Jagannatha Shetty, J.
1. The following question has been referred under s. 256(1) of the I.T. Act :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding the order of the Commissioner (Appeals), who directed the Income-tax Officer to allow the relief under Section 80J at full 7 1/2 % of the capital employed even though the under taking worked only for 1 1/2 months ?'
2. The simple facts behind the legal formulation are as follows :
The assesses company claimed relief under s. 80J of the Act for the full assessment year 1977-78, although the company started production only on May 16, 1976. The assessee's accounting year ended on June 30, 1976. The ITO allowed the relief pro rata for 1 1/2 months subsequent to the commencement of the commercial production. The assessee appealed against that order. The Commissioner (Appeals) held that the relief due to the assessee cannot be pro rata reduced for the period of commercial production and the assessee was entitled to full tax rebate for that year. He accordingly directed the ITO to recompute the relief at 7 1/2 per cent. of the capital employed by the assessee. The Revenue took up the matter in appeal to the Tribunal. The Tribunal agreed with the view taken by the Commissioner (Appeals) by following the judgment of the Madras High Court in CIT v. Simpson and Company : 122ITR283(Mad) . The Tribunal, however, referred the aforesaid question for the opinion of this court.
3. Section 80J of the I.T. Act gives relief by way of tax rebate to new industrial undertakings or ships or hotel business in some cases. It provides for a deduction to be allowed; such deduction is possible only when the amount to be deducted has been included in the gross total income. The deduction is to be allowed out of the profits and gains derived from the undertakings, or hotel, or ship as reduced by the deductions, if any, allowed under s. 80HH or s. 80HHA of the Act in respect of the new industrial undertaking and hotel established in backward areas, etc. The said profits and gains must have been included in the assessee's gross total income. The amount to be deducted shall be equal to the said profits and gains not exceeding 6% or 7 1/2 per cent. per annum of the capital employed, as the case may be.
4. The answer to the question lies in a narrow compass and it turns on the meaning to be given to the rate '6% or 71/2 per cent. per annum', in s. 80J. Does it mean that the relief should be pro rata the period of working of the undertaking or should it be for the full year in which the capital was employed, though production was only for a couple of months or couple of days Mr. Srinivasan, urged for the former view. Whereas Mr. Sarangan, counsel for the assessee, contended for the latter. Mr. Sarangan submitted that what is relevant to get relief under s. 80J is the employment of the capital and the date of production and if both these conditions are satisfied, then the assessee would be entitled to the relief at the said rate for the first full years, no matter when the production commenced in that year.
5. It seems to us that the contention urged by Sri Sarangan is well founded and must be accepted as correct. Everyone is familiar with the terms per diem, per mensem and per annum. They area indicative of the period for which the rate is prescribed and do not necessarily imply that there shall be pro-rating. Pro-rating depends upon the context in which such terms are used. The relief at the rate of 6% or 71/2 per cent. per annum provided under s. 80J is in the nature of incentive extended to the assessee who has established a new industrial undertaking. That incentive is a available for a full period of 5 years, inclusive of the year in which manufacturing operations started. The relief, no doubt, depends upon the commencement of production. But also on the capital employed. Therefore, there shall be no pro-rating for the period of productive operation.
6. In CIT v. Simpson and Company : 122ITR283(Mad) , the Madras High Court has taken a similar view. It was observed (p. 287) :
'The words 'six per cent. per annum' are ordinarily applied to calculation of interest and in similar contexts. But the words 'per annum' would be in appropriate in a taxing statute levying tax on the income earned during the previous year, which is not necessarily a period of twelve months, though it would ordinarily be a period of twelve months. In the present case, the words 'per annum' could even be dispensed with, as Mr. Jayaraman contended, and yet the section would carry the same meaning. We do not, however, consider the expression a surplusage. The words 'per annum' appear to have been added only to ensure that the assessee would get, for each of the five years during which the relief under s. 84 is available, the said 6% on the capital employed. The words per annum' cannot be understood as contrasted with any broken period.'
7. The Supreme Court has refused leave to appeal against the aforesaid judgment in S.L.P. (Civil) Nos. 8411 & 8412 of 1980, dated March 31, 1981.
8. The Madhya Pradesh High Court in CIT v. Sanghi Beverages (Pvt.) Ltd. : 134ITR623(MP) , has observed :
'The provisions of s. 80J of the Act which are intended to encourage the setting up of new industrial enterprise l have to be construed liberally. Even if a new undertaking has functioned for only a part of an accounting year, the deduction has to be allowed to the full extent and the percentage cannot be reduced in proportion to the part of the year during which the undertaking was in productive operation.'
9. Mr. Srinivasan, however, relied upon the following observation of the Delhi High Court in Addl. CIT v. Gedore Tools (India) P. Ltd. : 134ITR592(Delhi) :
'The section itself no doubt contemplates the percentage of relief being toned down or reduced proportionately to the period of working of the undertaking.'
10. It may be stated that the Delhi High Court was not considering the question we are called upon to answer. Secondly, the above observations has no supports from the wording of s. 80J. We, therefore, cannot, with respect, accept the soundness of that reasoning. On the contrary, we find ourselves unhesitatingly driven to the opposite conclusion, regard being had to the legislative propose underlying s. 80J.
11. In the result, we answer the question in the affirmative and against the Revenue.
12. In the circumstances, we make no order as to costs.