AJIT K. SENGUPTA J. - At the instance of the Commissioner of Income-tax, West Bengal VI, the following question of law for the assessment year 1971-72 has been referred to this court under section 256(1) of the Income-tax 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 Income-tax Officer to allow deductions under sections 80-1 and 80J of the Income-tax Act on the basis of the assessees claim for such deductions made in its
letter dated February 8, 1979, in the course of the reassessment proceedings pending in terms of the Tribunals order in I.T.A. No. 2971/Cal/74-75, dated June 11, 1976 ?'
In our vie, the question has to be reframed as follows :
'Whether, on the facts and in the circumstances of the case and having regard to the fact that the Tribunal was justified in law in directing the Income-tax Officer to allow deduction under section 80J of the Income-tax Act, 1961, on the basis of the assessees claim for such deduction made in its letter dated February 8, 1979, in the course of the reassessment proceedings ?'
The dispute in this reference relates to the assessees claim for relief under sections 80J and 80-I of the Income-tax Act, 1961. There was no specific discussion in the order of the Income-tax Officer but in the appellate order passed by the Commissioner of Income-tax (Appeals), it was noticed that in his instructions under section 144B, the Inspecting Assistant Commissioner 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 Commissioner of Income-tax (Appeals), it was argued that in the reassessment proceedings taken in pursuance of the appellate order passed by the Appellate Assistant Commissioner, the assessee had claimed this relief in its letter dated February 8, 1979. The Commissioner of Income-tax (Appeals), however, rejected this claim on the ground that by the Finance (No. 2) Act, 1980, a new section 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 Income-tax 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 deduction is to be allowed. Thus, for the purpose of deduction under sections 80J and 80-1, only the income of the new industrial undertaking was to be taken into account. Considering the assessed losses up to the year 1969-70 as well as the unabsorbed depreciation and unabsorbed development rebate admissible in respect of the new industrial undertaking for which the deduction under sections 80J and 80-I was claimed, the Supreme Court decision in the case of Rajapalayam Mills Ltd. v. CIT : [1978]115ITR777(SC) was no longer applicable because of the amended provision. He, therefore, rejected the assessees ground 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 Income-tax Officer for making all necessary deductions in view of the principles laid down in the case of Rajapalayam Mills Ltd. : [1978]115ITR777(SC) with the following observations :
'There is no discussion in the order of the Income-tax Officer in this behalf and the Commissioner of Income-tax (Appeals) has noticed that in his instructions under section 144B, the Inspecting Assistant Commissioner 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 Commissioner of Income-tax (Appeals) that the assessee had made the claim by its letter dated February 8, 1973 in which the 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 profit in the assessment years 1966-67 and 1967-68 and, therefore, there was no question of carry forward of loss under section 80J(3). It was further claimed before the Income-tax Officer that in view of the Supreme Court decision in the case of Rajapalayam Mills Ltd. : [1978]115ITR777(SC) , 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 should be apportioned between the new and the old business according to the capital employed and turnover. The Commissioner of Income-tax (Appeals), however, summarily rejected this contention because of the Finance (No. 2) Act, 1980, by which a new section 80AA had been inserted with effect from April 1, 1968, according to which, for the purpose of computing the deductions under Chapter VI of the Income-tax Act, the amount of income has to be computed in accordance with the provisions of the Act and for the purpose of deductions under sections 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 assessment year 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 of the new industrial undertaking from which the deduction under sections 80J and 80-I could be allowed. In view of this amended provision, he declined to go into the assessees claim. We are afraid, here, the Commissioner of Income-tax (Appeals) has not appreciated the position correctly. Section 80AA only refers to deduction under section 80M which deals with deductions out of dividends from a 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 is claimed under section 80M, that deduction has now to be computed with reference to the income by way of such dividends as 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 has 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 Income-tax Act. Though in para 8 of the memo, there is a reference to other sections as well, the language of section 80AA is quite clear and refers only to deductions under section 80M which deals with intercorporate dividends only. In the present case, there is no question of claiming any deduction under section 80M. The reliefs sought to be claimed were those under sections 80-I and 80J and 80AA does not refer to those reliefs. The decision of the Supreme Court in Rajapalayam Mills Co. Ltd. v. CIT : [1978]115ITR777(SC) , 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 assessees claim.
While dealing with the application under section 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 if the year 1969-70 are adopted and adjustments are made for relief allowed in appeals for 1970-71 and 1971-72, the deficiency under section 80j (3) would call for set off only in the assessment year 1972-73 regarding which the Commissioner of Income-tax (Appeals) has not contested the Tribunals direction given in this behalf and, as such, the question mentioned hereinbefore was referred to this court which we have reframed as states before.
The only question which arises for our determination is that although the assessee did not claim the relief under section 80J before the Income-tax Officer, whether the assessee is precluded from claiming this benefit in 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 Income-tax Officer as follows :
'Assessment years 1970-71, 1971-72 and 1972-73 - Claims under sections 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 new buildings. Most portions of the expansion work has been completed and the rest is expected to be completed within the current year. The mill 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 to 6,482 tonnes in the year 1964. The increase of 66% 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 already 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 worth Rs. 12,78,326 and building worth Rs. 6,66,312. The further additions to the new rolling mill consisted of the following :
As on
Plant and machinery
Buildings
Rs.
Rs
1.1.1965 Additions during current year 1965
12,78,326
6,66,312
' ' ' 'Additions during current year current year 1965
1,16,637
12,697
' ' ' 'Additions during current year current year 1966
1,94,406
48,456
The new industrial undertaking consists of a self-contained unit producing 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 result between them in the same proportion.
Since there was no profit in the assessment year 1966-67, there was only a question of carry forward of loss under section 80J (3). The benefit of section 80J may be made available to us for the assessment years 1967-68, 1968-69, 1969-70 and 1970-71 both under sections 80J (1) and 80J (3) and necessary carry forward allowances 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% of the capital employed to arrive at the quantum of exempted profit for purposes of both the sections 80J (1) and 80J (3).
It may be respectfully submitted that the maintenance of separate accounts or the precise computation of the profit attributable to the new industrial undertaking lose their importance after the Supreme Courts decision in Rajapalayam Mills Ltd. v. CIT : [1978]115ITR777(SC) , namely, that the deficiency in the new business can be set off against profit from the old business and that no separate recomputation with retrospective effect of the depreciation and development rebate is necessary for assessing 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 section 80J due to us.
Because we were not properly advised at the time of the original assessments for this year as well as earlier years, we created necessary development rebate reserve on the footing that we are not a priority industry. We have now been advised that there is a Full Bench of the Kerala High Court in CIT v. West India Steel Co. Ltd. : [1977]108ITR601(Ker) to the effect that the manufacture of M. S. rods and steel sections from ingots, blooms, billets, etc., constitutes priority industry as contemplated in item No. (1) of the Fifth Schedule to the Income-tax Act, 1961. We anticipate that due to the 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 that we may be allowed necessary deduction under section 80-1 equal to 8% of the profit, while computing our total income up to and inclusive of the assessment year 1971-72 and at 8% for the assessment year 1972-73.
Thanking you.'
Having regard to the facts and circumstances of this case and the settled principles of law, we are of the view that in the course of reassessment made pursuant to the direction of the Tribunal, the assessee is entitled to claim all benefits that are available to it, even if the assessee did not claim such benefits at the time of the original assessment. The benefit claimed in this case is in respect of section 80J of the Income-tax Act, 1961. The Tribunal has directed the Income-tax Officer to consider it afresh. In our view, the Tribunal has rightly directed the Income-tax Officer to consider whether the assessee is entitled to the benefit of section 80J.
Technicality cannot defeat the claim of an assessee if he is otherwise eligible for it.
We, therefore, answer the reframed question in the affirmative and in favour of the assessee.
There will be no order as to costs.
K. M. YUSUF J. - I agree.