal directed the Income-tax Officer to give appropriate relief for the years under consideration to the assessee under section 80-I of the Act after verifying the correctness of the calculation placed before the Tribunal by the assessee. The Revenue being dissatisfied with the decision of the Tribunal, at its instance, the following question has been referred to us for our opinion under section 256(1) of the Act :
'Whether the assessee is entitled to deduction of 8% of the profits on PVC plant on the sale of PVC resins at Rs. 1,01,97,688 to the other units, namely, PVC compound, under section 80-I of the Act ?'
3. Now, it appears that this figure of Rs. 1,01,96,688 mentioned in the question relates only to one year. Since the Tribunal has not referred to the figures relating to the other two assessment years under consideration, it would appear that the question referred to us in only in respect of one assessment year. Both the parties agree that it is not so. Both the parties have agreed that the question which arises in all the three assessment years is referred to us for our opinion. We, therefore, reframe the question as follows :
'Whether the assessee is entitled to deduction of 8% of the profits of PVC plant on the supply or user of PVC resins by other units under section 80-I of the Act for the respective three assessment years ?'
4. It is no necessary to examine in detail the claim made by the assessee since, in our opinion, the decision of this court in the case of Anil Starch Products Ltd. v. CIT : [1966]59ITR514(Guj) directly covers the question raised before us. In that case, the assessee-company formed originally for the manufacture and sale of industrial starch subsequently set up another plant for producing dextrose, a pharmaceutical product, of which starch is the raw material. The assessee claimed exemption under section 15C of the Indian Income-tax Act, 1922, in respect of profits derived by it from its new industrial undertaking. The Tribunal held that the assessee was entitled to the exemption but that in computing the profits for purposes of the exemption, the starch supplied by the old industrial undertaking should be valued at the market price and not at its cost of production. On a reference, this court held that for the purpose of section 15C, the profits of a new undertaking would have to be computed on ordinary commercial principles. The Revenue would be entitled to enquire and ascertain the real profits by acting on commercial principles, that is, on the basis of the realistic value of the business assets transferred from one activity to another. Hence, the starch produced by the old undertaking and used as a raw material in the new industrial undertaking should be taken at market price for the purpose of computing profits and gains of the new undertaking under section 15C. In our opinion, the above view taken by this court in the context of section 15C will govern the instant case also. For the reasons stated in the aforesaid judgment, it must be held that polyvinyl chloride resin produced by plant at serial No. 2 and used as raw material in the plants at serial Nos. 3 and 5 should be taken at market price for the purpose of computing profits and gains for the purpose of allowing deduction under section 80-I of the Act. The assessee would be product is sold in the open market or is used for consumption in its other plants or units. jIn the result, we answer the question, as reframed above, in the affirmative and against the Revenue. Reference is answered accordingly with no order as to costs.