Calcutta High Court
Commissioner Of Income-Tax vs M.A. Paper & Card Board Factory Pvt. Ltd. on 5 May, 1986
Equivalent citations: [1986]160ITR877(CAL)
JUDGMENT Dipak Kumar Sen, J.
1. M. A. Paper & Card Board Factory Pvt. Ltd., the assessee, was assessed to income-tax for the assessment years 1975-76 and 1976-77. In the assessments, the assessee claimed relief under Section 80J(3) of the Income-tax Act, 1961, contending that the relief available to the assessee under the said section could not be availed of in the assessment year 1974-75, inasmuch as there were no profits and gains of the assessee in the said assessment year and, therefore, the said deficiency should be carried forward and set off against the profits and gains of the assessee arising in the said two assessment years.
2. The Income-tax Officer found that for the assessment year 1974-75 no claim had been made by the assessee for deduction under Section 80J neither in the return nor in any other record.
3. The Income-tax Officer, therefore, rejected the claim of the assessee for set off of carried forward deficiency under Section 80J(3).
4. The Appellate Assistant Commissioner also noted that in the assessment year 1974-75, the assessee had not made any claim for deduction under Section 80J and no order was passed in the said year allowing the deficiency under Section 80J to be carried forward. Accordingly, the Appellate Assistant Commissioner upheld the decision of the Income-tax Officer.
5. Being aggrieved, the assessee preferred further appeal before the Income-tax Appellate Tribunal. It was contended on behalf of the asses-see before the Tribunal that the disallowance of the assessee's claim for relief under Section 80J pertaining to the earlier year 1974-75 was not justified even though no claim was raised in the earlier assessment year in the return or during the assessment proceedings. It was contended that Section 80J did not require the assessee to make a definite claim nor did the section require determination of the deduction allowable under the said section for the purpose of being carried forward. It was contended that even in a case where formality of making a claim and computation of the deduction had not been complied with, deduction of such deficiency was permissible in the subsequent years. In support of the contention of the assessee, a decision of the Allahabad High Court in Addl. CIT v. Sheetalaya [1979] 117 ITR 658 was cited.
6. It was also contended on behalf of the assessee for the first time before the Tribunal following the decision of the Calcutta Hight Court in the case of Century Enka Ltd. v. 1TO [1977] 107 ITR 909, that in determining the capital employed by the assessee for the purpose of computation of the relief under Section 80J moneys borrowed should also be taken into account.
7. Contentions to the contrary were made on behalf of the Revenue. It was submitted that the claim made in respect of the borrowed capital should not be entertained in view of the decision of the Supreme Court in Addl. CIT v. Gurjargravures Pvt. Ltd. [1978] 111 ITR 1.
8. The Tribunal considered the decision of the Allahabad High Court in Sheetalaya [1979] 117 ITR 658 and noted that on identical facts, it was held in that case that the decision of the Supreme Court in Gurjargravures Pvt. Ltd, [1978] 111 ITR 1, had no application. The Tribunal found in favour of the assessee and held that the assessee was entitled to claim relief under Section 80J(3) by way of carried forward deficiency for the earlier year 1974-75 in the relevant subsequent assessment years. The Income-tax Officer was directed to compute the relief under Section 80J in accordance with law.
9. On an application of the Revenue under Section 256(1) of the Income-tax Act, 1961, the following questions have been referred by the Tribunal as questions of law arising out of its order for the opinion of this court:
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled in the assessment years 1975-76 and 1976-77 to the benefit of carry forward of the deficiency under Section 80J(3) of the Income-tax Act, 1961, attributable to the assessment year 1974-75, even though such deficiency was neither claimed nor considered by the Income-tax Officer in the assessment year 1974-75?
2. Whether, on a correct interpretation of Section 80J of the Income-tax Act, 1961, read with rule 19A of the Income-tax Rules, 1962, the Tribunal was right in holding that borrowed moneys should be included in the 'capital employed' for the purpose of Section 80J of the Income-tax Act, 1961 ?"
10. The controversy raised in question No. 2 now stands covered by a decision of the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 and following the said decision, we answer the question in the negative and in favour of the Revenue.
11. On question No. 1, learned advocate for the assessee contended that the controversy raised in the said question was not only covered by the decision of the Allahabad High Court in the case of Sheetalaya [1979] 117 ITR 658, but was also covered by a decision of this court in Indian Aluminium Co. Ltd. v. CIT [1981] 122 ITR 660. In that case, one of the questions on which opinion of this court was sought was whether, on the facts and circumstances, the Tribunal was correct in holding that for obtaining the benefit of the carry forward of the deficiency of the previous years and set off thereof against the profits of the previous year in which the assessee actually earned profit, it was not obligatory upon the assessee to make a claim under Section 80J(3) in respect of each of the earlier assessment years and get the deficiency determined and carried forward to the next following assessment year. This question was answered in the affirmative and in favour of the assessee. This court considered not only the decision of the Allahabad High Court in Sheetalaya [1979] 117 ITR 658, but also decision of the Supreme Court in CIT v. Manmohan Das [1966] 59 ITR 699, as also CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118. It was laid down by the Supreme Court in Manmohan Das [1966] 59 ITR 699, that under Section 24(2) of the Indian Income-tax Act, 1922, a statutory right was conferred on the assessee who sustained any loss in any year in any business, profession or vocation to carry forward the same to the extent it was not set off under Sub-section (1) of the said section to the following year. The decision of the Income-tax Officer in the year when the loss was sustained that such loss could not be set off against the income of the subsequent year was not binding on the assessee. In Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118, it was further laid down by the Supreme Court that an assessee was entitled to carry forward a loss even if he had submitted no return for the year in which the loss was sustained. The only exception was brought about by the amended Sub-section 22(2A), where it was laid down that the condition precedent to the carry forward and set off of a loss is that the assessee would have to file a return for the year in which the loss was incurred and have the loss computed.
12. Learned advocate for the assessee submitted that the other High Courts have taken the same view in respect of Section 80J(3) and cited :
(a) CIT v. Bluemounl Ceramics Ltd. [1980] 123 ITR 385 (Mad). Here, the Division Bench of the Madras High Court took the same view and followed the decision of the Allahabad High Court in Sheetalaya [1979] 117 ITR 658.
(b) CIT v. Mattoo Worsted Spinning & Weaving Mills [1983] 139 ITR 1020, where a Division Bench of the Jammu & Kashmir High Court took the same view that relief under Section 80J though claimed for the purpose of carry forward and set off in subsequent years under Section 80J(3) may be allowed for a subsequent assessment year when profits were made for the first time.
(c) CIT v. Veljan Hydrair (P.) Ltd. [1985] 151 ITR 734. In this case, a Division Bench of the Andhra Pradesh High Court took a view, same as that of the Allahabad High Court, in Sheetalaya [1979] 117 ITR 658, that of this court in Indian Aluminium Co. Ltd, [1981] 122 ITR 660, and that of the Madras High Court in Bluemount Ceramics Ltd. [1980] 123 ITR 385, and held that it was not necessary that a claim under Section 80J should be made in the years involved where there was no profit for the purpose of having such claim carried forward to the subsequent years.
13. Learned advocate for the Revenue contended on the other hand that to give relief under Section 80J, the other provisions and the sections in Chapter 6A of the Act would have to be considered and that Section 80J could not be considered in isolation. He drew our attention to the decision of the Supreme Court in Lohia Machines Ltd. [1985] 152 ITR 308 and also to another decision of the Madras High Court in CIT v. Madras Motors (P.) Ltd. [1984] 150 ITR 150. Learned advocate also referred to and cited Cambay Electric Supply Industrial Co- Ltd. v. CIT .
14. We are unable to appreciate the contentions made on behalf of the Revenue inasmuch as the Tribunal in its order has specifically directed the Income-tax Officer to compute the relief under Section 80J not only in accordance with the observations in the order of the Tribunal but also keeping in view the position in law and the decisions of the various High Courts in computing the capital employed in the business for the purpose of Section 80J.
15. The question which is before us is covered not only by a decision of this court in Indian Aluminium Co. Ltd. [1981] 122 ITR 660, but also by the decisions of other High Courts which are based on principles laid down by the Supreme Court in Manmohan Das [1960] 59 ITR 699.
16. For the reasons as aforesaid, we answer question No. 1 in the affirmative and in favour of the assessee.
17. In the facts and circumstances, there will be no order as to costs.
Shyamal Kumar Sen, J.
18. I agree.