Deduction denied for acquired industrial undertaking under section 80J.

The court held that the deduction under section 80J of the Income-tax Act, 1961, is applicable only to newly established industrial undertakings and not to existing undertakings acquired by another entity. The court emphasized the legislative intent to encourage new industries and ruled that the acquired industrial undertaking in this case did not qualify as a "newly established industrial undertaking." Therefore, the deduction claim by the assessee was denied, and the decision favored the Revenue.

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Issues Involved:
1. Whether the Income-tax Appellate Tribunal was justified in law in denying the deduction u/s 80J of the Income-tax Act, 1961, to the assessee-company.

Summary:

Issue 1: Denial of Deduction u/s 80J

The assessee, a private limited company, acquired business undertakings from a partnership firm under an agreement dated November 21, 1969. For the assessment year 1973-74, the assessee claimed a deduction of Rs. 2,32,118 u/s 80J of the Income-tax Act, 1961. The Income-tax Officer rejected this claim, and subsequent appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were also dismissed. The primary contention was whether the acquired industrial undertaking could be treated as a "newly established industrial undertaking" for the purposes of section 80J.

Arguments by Assessee:
Sri S. P. Bhat, counsel for the assessee, argued that the benefit of deduction u/s 80J should be available to the assessee, treating the acquired undertaking as a "newly established industrial undertaking." He relied on the Supreme Court ruling in Textile Machinery Corporation Limited v. CIT [1977] 107 ITR 195.

Arguments by Revenue:
Sri K. Srinivasan, counsel for the Revenue, contended that the deduction u/s 80J was applicable only to a "newly established industrial undertaking" and not to undertakings acquired by an assessee.

Court's Analysis:
The court examined the terms of the agreement and the findings of the Tribunal, which concluded that the assessee had not established a new industrial undertaking. The court focused on the true construction of section 80J(1) and (1A)(IV) of the Act. The heading of section 80J explicitly mentions "newly established industrial undertakings," indicating the legislative intent to encourage new industries. The court emphasized that the term "newly established" must be read into the section wherever "industrial undertakings" occur to avoid defeating the purpose of the provision.

Precedents Considered:
The court referred to the Supreme Court ruling in Textile Machinery Corporation Limited's case and section 15C of the old Income-tax Act, 1922, which had similar provisions. The court concluded that the benefit of section 80J is intended for newly established undertakings and not for existing undertakings acquired by another entity.

Conclusion:
The court held that the benefit of section 80J is allowable only to a newly established industrial undertaking for the specified periods. An existing undertaking, upon acquisition, does not become a newly established undertaking eligible for the deduction u/s 80J. The question referred was answered in the affirmative, against the assessee and in favor of the Revenue. The parties were directed to bear their own costs.

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