1. This is an appeal filed by Sivasundar Heat Treatment Services, against the order of the AAC, E-Range, Madras, for the assessment year 1979-80.
2. The assessee is a registered firm doing business of providing process servicing known as 'hot-blasting' in the processing of forgings. The assessee is eligible for relief under Section 80HHA and Section 80J of the Income-tax Act, 1961 ('the Act'). In respect of relief under Section 80J, the dispute relates to the question of treatment to be accorded to borrowed capital in ascertaining the capital base for the purposes of relief. The second dispute relates to the decision of the ITO that he cannot allow relief under Section 80J if the relief under Section 80HHA exceeds the relief under Section 80J.On both these issues, the first appellate authority confirmed the view of the ITO. The assessee is, therefore, in second appeal. The learned counsel argued that the validity of the retrospective amendment authorising the exclusion of borrowed capital for capital base in the Finance (No.2) Act, 1980 is pending adjudication before the Supreme Court and the other High Courts. As for the view of the ITO that he would allow either relief under Section 80J or under Section 80HHA whichever is larger, he claimed that there is no warrant for this view in law. He pointed out that Section 80J(3) and Section 80HHA(6) justified the claim of the assessee. The learned departmental representative claimed that the view of the ITO is correct on both the issues. The validity of retrospective amendment cannot be questioned before this Tribunal. As for the relief inter se between Sections 80HHA and 80J, he claimed that only the order of priority as between the two is decided in the language of the portions pointed out by the learned counsel. In this view, there could not be an allowance under Section 80J if a larger allowance had been made under Section 80HHA.3. We have carefully considered the records as well as the arguments.
As for the issue relating to the borrowed capital, we have been remitting this issue back to the ITO for a fresh decision in accordance with law. We will do so in this case also.
Business income: Net profit as per profit and loss account : Rs. 47,218.
Deductions: The assessee performs a process known as hot-blasting.
This is a part of manufacturing process relating to forgings. It is claimed that the assessee received only 'conversion charges' and not hire charges. The actual process as ascertained is the removal of scales from forgings to make them usable in automobile industries.
As this can be regarded as a manufacture, the deductions under Sections 80HHA and 80J are allowable.
Deduction claimed is allowed 9,444(b) Deduction under Section 80J : assessee's estimate 1,79,992Deduct: Debts due by assessee 77,319 --------6 per cent thereon : 6,160 1,02,673As relief under Section 80HHACost of machine 1,30,904Investment allowance @ 25 per cent 32,726 --------Total income 5,048 -------- Section 80J(1) authorises relief under that Section, of a deduction from such profits and gains as is attributable to the new industrial undertaking, as reduced by the relief under Section 80HH and Section 80HHA. These words are found in parenthesis in the following words : ...(reduced by the deduction, if any, admissible to the assessee under Section 80HH or Section 80HHA)....
Section 8OJ(3) deals with the manner of adjustment of shortfall in the following words in the parenthesis: ...(as computed after allowing the deductions, if any, admissible under Section 80HH or Section 80HHA...)....
(6) In a case where the assessee is entitled also to the deduction under Section 80-1 or Section 80J in relation to the profits and gains of a small-scale industrial undertaking to which this Section applies, effect shall first be given to the provisions of this section.
It may also be pointed out that where the statute wanted the relief to be alternative as assumed by the ITO, it has clearly said so as between relief under Section 80HH and Section 80HHA. Section 80HH(9A) dealing with such alternative relief is reproduced below: (9A) Where a deduction in relation to the profits and gains of a small-scale industrial undertaking to which Section 80HHA applies is claimed and allowed under that section for any assessment year, deduction in relation to such profits and gains shall not be allowed under this section for the same or any other assessment year.
In the history of the section as between the reliefs inter se between Section 80HHA and Section 80J, there is a further light on the matter if there still be any doubt as to the interpretation, which, according to us, is clearly in favour of the taxpayer. The present Chapter VIA was introduced by the Finance (No. 2) Act, 1967, when there was similar relief given under Section 80H in respect of new industrial undertaking employing displaced persons. There was a relief under Section 80-I in respect of the profits from priority industries, while sectkm 80J provided relief for all new industrial undertakings. While reliefs under Section 80H and Section 80-I could be cumulative to the extent of available profits, the relief under Sections 80H and 80-I was made alternative to relief under Section 80J at the Bill stage as may be evident from Section 80J(1) in the Finance (No. 2) Bill, 1967 which reads as under : 80J. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases.-(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of- (i) an amount equal to such profits and gains as reduced by the aggregate of the deductions, if any, admissible to the assessee under Section 80H and Section 80-1, or whichever is less, so, however, that where the amount referred to in Clause (ii) is equal to the amount referred to in Clause (i), the amount to be deducted under this section shall be the amount referred to in Clause (ii). [64 JTR (St.) 157] However, there were representations against these provisions and the Finance Minister accepted some amendments to the above Bill and Section 80J(1) at the final stage took a different form, even as mentioned by the Finance Minister in his speech dated 24-7-1967 [65 ITR (St.) 13].
Section 80J(1) at the final stage in the Finance (No. 2) Act, 1967 reads as under: 80J. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases.-(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the aggre gate of the deductions, if any, admissible to the assessee under Section 80H and Section 80-I) 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 or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year.) The words within the parenthesis have been italicised by us because the present words for the relevant year are practically the same, except for the fact that instead of Section 80H and Section 80-I, there are Section 80HH and Section 80HHA. It is because during the relevant year there were no reliefs for new industrial undertaking employing displaced persons, or for priority industries, while new reliefs for new industrial undertakings in backward areas and small-scale industrial undertakings in certain areas had taken their place. The history of the relative position between these reliefs clearly indicates that the reliefs were not meant to be alternative. Though at the stage of the Finance Bill, 1967, the original intention was to make it alternative, these reliefs were, in fact, clearly made cumulative.
In these circumstances, we have no doubt that the assessee is eligible for relief both under Section 80HHA and under Section 80J, if there are profits available during the year. The computation reproduced above shows that there are profits available after allowance under Section 80HHA. To the extent of such available profits, relief under Section 80J will have to be allowed and the balance will be treated as deficiency to be carried forward. The extent of such allowance or deficiency will no doubt depend upon the final quantum of relief under Section 80J, to be decided in pursuance of the ITO's decision as per directions in the immediately preceding paragraph. At this stage, the learned departmental representative tried to say that the investment allowance which is placed last by the ITO should have come first. We find that this argument does not arise from the orders of the authorities below. We cannot, therefore, allow him to raise this oral argument at this belated stage.
5. In the result, the appeal will be treated as allowed for statistical purposes in the manner indicated in the preceding two paragraphs.