1. By this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal,Indore Bench, has referred the following question of law to this court for its opinion :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that for the purpose of allowing deduction u/s. 80J, the rate of 6% per annum cannot be stretched any further to curtail the amount of relief admissible and that the deduction at 6% per annum is admissible for a full year even if the undertaking has actually worked during the year for less than 12 months '
2. The material facts giving rise to this reference asset out in the statement of the case, briefly, are as follows: The assessee is a private limited company carrying on the business of bottling and selling of soft drinks, The assessee started production on February 29, 1968. While computing the deduction admissible to the assessee under Section 80J of the Act, for the assessment year 1968-69, the ITO worked out the deduction according to time basis at 6% of the capital computed in the prescribed manner for a period of only one month. Aggrieved by the order passed by the ITO, the assessee preferred an appeal before the AAC; but the appeal was dismissed. The assessee, therefore, filed second appeal before the Tribunal. On behalf of the assessee, it was submitted before the Tribunal that the assessee was entitled to the deduction under Section 80J of the Act for the full 12 months and not for a period of one month only. This contention was upheld by the Tribunal. Aggrieved by the order passed by the Tribunal, the department submitted an application for making a reference to this court and it is at the instance of the department that the aforesaid question of law has been referred.
3. Section 80J of the Act lays down that where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking to which the provisions of that section apply, there shall, in accordance with and subject to the provisions of that section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking computed in the prescribed manner in respect of the previous year relevant to the assessment year. Section 80J of the Act nowhere further provides for reduction of the amount of deduction on time basis, with reference to the working of the industrial undertaking. The provisions of Section 80J of the Act which are intended to encourage the setting up of a new industrial enterprise 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 yearduring which the undertaking was in productive operation. The Tribunal,in our opinion, was, therefore, justified in holding that for the purposeof allowing deduction under Section 80J of the Act the deduction at 6per cent. per annum was admissible for the full year even though theundertaking of the assessee has actually worked during the year for lessthan twelve months.
4. For all these reasons, this reference is answered in the affirmativeand against the department. Parties are directed to bear their owncosts.