INCOME TAX OFFICER v. DRILLCO METAL CARBIDES LTD
[Citation -1987-LL-0520-5]

Citation 1987-LL-0520-5
Appellant Name INCOME TAX OFFICER
Respondent Name DRILLCO METAL CARBIDES LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 20/05/1987
Assessment Year 1978-79
Judgment View Judgment
Keyword Tags business or profession • industrial undertaking • commercial production • capital employed
Bot Summary: The assessee s accounting period was from 1st Oct., 1976 to 30th Nov., 1977. The ITO has observed as follows: 5.1 It is seen from the balance sheet and the information filed by the assessee that capital employed works out to a negative figure. The assessee will not be entitled to any relief under s. 80J. The ITO has taken the capital employed as on 1st Oct., 1976. The AAC has allowed the assessee s appeal and directed the ITO to take capital employed as on 30th April, 1977. 28 to 43A. He submitted that the assessee itself was calculating the profit according to period 1st Oct., 1976 to 30th Nov., 1977 and in the assessee s statement regarding profit and loss account before the ITO, it was this period which was taken into account. Irrespective of the period taken into account by the assessee for calculation of the income, for purpose of benefit under s. 80J, it is the date of setting up of business which is material. We confirm the order of the assessee s ld.


K.R. DIXIT, J.M. only issue in this appeal is regarding assessee s claim for benefit under s. 80J of IT Act. assessee s accounting period was from 1st Oct., 1976 to 30th Nov., 1977. ITO has observed as follows: "5.1 It is seen from balance sheet and information filed by assessee that capital employed works out to negative figure. assessee will not, therefore, be entitled to any relief under s. 80J." ITO has taken capital employed as on 1st Oct., 1976. It was assessee s case that business was set up from 1st May, 1977 and, therefore, capital employed on that day should be taken into account. assessee vide its letter dt. 4th Feb., 1981 to ITO wrote, inter alia, that assets and liabilities should be taken as on 30th April, 1977, just before commencement of commercial production on 1st May, 1977. AAC has allowed assessee s appeal and directed ITO to take capital employed as on 30th April, 1977. 2. Before us, ld. departmental representative pointed out Expln. 2 to s. 80J(1) which defines computation period as period for which profits and gains of industrial undertaking are computed under ss. 28 to 43A. He submitted that assessee itself was calculating profit according to period 1st Oct., 1976 to 30th Nov., 1977 and in assessee s statement regarding profit and loss account before ITO, it was this period which was taken into account. Therefore, according to him capital employed as on 1st Oct., 1976 has to be taken into account. On other hand, learned counsel for assessee submitted that computation period here meant previous year which was defined in s. 3. He drew our attention to sub-cl. (1) (e)(i) of that section which runs as follows: "(e) In case of business or profession newly set up in twelve months immediately foreceding said financial year (i) if accounts of assessee have been made up to date within said financial year and period from date of setting up of business or profession to such date does not exceed twelve months, then, at option of assessee, such period, or" He also submitted that there could not be any income before business was set up and that therefore, obviously it was capital at time of setting up of business which had to be taken into account. Regarding meaning o f expression "setting up of business", he relied upon following authorities: 1) CWT vs. Rama Raju Surgical Cotton Mills (1967) 63 ITR 478 (SC) 2) Western India Vegetable Product Ltd. vs. CIT (1954) 26 ITR 151(Bom) 3) CIT vs. Sarabhai Sons Pvt. Ltd. (1973) 90 ITR 318 (Guj) 4) Bhodilal Mengharaj & Co. Pvt. Ltd. vs. CIT (1979) 13 CTR (Bom) 101 : (1979) 119 ITR 968 (Bom) 5) CWT vs. Andhra Valley Power Supply Co. Ltd. 1978 CTR (Bom) 578 : (1978) 114 ITR 783 (Bom). 3 . We are of view that assessee here is entitled to succeed. Irrespective of period taken into account by assessee for calculation of income, for purpose of benefit under s. 80J, it is date of setting up of business which is material. definition of computation period in said Expln. 2 states clearly period for which profits and gains of industrial undertaking which is to be taken into account. Now industrial undertaking cannot start earning any profits and gains unless and until necessary machinery for it has commenced operation. Therefore, capital which is employed in machinery cannot be said to be employed unless machinery commences operation. Consequently, date on which capital can be said to have been employed would be only date on which machinery has started operation. That date here is 1st May, 1977. Further even taking into account argument of ld. departmental representative based on definition of term `previous year in s. 3, aforesaid sub. cl. (1)(e)(i) of that section does not support ld. departmental representative, but supports argument of assessee s ld. counsel as stated above. Therefore, we confirm order of assessee s ld. counsel as stated above. Therefore, we confirm order of CIT(A) and reject this appeal. *** INCOME TAX OFFICER v. DRILLCO METAL CARBIDES LTD.
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