Section 80-IB deduction depends on actual manufacturing start and proper depreciation adjustment in profit computation.

For deduction under section 80-IB, actual commencement of manufacture was treated as the relevant test, and a factory licence obtained later was not, by itself, a bar to the claim where production had already begun. The article also states that eligible profits must be computed after deducting current year depreciation and earlier years' unabsorbed depreciation, since the deduction cannot be calculated on an overstated profit base. On that reasoning, the assessee's deduction claim was sustained, subject to recomputation in line with depreciation adjustments.

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Issues: (i) Whether deduction under section 80-IB could be denied merely because the factory licence was issued after the alleged commencement of production. (ii) Whether, for computing deduction under section 80-IB, current year depreciation and earlier years' unabsorbed depreciation were required to be deducted.

Issue (i): Whether deduction under section 80-IB could be denied merely because the factory licence was issued after the alleged commencement of production.

Analysis: The decisive question was whether the undertaking had actually commenced manufacture during the relevant period. The fact that the factory licence was obtained later was held to be irrelevant for the Income-tax Act once production was shown to have commenced earlier. A violation of factory-law requirements may attract consequences under the factories law, but it does not by itself defeat the statutory claim for deduction where the undertaking otherwise satisfies the condition of manufacture or production.

Conclusion: Deduction under section 80-IB could not be denied merely on the ground that the factory licence was issued later, and the assessee was entitled to the deduction.

Issue (ii): Whether, for computing deduction under section 80-IB, current year depreciation and earlier years' unabsorbed depreciation were required to be deducted.

Analysis: The profit eligible for deduction had to be computed after making all statutorily required depreciation adjustments. The computation could not be improved by omitting current depreciation, and earlier unabsorbed depreciation also had to be taken into account before arriving at the profit derived from the industrial undertaking.

Conclusion: Current year depreciation and earlier years' unabsorbed depreciation were required to be deducted while recomputing the deduction under section 80-IB.

Final Conclusion: The assessee succeeded on both substantive questions, and the deduction claim was sustained with recomputation directed in accordance with the depreciation adjustment requirement.

Ratio Decidendi: For deduction under section 80-IB, actual commencement of manufacture is material and a later factory licence does not, by itself, disentitle the assessee; the eligible profit must also be computed after deducting current and unabsorbed depreciation.

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