COMMISSIONER OF INCOME TAX Vs. CEMENT DISTRIBUTORS LIMITED

JUDGEMENT

(1.) IN this reference under S. 256(1) of the INCOME TAX ACT, 1961 (in short the Act), at the instance of the Revenue, the following two questions have been referred for the opinion of this Court :

(2.) AT the outset we may state that the first question, as framed, can straightaway be answered in the negative on the short ground that the question itself suggests and holds that "the assessee - company did not derive any profit from manufacturing operations", which is a condition precedent for the deduction permissible under S. 80HH of the Act. Relief under S. 80J of the Act having been granted in consequence of the relief under S. 80HH, and also stated so in the question itself, the answer to second question will also go the same way. However, as the case has been argued at some length, we will also consider it so, for which it would be necessary to refer to the facts as found by the Tribunal and the relevant statutory provisions.

(3.) WHILE examining the said claim during the course of assessment proceedings for the relevant assessment year, the ITO noticed that instead of carrying out the manufacturing activity itself in the said new unit, the assessee had leased out the entire industrial undertaking to M/s Hari Bros (P) Ltd on 10th April, 1973 at an annual rent of Rs. 38,000 and after deducting the depreciation in respect of the unit, amounting to Rs. 19,796, a net profit of Rs. 18,231 was declared from this unit and accordingly relief under S. 80HH of the Act was worked out at Rs. 3,646. The ITO was of the view that since the assessee did not carry out any manufacturing activity itself, it was not entitled to any relief under S. 80HH of the Act. The assessee's claim in this behalf was accordingly rejected. Since conditions precedent for allowance of relief under Ss. 80J and 80HH of the Act are more or less similar, assessee's claim under S. 80J was also rejected on the same reasoning. Having failed before the CIT(A) the assessee carried the matter in second appeal before the Tribunal. Before the Tribunal it was contended on behalf of the assessee that the profit of the business by way of lease money was derived from the new industrial undertaking and, therefore, the assessee was entitled to the claim of deduction under S. 80HH of the Act. It was submitted that to avail of relief under the said section it was not necessary that the manufacturing activity must be carried out by the assessee itself. The Tribunal found merit in assessee's view point and held that the leasing out of the commercial assets of new industrial unit at Dalmia Puram constituted a business activity on the part of the assessee and since the ITO had assessed the lease rent in the hands of the assessee as business profit, the said income from lease rent could clearly be said to be profit derived from the industrial unit within the meaning of S. 80HH of the Act. In coming to this conclusion the Tribunal drew support from a judgment of the Madras High Court in CIT vs. Universal Radiators P. Ltd. (1981) 128 ITR 531 (Mad). Since relief under S. 80J of the Act had been denied to the assessee by the lower authorities mainly on the ground of disallowance of relief under S. 80HH of the Act, the Tribunal further directed that relief under S. 80J should also be allowed to the assessee as per the Rules. It is the correctness of this conclusion of the Tribunal which is challenged before us by the Revenue by asking for a reference on the question mentioned above.