1991 (2) TMI 89 - HC - Income Tax

Kerala High Court Upholds Tax Exemptions for Manufacturing Firm

The High Court of Kerala ruled in favor of an unregistered firm engaged in manufacturing, allowing it to claim exemptions under sections 80J and 80HH for ... New Industrial Undertaking, Special Deduction Issues Involved:1. Entitlement to exemptions u/s 80J and 80HH for subsequent years despite non-entitlement in earlier years.Summary:Issue 1: Entitlement to exemptions u/s 80J and 80HH for subsequent years despite non-entitlement in earlier yearsThe High Court of Kerala addressed whether the assessee, an unregistered firm involved in the manufacture and sale of plywoods and veneers, is entitled to exemptions u/s 80J and 80HH for the assessment year 1977-78, even though it was not entitled to such exemptions in the earlier years. The Income-tax Officer initially denied the deductions, a decision upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal later ruled in favor of the assessee, prompting the Revenue to refer the matter to the High Court.The court examined the legislative intent behind sections 80HH and 80J, which provide tax relief to newly established industrial undertakings. The court noted that the language and import of both sections are substantially similar, and the provisions aim to encourage the setting up of new industrial undertakings by offering tax incentives.The Revenue argued that if the assessee was not entitled to the deduction in the initial year of the industrial undertaking, it should not be eligible in subsequent years, even if the value of old machinery in those years does not exceed 20% of the total value. This view was supported by a decision of the Karnataka High Court in CIT v. Nippon Electronics (India) Pvt. Ltd. [1990] 181 ITR 518.However, the court found the Gujarat High Court's interpretation in CIT v. Suessin Textile Bearing Ltd. [1982] 135 ITR 443 more persuasive. The Gujarat High Court held that the benefit of tax holiday should be available in subsequent years if the conditions are met in those years, even if they were not met in the initial year.The Kerala High Court concurred with the Gujarat High Court's view, emphasizing that the legislative intent behind sections 80HH and 80J is to provide tax benefits to new industrial undertakings for a limited period, and these benefits accrue from year to year based on the income of each year. The court disagreed with the Karnataka High Court's restrictive interpretation and upheld the Tribunal's decision, affirming that the assessee is entitled to claim relief u/s 80HH and 80J for the assessment year 1977-78.The court answered the referred question in the affirmative, against the Revenue and in favor of the assessee, and directed that a copy of the judgment be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.