1973 (9) TMI 47 - HC - Income Tax

Court grants benefit under section 84 for delayed production start.

The court held that the assessee was entitled to the benefit of section 84 for the assessment year 1963-64, as substantial production of articles ... New Industrial Undertaking Issues Involved:1. Entitlement to relief under section 84 of the Income-tax Act for the assessment year 1963-64.2. Determination of the first assessment year for the application of section 84(7).3. Inclusion of interest income in profits entitled to relief under section 84.Detailed Analysis:Issue 1: Entitlement to Relief under Section 84 for Assessment Year 1963-64The assessee contended that production of lathes and bench grinders commenced only after May 31, 1958, and thus, the benefit of section 84 should be available for the years 1959-60 to 1963-64. The Tribunal, however, found that the assessee had started manufacturing articles before May 31, 1958, and hence, the benefit under section 84 would only be available for the period 1958-59 to 1962-63. The court held that the term 'articles' in section 84(7) should be understood in the context of the licensed undertaking, which in this case was for manufacturing lathes and bench grinders. The court concluded that the production of a few sundry items before May 31, 1958, did not constitute substantial production or manufacture of articles by the undertaking. Therefore, the assessee was entitled to the benefit of section 84 for the assessment year 1963-64.Issue 2: Determination of the First Assessment Year for Section 84(7)The revenue argued that the first assessment year should be 1958-59, as the first accounts of the assessee were made up for the period from April 11, 1957, to March 31, 1958. The court noted that the first assessment was made for 1959-60, covering a period of more than 23 months. The court referred to the Supreme Court decision in Esthuri Aswathaiah v. Commissioner of Income-tax, which indicated that the length of a previous year need not necessarily be 12 months. However, for a newly set-up business, the previous year can only be 12 months or less. The court concluded that if the manufacture and production of articles had started during the period from April 11, 1957, to March 31, 1958, the first assessment year would be 1958-59. However, since the court found that substantial production commenced only after April 1, 1958, the benefit of section 84 would be available for the assessment year 1963-64.Issue 3: Inclusion of Interest Income in Profits Entitled to Relief under Section 84The Tribunal had held that the interest income was the profits of the assessee's undertaking. The assessee did not press this question before the court, and the court refrained from answering it, noting it was a matter of discretion when the party who caused the reference does not want to press the same.Conclusion:The court answered the first question in favor of the revenue, establishing that the first assessment year would be 1958-59 if production had commenced during the period from April 11, 1957, to March 31, 1958. However, since substantial production started only after April 1, 1958, the benefit of section 84 was available to the assessee for the assessment year 1963-64. The second question was answered in favor of the assessee, affirming their entitlement to relief under section 84 for the assessment year 1963-64. The third question was not answered as it was not pressed by the assessee.