COMMISSIONER OF INCOME TAX, PATIALA vs. PATIALA FLOUR MILLS CO. PVT. LTD., PATIALA

CIVIL APPEAL No. 2395/1977Supreme Court[1979] 1 S.C.R. 112806 October 1978Bench: 3 JudgesAuthor: P.N. BHAGWATI, V.D. TULZAPURKAR, R.S. PATHAK B10 pages
AI SummaryDismissed

What were the facts?

The assessee, Patiala Flour Mills Co. Pvt. Ltd., claimed a deduction under Section 80J of the Income Tax Act, 1961, for the assessment year 1970-71. The assessee operated a cold storage plant, which was a new industrial undertaking. For assessment years 1967-68, 1968-69, and 1969-70, the cold storage plant incurred losses, and depreciation allowance and development rebate were adjusted against profits from the assessee's other businesses. Consequently, no losses or unabsorbed depreciation/rebate remained to be carried forward to assessment year 1970-71. The assessee earned a profit of Rs. 1,51,011/- from the cold storage plant in 1970-71 and sought to adjust the capital employed and deficiencies from past years against this profit. The Income Tax Officer and Appellate Assistant Commissioner rejected this claim. The Tribunal, however, allowed the adjustment, a decision upheld by the High Court on reference.

What did the Supreme Court hold?

The Supreme Court held that the profits or gains of a new industrial undertaking for the purpose of Section 80J(1) must be computed in accordance with the provisions of the Act in the same manner as they are computed for determining the total income chargeable to tax. It follows that if losses, depreciation allowance, and development rebate for past assessment years have been fully set off against the assessee's profits from other businesses or income under any other head, no part of such losses, depreciation, or rebate can be adjusted again in computing the profits or gains of the new industrial undertaking for applying Section 80J(1). The same mode of computation applies to Section 80J(3) for setting off carried-forward deficiencies. Since it was common ground that past losses, depreciation, and rebate were fully absorbed, the profit of Rs. 1,51,011/- from the cold storage business was not liable to be reduced by any such adjustment. The Court upheld the High Court's decision, allowing the deduction of capital employed (Rs. 83,391/-) and deficiencies from past years (Rs. 11,155/- for 1967-68 and Rs. 56,465/- for 1968-69) against the profit, resulting in the profit of the new industrial undertaking includible in the total income being nil. The appeal was dismissed.

What were the issues?

1. Whether the profits or gains of a new industrial undertaking for the purpose of Section 80J(1) must be computed in the same manner as they are computed for determining the total income chargeable to tax, especially when losses, depreciation, and development rebate from past years have been set off against other business profits? (Question of law) - Assessee's contention: The profits of the new undertaking should be computed as per the Act for total income, and then deductions under Section 80J should be applied. Since past losses/rebates were already absorbed, they cannot be adjusted again. The Tribunal and High Court correctly allowed the adjustment of capital employed and past deficiencies. - Revenue's contention: The profits of the new undertaking should be computed as if it were the only business, or as if past losses/rebates were not set off against other businesses, leading to a different computation for Section 80J purposes. This would result in two species of profits, one for total income and another for Section 80J deduction.

Which sections of the Income-tax Act were involved?

Section 80J,Section 70,Section 71,Section 32(2),Section 32A(2)

AI-generated summary — verify with the full judgment below

A B c D E F G H 1128 COMMISSIONER OF INCOME TAX, PATIALA v. PATIALA FLOUR MILLS CO. f?T. LTD., PATIALA · October 6, 19~s· [P. N. BHAGWATI, V. D. TULZAPURKAR AND R. S. PATHAK; JJ.] lncon1e Tax Act, 1961, Section 80 J-Interpretation of.

The Respondent·assessee claimed in its assessment to tax for the assessment year 1970-71 that the amounts of deficiency under Sec. SOJ for the current as \Vell as past assessment years were liable to be adjusted ngainst the profit of Rs. 1,51,011/- earned by its cold storage plant which was a new industrial undertaking to which sub-section ( 4) of Sec. 80J of the Income Tax Act applied.

The assessee did not make any profit in the business of cold storage plant during the assessment years 1967-68, 1968-69 and 1969-70, but there was profit in the other businesses and the losses, depreciation allO'wance and development rebate in respect of the cold storage plant were adjusted against the profit from the other businesses in computing the total income of the assessee chargeable to ta.x for those assessment years. The Income Tax Officer and in appeal the Appellate Assistant Commissioner rejected the claim of the assessee for adjus

The order continues below.

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