1. In this appeal, the revenue contests the order of the Commissioner (Appeals) in the case of NGEF AEG Engg. Co. Ltd. for the assessment year 1976-77 on the following ground: On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in holding that for the purpose of allow-ability of relief under Section 80J of the Income-tax Act, the initial year should be reckoned as assessment year 1973-74 in which year the assessee came to employ the requisite number of persons although production had started in the assessment year 1971-72 in which year the assessee however had not employed requisite number of persons and erred further in directing the ITO to give deduction under Section 80J in the assessment year 1976-77 which happened to be the sixth year from the initial assessment year in which production was started.
The assessee, an electrical engineering company, had, for the assessment year 1976-77, claimed, inter alia, deduction under Section 80J of the Income-tax Act, 1961 ('the Act') in respect of its profits derived from a new industrial undertaking, namely, a switch-gear unit, which it had set up way back in 1970. It was admitted on behalf of the assessee before the ITO that the said switch-gear unit had started production in November 1970 but that the strength of the workers in the unit was less than 20 up to the end of March 1972; that only in the accounting year relevant to the assessment year 1973-74 the number of workers exceeded 20. It was also admitted before the ITO that this was the first year in which the assessee had claimed relief under Section 80J in respect of the said switch-gear unit and the failure to make the claim in the earlier years was due to oversight. The ITO held that 'as the undertaking had started production in November 1970 and the assessee is entitled to get relief under Section 80J for a period of only 5 years including the initial year of production, the last year for which the assessee is entitled to claim deduction under Section 80J was the assessment year 1975-76 and, hence, the assessee is not entitled to claim any relief under Section 80J for this year which is the sixth year.' The ITO observed that apart from this, whether the assessee is eligible for relief under Section 80J in respect of this unit is itself doubtful since the assessee did not fulfil the conditions laid down in Section 80J in the first year of production itself. However, since he had held that the assessee's claim under Section 80J was not allowable in the year of assessment, i.e., 1976-77, the validity of the assessee's claim need not be considered.
3. The assessee challenged this decision of the ITO before the Commissioner (Appeals), who accepted the assessee's contention that the relief envisaged in Section 80J cannot, altogether, be denied to the assessee only because conditions are not satisfied in the initial assessment years; that as long as the conditions are satisfied for one or more of the subsequent years falling within five years, the relief under Section 80J can be claimed by the assessee and allowed under the law. In support of this proposition, the Commissioner (Appeals) relied on the decision of the Gujarat High Court in CIT v. Satellite Engg.
Ltd.  113 ITR 208 cited before him on behalf of the assessee. In his opinion, the first year to be considered for the purpose of relief under Section 80J would be the assessment year 1973-74 and, therefore, 1976-77 would be a year in which due relief under Section 80J for the assessee's new unit may be given. Aggrieved by this decision of the Commissioner (Appeals), the department has filed the present appeal to the Tribunal.
4. Before us, the department's contention is two-fold, i.e. (1) that once the assessee fails to fulfil the conditions laid down in Section 80J in the initial year, i.e., the year in which the production of the new industrial undertaking starts, he will not be entitled to any relief under Section 80J; and (2) that, at any rate, since 1973-74 could not be the initial year, as incorrectly held by the Commissioner (Appeals), his direction to the ITO to allow deduction under Section 80J in the assessment for the assessment year 1976-77, which happens to be the sixth assessment year from the 'initial' assessment year, is incorrect in law.
5. In our view, the answers to both these questions are to be found in the decision of the Gujarat High Court in Satellite Engg. Ltd.'s case (supra). On the first question, the Gujarat High Court, after discussing the intent and purpose behind the enactment of the provisions of Section 84 of the Act (which was similar to Section 80J) in the light of the Supreme Court decision in the case of Textile Machinery Corpn. Ltd. v. CIT  107 ITR 195, held that the interpretation of such provisions as Section 80J which are intended for providing incentive to new industries should be construed in consonance with this avowed aim and object of the Legislature and not such as would defeat the same. It is on this thesis that the Gujarat High Court further held that if a new industrial undertaking which had not satisfied the conditions laid down in the relevant Section 1n the year of its birth or commencement of business, it cannot be denied the benefit of the tax holiday under the said provision of the law for all time and that such benefit will be available to the assessee in and from the assessment year in which such conditions are satisfied. In view of this exposition of law by the Gujarat High Court, we hold that the present assessee was entitled to claim the relief under Section 80J with reference to the accounting year in which it fulfilled all the conditions laid down in Section 80J. Since it is an admitted fact that such conditions, including that of having the requisite strength of workers, were fulfilled in the accounting year relevant to the assessment year 1973-74, the assessee was entitled to claim Section 80J relief for the first time from the assessment year 1973-74. However, as explained by the Gujarat High Court in the aforesaid case, the period of five consecutive years during which the relief is available, is to be reckoned from the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles. It is an admitted fact in the present case that the production of articles in the new unit (switch-gear) started in November 1970, which falls in the previous year relevant to the assessment year 1971-72 and, consequently, the period of five consecutive years could be counted only from 1971-72 and, thus, it would end with the assessment year 1975-76. In other words, the relief to the assessee under Section 80J would be available from the year in which all the conditions were satisfied i.e., the assessment year 1973-74 and 'the remaining period of the five year term' i.e., up to and including the assessment year 1975-76. This aspect of the matter is also clearly enunciated by the Gujarat High Court in the aforesaid case of Satellite Engg. Ltd. (supra) (vide concluding portion of the first para on page 222). The Commissioner (Appeals) was, therefore, in error in holding that the assessee was entitled to the relief under Section 80J in the assessment year 1976-77. The department, thus, succeeds in its appeal insofar as the direction of the Commissioner (Appeals) to allow relief under Section 80J in the assessment for the assessment year 1976-77 is vacated by us.