Section 80J deduction on capital employed cannot be proportionately reduced for a broken period of operation.

Section 80J deduction calculated at a yearly rate on capital employed is not to be reduced proportionately merely because the industrial undertaking operated for only part of the previous year. The interpretation of "per annum" in the corresponding relief provision supports full deduction for the relevant year unless the statute expressly requires a broken-period reduction; a CBDT circular of 3 March 1984 adopted the same construction and directed that the relief should not be curtailed for non-operation during part of the year.

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Issues: Whether the deduction under section 80J(3) of the Income-tax Act, 1961, had to be reduced proportionately with reference to the period for which the industrial undertaking had not carried on business during the relevant previous year.

Analysis: The reference was decided in the light of the interpretation placed on the expression "per annum" in the corresponding relief provision. It was accepted that the deduction at six per cent of the capital employed was not to be curtailed on a broken-period basis merely because the undertaking had worked only for part of the year. The Board's circular of March 3, 1984 also adopted that construction and directed that the deduction under section 80J should not be reduced proportionately for the period during which the undertaking did not carry on business.

Conclusion: The assessee was entitled to the full deduction at the prescribed rate on the capital employed without proportionate reduction for the period of non-operation.

Final Conclusion: The question referred was answered in favour of the assessee, and the Revenue's challenge to proportional reduction of the section 80J relief failed.

Ratio Decidendi: A deduction expressed at a yearly rate on capital employed under section 80J cannot be reduced proportionately for a broken period of operation unless the statute expressly so provides.

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