B.K. Mehta, J.
1. These two references, one at the instance of the assessee and another at the instance of the Commissioner of Income-tax, Gujarat, arise out of the same order of the Income-tax Appellate Tribunal, Ahmedabad, and we, therefore, intend to dispose of them by this common judgment. Shortly stated, the facts leading to these two reference are as under :
2. The assessee-company carries on business of manufacturing cement at its factory situate at Ranavav in Saurashtra. The capacity of the first cement plant of the assessee-company was 600 tonnes per day. In the year of account, relevant to the assessment year 1968-69, the capacity was expanded and it was raised to 1,600 tonnes per day. The assessee-company, therefore, made a claim for relief under s. 80J of the I.T. Act, 1961, with reference to the capital employed in the expansion of the plant and machinery. The claim, as originally made before the ITO, was to the tune of Rs. 8,95,471 being 6% of the net capital employed to the tune of Rs. 1,49,24,526. The ITO concerned allowed the said claim for the assessment year 1968-69. It appears, however, that for the assessment year 1969-70, which is under reference, three question arose before the ITO. The first related to whether the relief granted under s. 80J for the assessment year 1968-69 should be continued in the year under reference, that is, 1969-70 or not. The second question related to deduction of an amount of Rs. 1,051 being the value of the cement bags donated by the assessee-company to a public charitable trust in Baroda under s. 80G of the I.T. Act, 1961. The third question related to the claim of Rs. 88,701 being the amount spent for repair to the guest house of the assessee-company occupied by the managing director of the company at Ranavav-whether it was in the nature of revenue expenses or capital expenditure. The ITO disallowed the assessee's claim as in his opinion the expansion of cement manufacturing unit did not amount to setting up a new industrial undertaking, inasmuch as the activities of the expanded part of the unit as well as those of the original units were much interconnected. He, therefore, held that the assessee could not be said to have set up a separate unit from the existing one. He also disallowed the claim on the ground that no separate books of accounts were maintained for the business activities pertaining to the expanded unit and, therefore, it could not be precisely ascertained as to how much capital had been invested in the expanded unit. The ITO disallowed the deduction of Rs. 1,051 being the value of the cement bags donated as the donation was in kind and not in cash as required under s. 80G. He also disallowed the claim of Rs. 88,701 as revenue expenses since in his opinion the assessee-company had constructed completely a new building and, therefore, the expenditure was in the nature of capital expenditure.
3. The assessee-company, therefore, carried the matter in appeal before the AAC. The AAC found that the assessee-company had increased the capacity of the plant from 600 tonnes to 1,600 tonnes per day. The AAC was of the opinion that in the absence of there being any specific provision in the Act that the new unit should be altogether distinct and even physically at a distance from the old unit, and that, if the relief as admissible for assessment year 1968-69, in respect of the expended unit of the assessee-company, that relief would continue to be available to the assessee-company for the subsequent period of four years, the claim would be ex facie admissible since the relief granted in the initial year of assessment, viz., 1968-69, had not been withdrawn. He, however, with the assessee's consent modified the figure of relief by reducing it from Rs. 8,95,471 to Rs. 8,73,269. The AAC also upheld the claim of the assessee so far as it related to the donation as in his opinion the assessee would have been entitled to the deduction under s. 80G if it had made a cash donation and, therefore, following the decision of the Bombay High Court in CIT v. Associated Cement Co. Ltd. 0043/1967 : 68ITR478(Bom) , he allowed the deduction on the amount of Rs. 1,051 being the value of the cement donated. As regards the third claim, the AAC was of the opinion that the ITO was right in holding that virtually the entire bungalow was reconstructed and, therefore, the expenditure could not be treated as revenue expenditure. The AAC, however, accepted the alternative contention urged on behalf of the assessee that the claim should be allowed as a terminal allowance under s. 32(1)(iii) since the condition for the allowance that the deficiency was written off in the books of accounts was fulfilled. He, therefore, upheld the claim of the assessee-company fully to the extent of Rs. 88,701.
4. At the instance of the ITO, the matter was carried in further appeal before the Income-tax Appellate Tribunal, which was rejected since in the opinion of the Tribunal unless the assessment for the assessment year 1968-69 was disturbed by withdrawal of the relief, there could be no substance or justification in the revenue's attempt to withdraw the claim under s. 80J of the I.T. Act, 1961, for the subsequent year, i.e., assessment year 1969-70. The Tribunal also upheld the order of the AAC so far as the deduction on the amount of Rs. 1,051 being the value of the cement bags donated was concerned. The Tribunal did not find any justifying reasons to interfere with the order of the AAC because it would not make any difference merely because the assessee had made the donation in kind and the AAC was, therefore, justified, having regard to the decision of the Bombay High Court in Associated Cement Co.'s 0043/1967 : 68ITR478(Bom) , in granting the deduction under s. 80G of the Act. As regards the allowance of Rs. 88,701 granted by the AAC as terminal allowance under s. 32(1)(iii), the Tribunal was of the view that allowance should be subject to the ceiling prescribed under s. 40(a)(v), as it stood at the relevant time, and, therefore, directed the ITO to obtain figures of salary payable to the managing director, who was occupying the said bungalow and to work out the amount of disallowance to be made under s. 40(a)(v) subject, however, to a maximum allowance of Rs. 12,000. In other words, the Tribunal held that the minimum disallowance would be to the extent of Rs. 76,701. In that view of the matter, which the Tribunal took, in the appeal preferred by the ITO, the CIT sought reference, and the assessee also sought reference since the Tribunal had confirmed the order of the AAC in favour of the assessee on two question while partially reversed the order of the AAC on the third question. The question which have been referred to us at the instance of the Commissioner are as under :
'(1) Whether, on the facts, the Tribunal was right in law in holding that there was no case for the revenue to withdraw the assessee's claim under section 80J for the year under reference, when such claim had been accepted in the earlier assessment year, which assessment had not been disturbed
(2) Whether the relief under section 80G of the Act is available in respect of donations made in kind ?'
5. At the instance of the assessee-company, the following two questions have been referred to us :
'(1) Whether, on the facts, the Tribunal was justified in applying section 40(a)(v) of the Income-tax Act in respect of the expenditure of Rs. 88,701 incurred in respect of the assessee's building occupied by the managing director and in holding that the minimum disallowance to be made will be Rs. 76,701
(2) Whether the Tribunal was justified in law in this case in directing minimum disallowance of Rs. 76,701 out of the total expenditure of Rs. 88,701 on a ground which was different from the one on which the Income-tax Officer's disallowance of Rs. 88,701 was based ?'
6. We will take up Income-tax Reference No. 238 of 1975 first, which is at the instance of the assessee. The learned advocate, appearing for the assessee-company, did not press question No. 2. before us.
7. So far as question No. 1 is concerned, we are of the opinion that the question is concluded by a decision of this court in Addl. CIT v. Tarun Commercial Mills Ltd. : 113ITR745(Guj) . The question in the said decision before this very Division Bench was in the context of certain expenses incurred by the assessee-company-the Tarun Commercial Mills Ltd. -on account of the use of cars by the managing directors and the telephones maintained at their respective residence as well as the remunerations paid to them at an agreed percentage on the net annual profits of the company. The ITO in that case considered these expense as perquisites and the amounts being in excess of 1/5th of the remuneration payable to them, since they were admittedly employees of the company, disallowed the aggregate amount of Rs. 13,530 comprising of different amounts on different heads since he was of the opinion that s. 40(a)(v) applied and the case was not governed according to s. 40(c) of the I.T. Act, 1961. The order of the ITO was confirmed by the AAC. However, the Appellate Tribunal reversed that order and held that the provisions contained in s. 40(c) were applicable in case of expenses incurred on account of directors since that was the clause which specifically dealt with the type of the expanses incurred by the company in respect of its directors and s. 40(a)(v) would not be attracted since the particular enactment of a statute should prevail over its general enactment. At the instance of the revenue, the question was referred to this court, whether s. 40(a)(v) would be applicable in the facts of the case or not. This court agreed with the Tribunal and held that the view of the Tribunal that when there is a general enactment as well as a special enactment in respect of the same head in a statute, the particular enactment would override the general enactment, cannot be assailed as unreasonable or impossible and, therefore, wrong. It was further held by this court that the construction canvassed by the revenue, apart from militating against the aforesaid rule of construction, would subject the expenses incurred by a company for providing benefit or amenity or perquisite to a director or employee to the twin scrutiny, namely, prescribed ratio applicable to an employee and also the test of excessive and reasonable limits applicable to a director, and such a construction would result in absurdity inasmuch as the expenses laid out by a company for providing amenity or benefit to an ordinary director would be subject only to the test of reasonableness and would put a director in a better position than a director-employee of a company for whose benefit or amenity or perquisite the company entails expenses, and that such a result could not have been envisaged by Parliament. In view of this decision of this court, which has not been taken in appeal to the Supreme Court by the revenue, question No. 1 referred to us at the instance of the assessee would be concluded. The result, therefore, is that in Income-tax Reference No. 238 of 1975 we answer question No. 1 in the negative, that is, in favour of the assessee and against the revenue. In view of our answer to question No. 1, question No. 2 referred in this reference at the instance of the assessee, is not pressed by the learned advocate for the assessee-company.
8. This takes us to the questions, referred to us in Income-tax Reference No. 239 of 1975 at the instance of the revenue. We do not find any justifying reasons to interfere with the order of the Tribunal so far as both these questions are concerned. The Tribunal was perfectly justified in taking the view that if the relief of tax holiday was granted to the assessee-company for the assessment year 1968-69, the assessee was entitled to continuance of that relief for the subsequent four years and the ITO would not be justified in refusing to continue the allowance for the assessment year under reference, i.e., 1969-70, without disturbing the relief for the initial year. At this stage, it should be noted that for purposes of entitlement to the relief under s. 80J, which is corresponding, to s. 15C of the 1922 Act, an industrial unit claiming such relief must be new, in the sense, that new plants and machineries are erected for producing either the same commodities or some distinct commodities (vide Textile Machinery Corporation Ltd. v. CIT : 107ITR195(SC) and CIT v. Indian Aluminium Co. Ltd. : 108ITR367(SC) . It should be emphasised that it was common ground between the parties that the assessee-company has increased the capacity of it cement manufacturing plant from 600 tonnes per day to 1,600 tonnes per day by setting up new machinery and plant necessary for that purpose. In our opinion, the Tribunal was right when it expressed its view that the question involved was not a question whether there would be no bar to the view which the ITO has taken on the principle of res judicata. The next question to which the Tribunal addressed itself, and no our opinion rightly, was whether the Tribunal was justified in refusing to continue the relief of tax holiday granted to the assessee-company for the assessment year 1968-69, in the assessment year under reference, that is, 1969-70, without disturbing the relief granted for the initial year. It should be stated that there is no provision in the scheme of s. 80J similar to the one which we find in the case of development rebate which could be withdrawn in subsequent years for breach of certain conditions. No doubt, the relief of tax holiday under s. 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted. The learned advocate for the revenue, invited our attention to certain observations made by this court in CIT v. Satellite Engineering Ltd. : 113ITR208(Guj) , where the court was concerned with the question, whether an industrial undertaking which did not satisfy the prescribed conditions so as to entitle itself to the relief under s. 80J in the initial year can successfully claim the relief, if the prescribed conditions are satisfied in the subsequent years. We do not think that this decision of this court in Satellite Engineering Ltd.'s case : 113ITR208(Guj) can be of any assistance to the cause of the revenue, because the question with which this court was concerned in that case altogether a different one in the context in which the Division Bench was speaking. It should be understood that this is subject to the right of the ITO to adjust the relief by fixing the quantum having regard to the respective capital employed in the new undertaking in the year with which he is concerned. In that view of the matter, therefore, the Tribunal was perfectly justified in taking the view as it did not we answer question No. 1, in the affirmative, that is, against the revenue and in favour of the assessee.
9. So far as question No. 2 is concerned, we are of the opinion that the Tribunal was justified in agreeing with the AAC who allowed the deduction on Rs. 1,051 being the value of the cement bags donated by the assessee to a charitable institution recognised under s. 80G of the Act. The contention of the revenue is that having regard to the provisions contained in sub-s. (2)(a) (iv) of s. 80G, the deduction in respect of donation to a charitable institution is admissible provided the donation is made in cash. In the sub-mission of the learned advocate for the revenue, this is the only construction possible on the plain reading of the relevant clause under which the deduction is sought and granted. The Tribunal was not impressed with this contention since in its opinion it is too technical a contention to which it could accede. The High Court of Bombay in Associated Cement Co. 's case 0043/1967 : 68ITR478(Bom) , took the same view in similar circumstances. The Associated Cement Companies had at the request of the University of Bombay fabricated a small rotary experimental furnace for the department of chemical engineering by spending an amount of Rs. 6,600 for which necessary resolutions were made by the company. The revenue contended before the court that the company was not entitled to deduction under s. 80G since in effect and substance the company had made the donation in kind and not in cash. The Division Bench of the Bombay High Court was not impressed with this contention. Since apart from the contention being too technical, in the ultimate analysis it is the substance of the transaction which counts and the court found on consideration of the transaction that it was donation in cash. The Tribunal here also considered the substance of the transaction and was of the view that this was virtually a donation in cash. We do not think that the view of the Tribunal can be said to be unreasonable or perverse, since the substance of the transaction was to make a donation in cash though in actual practice the assessee-company gave cement bags since it was manufacturing cement itself. We do not think, therefore, that we should interfere with the view, which the Tribunal has taken, confirming the view which was taken by the AAC.
10. The result is that we must answer question No. 2 that, on the facts and in the circumstances of the case, the company was entitled to the relief under s. 80G of the Act and, therefore, the question is to be answered in the affirmative and in favour of the assessee and against the revenue by saying that having regard to the facts and circumstances of this case the assessee-company is entitled to the relief under s. 80G of the I.T. Act, 1961.
11. in the result, in Income-tax Reference No. 238 of 1975, question No. 1 is answered in the negative, that is, in favour of the assessee and against the revenue. Question No. 2 was not pressed in view of our answer to question No. 1. In Income-tax Reference No. 239 of 1975, question No. 1 is answered in the affirmative, that is, in favour of the assessee and against the revenue. Question No. 2 is also answered in the affirmative, that is, in favour of the assessee and against the revenue.
12. In both these reference, the Commissioner of Income-tax shall pay the costs to the assessee.