Delhi High Court

Mohan Dairy vs Dy. Cit on 16 October, 2002

Equivalent citations: (2004) 90 TTJ Del 403

ORDER

KESHAW PRASAD, A.M.:

The appeal has been directed by the assessed against the order of the Commissioner (Appeals) dated 29-12-1997, pertaining to assessment year 1993-94.

2. Ground No. 1 raised by the assessed relates to the disallowance of deduction under sections 80-I and 80-IA of the Act.

3. Briefly, the facts of the case are that the assessed is a firm. In the past, it was trading in milk. In the year under consideration, apart from trading in milk, the assessed also started the business of manufacture of ghee and skimmed milk under the name and style of M/s. Mohan Industries. In addition, the assessed also took over the business of M/s. Mohan Cold Storage which was separately assessed firm up to assessment year 1992-93. When the assessed was asked as to why the business of the cold storage has been taken over by the assessed, it was stated that all the partners of the assessed-firm were partners in M/s. Mohan Cold Storage and their shareholding was the same. It was therefore, thought proper to take over the business of M/s. Mohan Cold Storage. As the cold storage was taken over by the assessed-firm, it claimed deduction under sections 80-I and 80-IA of the Act on the profits of the cold storage. The assessing officer examined the claim of the assessed but declined to allow the same on the following reasons :

(i) The cold storage is not an industrial undertaking as the same was not engaged in the business of manufacturing/producing any article or thing.

(ii) Even if it was an industrial undertaking, the same was not a new business.

(iii) Taking over the existing business of another assessed, win amount to reconstruction of business as held by Hon'ble Karnataka High Court in reported in (1987) 164 ITR 135 (sic).

(iv) The assessed has not fulfillled the condition that industrial undertaking has started manufacturing/producing articles or things on or before 1-4-1991. As per assessed, the business of cold storage was taken over with effect from 18-9-1991.

(v) In assessment years 1991-92 and 1992-93, the assessed did not claim any deduction under section 80-I/80-IA of the Act.

4. On appeal, the Commissioner (Appeals) upheld the findings of the assessing officer against which the assessed is in appeal before us.

5. It is argued by the learned counsel that while disallowing the claim of the assessed, the assessing officer/Commissioner (Appeals) have confused the word "industrial undertaking" with the word 'assessed'. It is the particular unit which was entitled to deduction if it satisfied the conditions for the allowance. An assessed may have different units but if one unit satisfies the necessary conditions for allowance of deduction, it could be entitled to deduction under section 80-I, even if other units do not satisfy the conditions for deduction. It was stated that section 80-I/80-IA has used the word 'undertaking' which fulfills the conditions. It has not provided that deduction will be available to an 'assessed' who fulfills the conditions. In the instant case, the cold storage was being run by a firm which consisted of the same partners in the same profit/loss ratio these partners were having in the present assessed, i.e., M/s. Mohan Dairy. As both the businesses were being run by two different firms in which the partners as well as the profit/loss sharing ratios were the same, the assessed took over the business of M/s. Mohan Cold Storage. It was further stated that the assessing officer/Commissioner (Appeals) were not justified in relying on certain cases which have no relevance in the fact of the present case with effect from 1-4-1990, a new provision, namely, section 80-I(IA) was introduced in the statute which allowed the benefit of deduction to those industrial undertaking which begin to operate its cold storage plant/plants after the date. Though the cold storage plants are still not entitled to deduction under some other beneficial section like 80HH and 32A, such benefit of deduction under section 80-I/80-I(IA) was allowed to cold storage plant. As the conditions for allowance of deductions were satisfied, the assessing officer/Commissioner (Appeals) were not justified in disallowing the claim. It was also stated that there is no question of any reconstruction of the business. It was an independent business which only changed hands. As regards non-claiming of deduction in the two previous years, the learned counsel stated that the deduction has to be allowed on the profits of the cold storage. As there was no profit in the cold storage, the question of claiming deduction under section 80-I/80IA did not arise.

6. On the other hand, learned Departmental Representative relied on the order of the Commissioner (Appeals).

7. We have considered the rival submissions. The facts of the case have been mentioned above. A cold storage was running in the name of M/s. Mohan Cold Storage & Gen. Mills. The cold storage plant was first operated in the financial year ending 31-3-1991. The partners of the assessed-firm before us and their profits/loss ratio was the same in the case of M/s. Mohan Cold Storage & Gen. Mills. As the partners and their profit/loss sharing ratios was common, the partners decided to run the cold storage in the name of the assessed-firm and not in the name of erstwhile firm. As the cold storage could operate in the year under consideration, the assessed claimed deduction under section 80-I/80-IA of the Act on the profits of the cold storage. The assessing officer/Commissioner (Appeals) have denied deduction due to the reasons mentioned earlier.

8. Section 80-I was brought on the statute by Finance (No. 2) Act, 1980 with effect from 1-4-1981. As per this section, certain deduction was available out of profit and gains derived from an industrial undertaking or a ship or the business of a hotel. Originally, provisions relating to priority industry was dealt with by section 80-E which was inserted by the Finance Act, 1966 with effect from 1-4-1966. That section was omitted and in its place section I was introduced by the Finance (No. 2) Act. 1967 with effect from 1-4-1968. Section 80-I was also omitted by the Finance Act, 1972 with effect from 1-4-1973. Subsequently, as mentioned earlier, the same was brought on statute with effect from 1-4-1981. Subsequently, by Finance Act, 1983 with effect from 1-4-1984 the benefit of deduction under section 80-I was extended to the business of repairs of ocean going vessels or other powered crafts. However, sub-section (1A) was inserted by Finance Act, 1990 with effect from 1-4-1990, which provided that benefit of deduction will also be extended to the undertaking which begin to operate cold storage plant/plants on or after 1-4-1990, but before 1-4-1991. Subsequently, section 80-IA was brought on the statute by the Finance (No. 2) Act, 1991 with effect from 1-4-1991. As per this section, the benefit was extended to the industrial undertaking which fulfills the conditions mentioned in sub-section (2) and which begins to operate cold storage plant on 1-4-1991 to 31-3-1995.

9. Section 80-I and section 80-IA of the Act read as under :

"80-I Deduction in respect of profits and gains from industrial undertakings after a certain date, etc.(1) Where the gross total income of an assessed includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel (or the business of repairs to ocean-going vessels or other powered craft), 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 assessed, a deduction from such profits and gains of an amount equal to twenty per cent thereof :

Provided that in the case of an assessed, being a company, the provisions of this sub-section shall have effect (in relation to profits and gains derived from an industrial undertaking or a ship or the.business of a hotel) as if for the words "twenty per cent", the words "twenty-five per cent" had been substituted.

(1A) Notwithstanding anything contained in sub-section (1), in relation to any profits and gains derived by an assessed from

(i) an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants; or

(ii) a ship which is first brought into use; or

(iii) the business of a hotel which starts functioning.

on or after the 1-4-1990 (but before the 1-4-1991), there shall, in accordance with and subject to the provisions of this section be allowed in computing the total income of the assessed, a deduction from such profits and gains of an amount equal to twenty-five per cent thereof :

Provided that in the case of an assessed, being a company, the provisions of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words "twenty-five per cent", the words "thirty per cent" had been substituted.

(2) This section applies to any industrial undertaking which fulfills all the following conditions, namely :

(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

(iii) It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to ........

80-IA Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases.(1) Where the gross total income of an assessed includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship (such business being hereinafter referred to as the eligible business), 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 assessed, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6).

(2) This section applies to any industrial undertaking which fulfills all the following conditions, namely :

(i) it is not formed by splitting up, or the reconstruction, of a business already in existence :

Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessed of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;

(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India :

Provided that the condition in this clause shall, in relation to a small scale industrial undertaking, apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted;

(iv) it begins to manufacture or produce articles or things or to operate such plant or plants, at any time during the period beginning on the 1-4-1991 and ending on the 31-3-1995, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;

(v) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power."

10. The reading of the above provisions makes it clear that the word 'assessed' is different from the word 'an industrial undertaking'. The deduction under section 80-I/80-IA is available to the industrial undertakings and not to the assessed. The assessed may have more than one industrial undertaking but the undertaking fulfillling the conditions mentioned in section alone will be entitled to the benefit of deduction.

11. Furthermore, the conditions mentioned in the section are attached to the "industrial undertaking" and not to the assessed. In the instant case, there was a cold storage which began to operate during the financial year 1990-91 relevant to the assessment year 1991-92. Thus, in normal course, as per provisions of S. 80-10A), an industrial undertaking which begins to operate its cold storage plant will be eligible for deduction. As the assessment year in question is assessment year 1993-94, the provisions of section 80-IA will be applicable. As per sub-section (2) to section 80-IA, the first condition for allowance of deduction was that the industrial undertaking should not be formed by splitting up or the reconstruction of a business already in existence. In the instant case, the whole cold storage is in tact. Earlier, it was being operated by another firm and in the year under consideration, it was running under the stewardship of the assessed-firm. Thus, the industrial undertaking is neither formed by splitting up nor by the reconstruction of the business already in existence.

12. The second condition mentioned in sub-section (2) is also satisfied as the new industrial undertaking is not formed by transfer of machinery or plant to a new business as the business was already in existence. Third condition is also fulfillled as the industrial undertaking is operating a cold storage plant in India. The fourth condition is also fulfillled as the industrial undertaking has begun to operate the cold storage plant at any time during the period beginning on 1-4-1991, and ending on 31-3-1995. This condition has to be read along with sub-section (IA) of section 80-I which has provided the date of operation of cold storage plant on or after 1-4-1990. As regards fifth condition, there is no dispute that the assessed has employed more than 10 persons in the manufacturing process.

13. Now, we will deal with the reasoning given by lower authorities while disallowing the claim of the assessed. The first objection of the lower authorities was that the cold storage cannot be said to be an industrial undertaking. As mentioned earlier, prior to 31-3-1990, the cold storage plants were not eligible for deduction under section 80-I. By Finance Act, 1990, with effect from 1-4-1990, sub-section (IA) of section 80-I was inserted in the statute.

Thus, after this date, the cold storage plant became eligible for deduction under section 80-I. We may mention in this connection that though the benefit of deduction under section 80-I was extended to cold storage plant, the deduction under section 80HH or 32A was not allowed to them even after 1-4-1990. In view of the specific provisions made in section 80-I(IA) of the Act, we hold that the cold storage plant fulfillling the prescribed conditions are eligible for deduction under section 80-I of the Act. The reasoning given by the lower authorities for rejecting the claim has, therefore, no force and that has to be dismissed.

14. We also find that the assessing officer/Commissioner (Appeals) have relied on certain cases, while disallowing the claim of the assessed. The crux of the reliance on those cases was that if a cold storage is engaged in producing certain articles or things, only then it could be said to be an industrial undertaking eligible for deduction under section 80-I/80-IA of the Act. A mere cold storage engaged in the preserving of potatoes cannot be said to be an industrial undertaking and, therefore, the preliminary condition of allowing deduction under section 80-I/80-IA was not satisfied. We find that up to 31-3-1990, the industrial undertaking satisfying certain conditions were eligible for deduction under section 80-I of the Act. However, by Finance Act, 1990, with effect from 1-4-1990, the benefit was extended to cold storage also. The meaning of the word 'industrial undertaking' has not undergone any change during the year under consideration. Knowing well that the cold storage may not be deemed to be an industrial undertaking, still the benefit of deduction under section 80-1 was extended to the cold storage plant. In the common parlance, a cold storage is engaged in the preserving only. It does not create or manufacture any article or thing. Still, if the benefit of deduction under section 80-I was extended to the cold storage plant, the intention was very clear. Thus, the assessing officer/Commissioner (Appeals) have misapplied the meaning of the word 'industrial undertaking' while denying the claim of the assessed.

15. We also find that the assessing officer/Commissioner (Appeals) have also observed that the assessed has not claimed the deduction under section 80-I/80-IA of the Act in the assessment years 1991-92 and 1992-93. Needless to say the deduction under section 80-I/80-IA has to be allowed from the profits of the cold storage. In both the years, there was no profit from the cold storage and, therefore, the question of claiming any deduction under section 80-I/80-IA of the Act did not arise. We also find that while disallowing the claim of the assessed, the assessing officer/Commissioner (Appeals) have relied on certain case laws. But these cases referred to the definition of the word 'industrial company'. It has nothing to do with the allowance of deduction under section 80-I to the cold storage plant which was specifically provided in section 80-I/80-IA of the Act with effect from 1-4-1990. Considering these facts as a whole, we hold that the assessed is entitled to deduction under section 80-I/80-IA of the Act. The assessing officer is directed to allow such deduction.

16. Ground Nos. 2 and 3 related to the disallowance of car expenses for personal use by the partners. As the grounds have not been pressed, these are dismissed.

17. In the result, the appeal is partly allowed.