COMMISSIONER OF INCOME TAX PATIALA vs. METALWAYS (P) LTD CHANDIGARH

ITR/336337/1995HC Punjab & HaryanaPHHC01032410199528 February 2007Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE M.M. KUMAR8 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the revenue was misconstruing the Tribunal's order regarding the benefit on old machinery. The benefit is calculated on capital employed, not on the machinery itself. The Court found that the answer to the eligibility for the years in question was available in a plain reading of Section 80J(4). The revenue's contention that the benefit on old machinery is restricted to 5 years from the first purchase date was rejected. The Court noted that Section 80J(4)(ii) has Explanation 2, which states that if the value of transferred machinery does not exceed 20% of the total value of machinery used in the business, the condition is deemed complied with, and the value of such transferred machinery is not to be considered for capital employed. As it was not disputed that the transferred machinery's value was less than 20% of the capital employed, the assessee was eligible. Since the new entity came into existence in assessment year 1978-79 and was eligible, assessment years 1979-80 and 1980-81 fell within the permissible 5-year period, entitling the assessee to the deduction. The question was answered against the revenue and in favour of the assessee.

What were the facts?

The assessee, M/s Metalways (P) Ltd., Chandigarh, claimed deduction under Section 80J of the Income-tax Act for assessment years 1979-80 and 1980-81. The company was incorporated on 29.6.1977 and took over a running business from its sole proprietor, Sh. R.K. Mahajan. The Assessing Officer disallowed the claim, stating that the business was already in existence and manufacturing had commenced in 1973, making the initial year for Section 80J as 1974-75, thus the deduction period would have expired by 1978-79. The CIT(A) allowed the deduction, relying on Explanation 2 to Section 80J(4)(ii). The Tribunal upheld the CIT(A)'s order. The revenue appealed to the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction u/s 80J for assessment years 1979-80 and 1980-81 when the period of five years laid down in sub-section (2) of section 80J had already expired? Assessee's arguments: The assessee contended that it was not claiming benefit on old machinery but rather on the capital employed in the new undertaking. They argued that eligibility is to be considered in terms of Sub-Section (4) of Section 80J, and even if not eligible in the first year of operation, it could claim benefits in subsequent years within the overall period if conditions were met. They relied on Kerala State Cashew Development Corporation vs. Commissioner of Income-Tax (1994) 205 ITR 19, Commissioner of Income-Tax vs. Gopal Plastics (P.) Ltd. (1995) 215 ITR 136, and Commissioner of Income-Tax vs. Laxmi Metal Industries (1999) 236 ITR 130. Revenue's arguments: The revenue argued that since the machinery was installed in 1974-75, the assessee would not be entitled to any deduction under Section 80J after assessment year 1978-79. They further submitted that the Tribunal's holding that the assessee was entitled to deduction for the use of old machinery was contrary to the law.

Which sections of the Income-tax Act were involved?

Section 80J,Section 80J(4),Section 80J(4)(ii),Section 33B

AI-generated summary — verify with the full judgment below

I.T.R. Nos.336 & 337 of 1996 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

**** I.T.R. Nos.336 & 337 of 1995 Date of Decision:28.02.2007 The Commissioner of Income-tax, Patiala .....Petitioner Vs. M/s Metalways (P) Ltd., Chandigarh .....Respondent CORAM:- HON'BLE MR. JUSTICE M.M.KUMAR HON'BLE MR. JUSTICE RAJESH BINDAL Present:- Mr. Sanjiv Bansal, Advocate for the revenue. Mr. S.K.Mukhi, Advocate for the assessee. **** RAJESH BINDAL, J. The following question of law has been referred for opinion of this Court, arising out of a common order passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, `the Tribunal') in I.T.A. Nos.1322 and 1323/Chandi/87 dated 8.4.1993, in respect of assessment years 1979-80 & 1980-81:- “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction u/s 80J for assessment years 1979-80 and 1980-81 when the period of five years laid down in sub-section (2) of section 80J had already expired?” Briefly the facts as noticed in the statement of case are as under:- “The assessee company is

The order continues below.

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