Section 80J deduction allowed at full 6% of capital employed, without proportionate reduction for partial-year operation.

Section 80J relief was construed liberally, and the deduction was held admissible at 6% of the capital employed for the full previous year rather than being reduced proportionately to the period the new unit actually worked. The capital employed had already been adjusted for the relevant period of user, so there was no basis for a further reduction of the statutory rate. The departmental circular supporting full-year allowance reinforced this position, leaving the deduction available in full and rejecting the Revenue's proportionate computation.

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Issues: Whether deduction under section 80J of the Income-tax Act, 1961 is to be allowed at 6% of the capital employed for the full previous year, or whether it is to be reduced proportionately to the period for which the new unit actually worked during that year.

Analysis: The provision granting relief under section 80J was treated as one conferring exemption or relief to be construed liberally. The proportionate approach was rejected on the footing that the capital employed had already been adjusted for the relevant period of user, and there was no warrant for further reduction of the statutory rate of 6%. Administrative consistency was also noted through the departmental circular accepting that the deduction under section 80J should not be reduced merely because the undertaking did not carry on business throughout the whole of the relevant previous year.

Conclusion: Deduction under section 80J is admissible at 6% of the capital employed for the full year, and not on a proportionate basis for the period of actual working; the answer is against the Revenue and in favour of the assessee.

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