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Sri Venkateswara Hatcheries (P.) Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Reported in(1982)1ITD1077(Mad.)
AppellantSri Venkateswara Hatcheries (P.)
Respondentincome-tax Officer
1. these three appeals, two by the assessee and one by the department, in respect of the assessment years 1977-78 and 1979-80, are being disposed of together, since common issues are raised in all of them.the main point for decision in these cases is, whether the assessee, who is running a modern poultry farm, would be entitled to deduction under section 80j of the income-tax act, 1961 ("the act").2. the assessee-company has a poultry farm near poona. they have a large number of birds in that farm. the company claims that they are running the poultry farm on a large-scale with modern scientific methods. the steps taken in the large-scale production of chicks have been set out by the company in a note, given to the department, in support of their claim for deduction under section 80j. 2......
1. These three appeals, two by the assessee and one by the department, in respect of the assessment years 1977-78 and 1979-80, are being disposed of together, since common issues are raised in all of them.

The main point for decision in these cases is, whether the assessee, who is running a modern poultry farm, would be entitled to deduction under Section 80J of the Income-tax Act, 1961 ("the Act").

2. The assessee-company has a poultry farm near Poona. They have a large number of birds in that farm. The company claims that they are running the poultry farm on a large-scale with modern scientific methods. The steps taken in the large-scale production of chicks have been set out by the company in a note, given to the department, in support of their claim for deduction under Section 80J. 2. The eggs are collected from the breeding farm frequently and hygienic-ally. Then they are transported to the hatchery. Before admitting the eggs into the hatchery they pass through the fumigation chamber. Once the eggs are fumigated they become free from most of the micro organisms which are pathogenic and present on the surface of the egg shell.

3. Storage of eggs is a must because we cannot incubate and get a hatch every day due to economical reasons. The technique of storing eggs without affecting the hatchability has been evolved after many experiments. A cold room having 60-65 degrees fahrenheit temperature and 75 per cent humidity is considered ideal for optimum results, if your storage does not exceed a couple of weeks. Once we store the eggs in the above temperature, 60-65 F, we just cannot take out and load them in the incubation immediately. We take out the eggs 12 to 18 hours before the loading time.

4. The incubation period of the eggs is 21 days. Even by the natural process it takes the same time, but there are certain research works which show that the incubation period of broilers, particularly, can be reduced to 18 days. Not only in India, but even in other parts of the world, the complicated technology for reducing the incubation period is not economical and viable. Hence, we follow the same 21 days incubation period. The incubation period can be divided into two stages: (1) First 18 days, and (2) last 3 days.

For the first 18 days, the eggs are incubated in a large scale in automatic machines where the temperature, humidity and changing of position of the egg every hour is done automatically. After completion of 18 days the same eggs are transferred to another machine in which, except turning, the rest are the same like the above machine. On completion of 21 days, the chicks will be out from the eggs.

5. Once the chicks are out the male and female are separated. This process is called sexing. Two method are in existence. One is the Japanese event method and the second is by a machine. In both the methods accuracy remains almost the same. In case of machine sexing, the chick mortality will be about 2 per cent whereas in the Japanese method this mortality does not occur. Once the sexed females (in case of layers) have been vaccinated against various diseases they are sent to the farmers.

It is also stated that in modern hatchery operations there is a pooling of the following factors : (1) Capital, (2) Labour, (3) Power, (4) Plant and machinery, (5) Artificial hatching, (6) Research, (7) Technology, (8) Large scale production, (9) Prevention of diseases, (70) Quality of chicks : (a) Protection against diseases-less mortality, (b) Chicks-better yield, larger number of eggs, size of eggs, (c) Less feed consumption.

3. Before the ITO, the company claimed deductions under Section 80J as well as under Section 80JJ of the Act. The claim under Section 80J was rejected by the ITO.4. The Commissioner (Appeals) also rejected the assessee's claim. He understood the claim to mean that the assessee was manufacturing or producing eggs. The normal rule of construction, in a fiscal statute, would be to consider them as understood in the ordinary and common parlance only. On such principle of intepretation, it cannot be said that the assessee-company manufactures or produces chicks. Such a claim would sound very strange to an ordinary man. The term "manufacture or produce" cannot be applied to the hatching of chicks out of eggs.

Considering the meaning associated in common parlance with the words "manufacture or produce", the Commissioner (Appeals) felt that it cannot be said that the company is engaged in any manufacture or production of articles and, thus, will not be entitled to relief under Section 80J.5. The company is on further appeal before us. Sri Ganesh, learned counsel for the assessee, submitted that in the large scale production of eggs, as is done in modern hatcheries, there is always an element of production as required under Section 80J. He pointed out that this section requires production of articles or things. The word "production" is of very wide ambit, as has been laid down by the Allahabad High Court in Singh Engg. Words (P.) Ltd. v. CIT [1919] 119 ITR 891. The relevant passage appears at page 895. This authority was cited only to show how wide are the term of the words to be interpreted. In fact even mining of mica has been held to be production, although it only involves taking out of the earth mica, which had formed naturally. This is on an authority in 12 STC 150 at page 153. This approach of the Supreme Court, in the sales tax case, is the proper approach to be adopted in understanding the expression "production" appearing in Section 80J, according to him. He also pointed out that the Calcutta High Court has considered the raising of coal as production in the case AIR 1959 Cal. 222. He further pointed out that the Central Excise Act assumes that there is a production of tobacco and that is why Central excise is levied thereon. Thus, with reference to decided cases, the word "production" would include things which are naturally found, like mica and coal, but which, through some human agency, is brought to surface for the proper use. In this background, the assessee's claim that they were producing eggs does not appear to be as strange as the Commissioner (Appeals) had made out. He further pointed out that the company is employing more than 300 employees. He submitted that the mere fact that the end product is a living creature should not be considered as a bar against the claim. In many industries living creatures are used as in the case of production of yeast or vaccine. In both the cases, living organisms are made use of. The mere fact that an essentially natural process is involved would not also negative the claim. He submitted that brewing of liquor is also a natural process but it is done on a large scale in breweries.

Nobody will deny that breweries are industries. He also submitted that the manufacturing of various chemicals are also based on essential natural processes. Finally, he submitted that Section 80J is intended to give a filling to industry and so it should be interpreted in a liberal manner. Concepts of processing, according to him, are very dynamic and should change from time to time. What was considered as not processing earlier should be considered to be so, as times change.

6. For the department, Shri Satyanarayana submitted that what is required under Section 80J is the production of articles or things. Now the question is, whether the expression "article" occurring in Section 80.T would include animate things like chicks. For this purpose, reliance placed by the assessee on authorities under the Sales Tax Act is not material. The Sales Tax Act, by definition, has included animate things for the purpose of levying tax on sales and so the meaning given to that expression should not be imported in considering Section 80J.What we have to understand is, how an ordinary man would view the business of the company. An ordinary man will not say that the company is producing eggs like other companies producing various materials.

Chicks are produced by natural processes only. The reference to the Central Excise Act, also, does not help the assessee, according to him, because if the assessee's contentions are correct, the production of chicks should be subject to Central excise. The assessee himself accepted that it is not subject to Central excise. He further submitted that each statute has to be construed within the four walls of the expressions used therein and in the context and it would not be correct to import the meanings attributed to the term inother statutes. It is submitted that the findings of the Commissioner (Appeals) on this point are correct.

7. To a query from the Bench as to whether, in view of the fact that the assessee has been allowed deduction under Section 80JJ on the profits of poultry farming, the assessee is also entitled to deduction under Section 80J, the counsel replied that unless there is any specific provision in either Section 80J or Section 80.1J, the assessee would be entitled to the double deductions. The concept of production of eggs according to him, would be covered both by Section 80J as well as Section 80JJ.8. We have considered the assessee's claim. We are required to interpret, on the facts of the case, the expression appearing in Section 80J(4)(iii) "manufactures or produces articles". It is not the assessee's case that it operates one or more cold storage plants.

Neither production of chicks, as done in the company's hatcheries, have to be considered as manufacture in order to succeed in the claim. The objections of the department could be summarised in the following issues : (1) Chicks, being living animals, cannot be considered as articles or things within the meaning of Section 80J(4).

(2) Even if chicks could be construed as articles or things, it cannot be said that the company is producing chicks-that being a natural process of the development of the eggs.

(3) In any case, even if this could amount to production, there is a specific section dealing with poultry farming. Since there is a specific section, the general section will not come into operation.

9. Taking up the first issue, the question is whether chicks could be considered as articles or things. We accept Shri Satyanarayana's objections for considering the meaning ascribed to the words "articles or things" in other statutes. The Act is a self-contained code and we must try to find out the meaning of the expression used in this statute by examining the internal evidence available within the statute itself.

Apparently, the argument of the department is attractive. The expression "articles or things" is normally associated with inanimate things which are capable of being manufactured or produced by human agency. However, we find that in the statute, itself, there are certain explanatory schedules which itemize articles or things for certain specific provision. The Fifth Schedule sets out a list of items which are articles or things manufactured or produced for the purpose of Section 33(1)(6) of the Act, i.e., development rebate. Item (28) of the Fifth Schedule is processed seeds. Now, seeds are produced by plants, not by human beings. Seeds are also animate things, in that they grow independently of human agencies An illuminative decision, in respect of processed seeds, is given in the case of Tarai Development Corporation v. CIT [1979] 120 ITR 342 (All.). Therein, the Allahabad High Court was concerned with the meaning of the item "processed seeds" appearing in the Fifth Schedule. Therein, they held that "processed seeds" fall either in the category of manufacture or of production. They had also pointed out, that Section 80B and the Sixth Schedule of the Act also treat processed seeds as an article obtained by manufacture or production. Again, they had pointed out that Section 80-I, which grants relief to specified industries, covers processed seeds also.

10. Now, the decision also gives how the processed goods are obtained.

In that case, the company distributes foundation seeds to farmers, who are shareholders in the company. After the seeds are sown by the shareholders, the seed production assistants of the company inspect the field and advise the farmers regarding pesticides, etc. After the produce is harvested, seed-samples are collected and tested for purity, viability and moisture content. On the samples meeting the required standard, the farmers are asked to supply their produce. The seeds supplied are again tested and, if found suitable, approved for processing. The seeds are then graded and cleaned by mechanical processes and sorted out in three categories. The approved category is treated with mixtures of various chemicals and then passed to a mixing tank, where the seeds and chemical are mixed mechanically, as a result of which the chemical mixed is coated on each grain. This is how processed seeds are obtained. This had been accepted as an article or thing.

11. From processed seed, it is but a step to "fish and fish products" in item (30) of the Fifth Schedule. Although, "fish products" might be, conceivably, an "article", being a product out of fish, the inclusion of fish (frozen) shows that things which were once living are also included in that term. Frozen fish is only fish which is kept at 0C temperature.

12. Now, these two examples, viz., seeds and fish, would establish, beyond contrary, that "articles and things" are not confined to inanimate things. It includes growing plants (seeds) and what was once animate (fish). There should be no serious objection in equating eggs with seeds, both being generators of life. The product coming from them, through the association or help of human agency, can also be reasonably described as "things". What makes them "articles or things" is the association of a human agency-the processing of seed and the freezing of fish is the contribution of human factor. So, whenever an animate being is associated with a human agency in its development or process, it should constitute an article or thing for the purpose of the Act. On this principle, the artificial hatching of eggs is certainly an article or thing.

13. We are of opinion that, if processed seeds could be considered as an article or thing, we do not see why eggs which are hatched artificially by the company by a mechanical process, cannot be said to have been produced as an article or thing.

14. The second objection is that, even if the chicks could be considered as articles or things, it cannot be said that the company produces them ; the basic objection being that the hatching of the eggs and the production of chicks are a natural process and, therefore, the company cannot say that they have produced the chicks. The expression "produce" used in Section 80J has not been defined and so we should try to find out the meaning which is to be attributed to this word. The word "produce" has been defined in Words and Phrases, Permanent edition, vol. 34, as "means the production, or that which is produced, brought forth or yielded". According to the Webster's International English Dictionary, the word "produce" means "to bring forward, to get together". It would be seen that the word "production" means, amongst other things, that which is produced, a thing that results from any action, process or effort. It is, however, to be noted that the word "produce" is not necessarily confined to what is grown from the ground.

It also refers to finished articles or semi-finished articles made from the raw materials. This being the meaning of the word "produce", it would be, at once, clear that where human agency is associated with a natural process the human agency is also credited with the production of the article or thing. Thus, a farmer is said to produce the crops, although it is natural for a plant to grow and give fruit. What the farmer had done was to tend the plant, water it and protect it from pests. It gives fruits of its own accord. Yet, we consider that the farmer has produced the fruits or the crop. It is true that an egg, left to itself, would hatch and the chick would come out in the normal course. It is not necessary that the mother bird should help in the hatching of the eggs. There is an abundance of instances in nature where the eggs are allowed to hatch by themselves, without the help of the mother. Now, if, in this natural process, a human agency is involved and takes the place of the mother bird, it may not be strange to say that the human agency had something to do with the production of the chicks. We have given, in para 2 of our order, the various steps taken in the mechanical process of hatching the eggs. It would be seen that the machines are doing what the mother hen would do. So, the credit which would go to the mother hen can be attributed to the machines as far as the hatching is concerned.

15. At this juncture, we may again refer to the decision in Tared Development Corporation's case (supra). The Allahabad High Court has held that the assessee therein was producing processed seeds. There also, it was nature which was producing the seeds. All that the company had done, was to give a coating of a chemical which would keep the seeds in good condition for a long period. That was enough to make the assessee therein a producer of processed seeds. The assessee's case is, in our opinion, stronger. The entire hatching is done mechanically. By removing the pathogenic organisms on the egg, a healthy production of chicks is assured. By keeping temperature and humidity at ideal levels, 100 per cent production of eggs is also assured. We are satisfied, on the basis of these facts, that the company can claim that they are producing chicks.

16. We now have to consider the third objection, i.e., whether in view of a specific provision, viz., Section 80JJ, which gives a deduction in respect of profits and gains from business of poultry and dairy farming, the general provisions of Section 80J would apply. We are of opinion, that the fact that the assessee would be entitled to deduction under Section 80JJ, also, will not stand in the way. The objection is based on the rule of constructeal which is expressed by the maxim generalia spedlibus non derogant. This principle has been stated in Crates on Statute Law thus: The rule is, that whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply.

The Supreme Court in the case of CIT v. Shahzada Nand & Sons [1966] 60 ITR 392 has considered this maxim. They had pointed out that this rule of construction is not of universal application. It is subject to the general condition that there is nothing in the general provision, express or implied, indicating an intention to the contrary. This would require us to consider the provisions of Section 80JJ and Section 80J in order to find out whether the general provision, Section 80J, completely comprehends the special provision, Section 80JJ, and whether there is anything implied therein which is contrary. In our opinion, the provisions of these two sections do not operate in the same field.We may highlight some of the differences. Section 80.1 operates only for a period of five years from the date of production of the article or thing. The provisions of Section 80JJ, on the other hand, have no limitation in time. Secondly, it is not necessary that there should be any production of an article or thing in order to be eligible for deduction, under Section 80JJ. It would be seen that this applies to livestock breeding and dairy farming. These businesses could be undertaken without satisfying the prime condition laid down in Section 80J. Thirdly, Section 80J has several other stipulations laid down in Sub-section (4), therefore, narrowing down their field of operation.

There are no such conditions placed in Section 80JJ. Fourthly, the method of computation of the deductions is also different. Section 80J was intended to give a fillip for industry and, therefore, the amount invested in that industry has a connection with the amount of deduction available. It is, therefore, quantified on the basis of the capital employed. Section 80JJ does not speak of the capital employed at all.

It is a straight deduction in respect of the profits and gains derived from that business. We are, therefore, satisfied that the two sections operate on different fields although there may be areas where they would overlap.

17. We have also considered the question whether, if there is an overlapping, in respect of that area, whether Section 80JJ would exclude Section 80J. A Special Bench of the Tribunal in the case of ITO v. Vickers Sperry of India [1980] 3 Taxman 180 (Bom.) was also seized with a similar problem. Therein, in respect of the capital assets used in scientific research for which 100 per cent deduction is provided in Section 35 of the Act, a claim was made that the assessee was entitled, over and above the deduction under Section 35, to depreciation allowance under Section 32 of the Act. The argument of-the department was that since Section 35 allows full deduction and that was a special provision, the general provision regarding depreciation would not be allowable. The Tribunal also came to the finding that Sections 35 and 32, allowing depreciation, operate in different fields. We quote below the relevant passage : ... We have next to consider the nature of the deduction by way of depreciation under Section 32 and the allowance under Section 35 because one of the points urged by the learned standing counsel for the revenue was that they are of the same nature and that, therefore, in the absence of an express provision authorising allowance of both, both cannot, and should not, be allowed. This submission also, to our mind, surfers from a fallacy. Firstly, allowance under Section 35 is generally available in respect of expenditure incurred on scientific research. Depending on the facts of a case, such an expenditure may or may not involve user for the purposes of the business. Further, such expenditure may or may not result in depreciable capital assets. On the other hand, depreciation is allowable only on such capital assets as are depreciable and are used for the purpose of business. The purport and scope of two sections is quite different. The mere fact that originally capital expenditure on scientific research was to be allowed in five equal yearly instalments does not, in our opinion, at all mean that the deduction can be equated with depreciation. In any event, after the insertion of Clause (id) in Section 35(2) with effect from 1-4-1968, the position has undergone a material change.

It may not be out of place to observe that all capital expenditure does not necessarily result in depreciable capital assets and in any event under Section 35 expenditure incurred before the commencement of the business is also allowable while, for allowance of depreciation under Section 32, the capital assets has got to be used for the purposes of the business. Moreover, double allowance, as we understand, means allowances of same nature on the same assets in the same year and not different types of deductions allowed in different years.

7.1. Sections 35 and 32 thus operate in their own respective fields.

While Section 35 is special qua scientific research expenditure, Section 32 is special, qua depreciation allowance. They do not take over the functions of each other and in fact operate in their own respective fields which may some time overlap. That apart, it is to be remembered that the object of bringing in the provisions of Section 35 initially in 1946 by inserting Clauses (xii), (xiii) and (xiv) in Section 10(2) of the Indian Income-tax Act, 1922, was to encourage expenditure on scientific research and not to merely provide accelerated depreciation on depreciable capital assets. It has to be borne in mind that these provisions were enacted to encourage expenditure on scientific research which was otherwise shy. Mere allowance of the expenditure in full, to our mind, may not be even sufficient compensation. In any event, if the purpose was only to provide accelerated depreciation, these provisions would have been part of Section 10(2)(vii) of the 1922 Act and Section 32 of the 1961 Act. (p. 185) There are provisions in Chapter VI-A which are applicable in respect of the same business, leading to deductions under more than one section.

The deductions available under Sections 80HH and 801 could be usefully compared. Section 80J deals with newly established industrial undertakings, whereas Section 80HH deals with profits and gains from newly established industrial undertakings in backward areas. A newly established undertaking in a backward area would, therefore, satisfy the conditions required in both the sections. In such cases, the Legislature has taken care to see that there is no double deduction.

This is achieved by making it clear in Section 80J that the deduction allowable in Section 80J is to be reduced by the deduction, if any, admissible under Section 80HH. We do not find any such similar provision in the case of Section 80JJ. We are, therefore, satisfied that the assessee would be entitled to both the deductions.

18. We take up the next issue, regarding the claim of the company that they would be entitled to a deduction under Section 35C. This claim has been disallowed by the ITO, mainly as a consequence of his finding that the provisions of Section 80J would not be applicable. Now, the requirement of Section 35C is that the company should be engaged in manufacture or processing of any article or thing which is made from or which uses as raw material any product of agriculture, animal husbandry, or dairy farming. There is no dispute that the company has used as raw material a product of poultry farming, i.e., eggs. But the department's objection is that the company should be engaged in the manufacture or processing of any article or thing and chicks are not article or thing. Our finding, in respect of Section 80J, would be applicable in deciding the assessee's claim under Section 35C.Consequent to our finding, we hold that the assessee-company would be entitled to Section 35C deduction also.

19. The next ground is, the claim of the company that they would be entitled to relief under Section 35B in respect of the salaries of staff not engaged in export work. The assessee has a department which looks after the export sales. Apart from that, the assessee has other staff which are looking after the rest of the activities. The salary paid in respect of the member of the staff in the non-export departments amounted to Rs. 10,52,717. Now, the poultry business of the assessee amounted to 69 per cent of the turnover. On that basis, the assessee had calculated that the balance, i.e., 31 per cent of the expenses, would refer to export trading only, 31 per cent of the salaries paid to non-export staff amounted to Rs. 1,99,561. The claim of the assessee is that 25 per cent of this, i.e., Rs. 49,890, has to be considered as directly attributable to export market development and, therefore, they would be entitled to deduction under Section 35B in respect of this figure. The finding of the Commissioner (Appeal) is that the assessee is not entitled to the deduction, on the basis that the Special Bench of the Tribunal in J. Hemchand & Co. [IT Appeal Nos.

3255 and 3330 (Bom.) 1976-77] had held that 75 per cent of the salary of the export staff would be eligible for the deduction. Consequently, no further deduction could be allowed, according to him. The justification for the claim by the company rests on this submission.

According to them, the staff working in the department other than the export department have also done export work. As an example, it is stated that the sales department people are not working under the export department. Information regarding the demand abroad is also collected outside the export department. The accountant also helps in preparing tenders. Similarly, it is submitted that administrative staff are also helps in advertisements, printing of catalogues for export, etc. These facts have not been controverted by the department. On these facts, we are of the opinion that the assessee could be allowed some further deduction under Section 35B. But, we are of the opinion that the amount of entitlement could be restricted to 10 per cent instead of 25 per cent as claimed.

20. The next ground of appeal is in respect of the claim for deduction, under Section 35B, on packing credit interest. For the reasons given by the Special Bench of the Tribunal, the assessee is not entitled to this deduction.

21. The last ground in the assessee's appeal for 1977-78 is that they should be treated as an industrial company. The Finance Act, 1977 defines an industrial company as a company which is mainly engaged in the business of generation or distribution of electricity, or any other form of power, or in the construction of ships, or in the manufacture or processing of goods, or in shipping. The assessee's submission is that since they are involved in producing, artificially, chicks out of eggs, it would amount to processing and so they satisfy the requirements of Section 2(8) of the Finance Act. We have already held that the assessee could .be considered as producing articles or things.

The expression "processing" is, certainly, wider in terms than the expression "producing". If the assessee could be considered as producing articles or things, the assessee can certainly be considered as engaged in a business of processing of goods. So, they are entitled to be treated as an industrial company.

22. We will now take up the appeals for the assessment year 1979-80.

Both the assessee and the department are in appeal. The first ground of appeal in the assessee's appeal, is their claim that they are entitled to the deduction under Section 80J. For the reasons given in the earlier paragraphs, we accept the assessee's claim.

24. The third ground is that they should be treated as an industrial company. This is also acceptable to us for reasons stated by us in the above paragraphs.

25. In the departmental appeal, the only point is the computation of income for the purpose of deduction under Section 80JJ. The ITO computed the income, as per statute, and arrived at a taxable profit of Rs. 26,00,115. In arriving at this figure, he had allowed deductions available to the assessee under Section 32(1)(vi) i.e., investment allowance and initial depreciation. He then calculated the relief available under Section 80JJ.26. The Commissioner (Appeals), however, held that the deduction under Section 80JJ should be computed on the basis of commercial profits. The percentage of deduction available should not be based on the computation of profits after the deductions available to the assessee under investment allowance, initial depreciation, etc. Against this finding, the department has come on appeal.

27. It was submitted that the Commissioner (Appeals) was in error in directing that the investment allowance was not deductible for arriving at the income eligible for exemption under Section 80JJ. It was also submitted that the fact that the gross total income mentioned in the said section was the total income determined under the Act, had been lost sight of.

Where the gross total income of an assessee includes any profits and gains derived from a business of livestock breeding, or poultry or dairy farming, there shall be allowed, in computing the total income of the assessee, a deduction as specified hereunder, namely :- (a) in a case where the amount of such profits and gains does not exceed, in the aggregate, ten thousand rupees, the whole of such amount; and (b) in any other case, one-third of the aggregate amount of such profits and gains or ten thousand rupees, whichever is higher.

The only condition for allowing the deduction is that the gross total income should include any profits and gains derived from a business of livestock, breeding or poultry or dairy farming. If that condition is satisfied, then the assessee would be entitled to a deduction of one-third of the aggregate amount of such profits and gains. The expression "such profits and gains" refers to the profits and gains mentioned in the main provision of Section 80JJ. The question is whether this expression means the profits and gains as computed under the statute or profits and gains as understood commercially. We find some force in the finding of the Commissioner (Appeals) that, wherever the Legislature intended that profits and gains as computed by the statute were required to be the base for the calculation, the Legislature had made it clear in the statute itself. For instance, Section 80-1 or Section 80E which was considered by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84.

It will not be open for us to read in the statute what has not been provided therein by the Legislature. We will, therefore, hold that the deduction has to be computed with reference to the commercial profits.

Shri Satyanarayana, the learned departmental counsel, submitted that the commercial profits being a vague term, the deduction available will vary according to the manner in which each assessee draws up his accounts. There would be no uniformity in such cases. Although there is some force in the submission made by the department, we are of the opinion that it would not apply to cases of limited companies The Companies Act, 1956, has laid down a certain amount of uniformity in drawing up the profit and loss account and it is mandatory that the accounts should be drawn up accordingly. There may not be, therefore, much of a variance in the computation of the deductions available.

29. In the result, the appeals by the assessee for the years 1977'-78 and 1979-80 are partly allowed, while the departmental appeal is dismissed.

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