COMMISSIONER OF INCOME TAX, PATIALA versus PATIALA FLOUR MILLS CO. PVT. LTD., PATIALA

Citation: [1979] 1 S.C.R. 1128 · Decided: 06-10-1978 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

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1128 
COMMISSIONER OF INCOME TAX, PATIALA 
v. 
PATIALA FLOUR MILLS CO. f?T. LTD., PATIALA 
· 
October 6, 19~s· 
[P. N. BHAGWATI, V. D. TULZAPURKAR AND R. S. PATHAK; JJ.] 
lncon1e Tax Act, 1961, Section 80 J-Interpretation of. 
The Respondent·assessee claimed in its assessment to tax for the assessment 
year 1970-71 that the amounts of deficiency under Sec. SOJ for the current 
as \Vell as past assessment years were liable to be adjusted ngainst the profit 
of Rs. 1,51,011/- earned by its cold storage plant which was a new industrial 
undertaking to which sub-section ( 4) of Sec. 80J of the Income Tax Act applied. 
The assessee did not make any profit in the business of cold storage plant 
during the assessment years 1967-68, 1968-69 and 1969-70, but there was profit 
in the other businesses and the losses, depreciation allO'wance and development 
rebate in respect of the cold storage plant were adjusted against the profit from 
the other businesses in computing the total income of the assessee chargeable to 
ta.x for those assessment years. The Income Tax Officer and in appeal the 
Appellate Assistant Commissioner rejected the claim of the assessee for adjust-
ment. 
But in further appeal the Tribunal held that since the losses as well 
as depreciation allowance and development rebate in respect of the cold storage 
business for the past assessment years were already adjusted against the profit 
from other businesses, no part of such losses, depreciation allowance or deve-
lopment rebate remained unabsorbed so as to be carried forward and set off 
against the profit for the assessment year 1970-71 and hence the prQ:fit of 
Rs. 1,51,011 /· from the cold storage business woo not liable to be reduced by 
any such set off and the assessee was entitled to claim that from out of such 
profit there should be deducted, first, the amount of Rs. 83,891/- representing 
the relevant amount of capital employed during the previous year .and then 
the amounts of deficiency for the past assessment years. The High Court on 
a reference, a-t the instance of the Revenue answered the question in favour 
of the assessee. 
Dismissing the appeal by special leave the Court, 
HELD : (I) The proper construction of sub-section (I) of Sec. 80J must, 
be taken to be that the profits or gains of the new industrial undertaking 
must be computed in accordance with the provisions Of the Act in the same 
manner as they would be in determining the total income chargeable to tax 
and it must follow a fortiori that if the tosses, depreciation allowance and 
development rebate in respect of the new industrial undertaking for the. past 
assessn1ent years have been fully set off against the profit of the assessee from 
other business or for the matter of that, against the income of the assessee 
under any other head by reason of sections 70 and 71 read with sub-section 
(2) of Sec. 32 and sub-section (2) of Sec. 32A, no part of mch losses, 
depreciation allowance or development rebate would be liable to be adjusted over 
again in computing the profits or gains of the new industrial undertaking for 
applying the provision contained in sub-sectiott (I) of Sec. 80J. The same 
mode of comput~tion must prevail also in applying the provision containea in 
.. 
C.I.T. V. PATIALA FLOUR MILLS (Bhagwati, J.) 
1129 
sub-section (3) of sec. 801, because that sub-section provide.;; for setting off 
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the ca-rried-forward amount of deficiency· of the past assessment years against 
"the profits and gains referred to in sub-section 1" or Sec. 801, as computed. 
after allowing inter alia the deduction admissible under sub-section and, there-
fore, if, for the purpose of sub-section (1) of Sec. 801, the profits or gainJ of 
the new industrial undertaking are to be computed in accordance with the provi-
sions of the Act and no part of the losses, depreciation allowa·nce or develop-
ment rebate for the past assessment years which has been fully set off against 
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the prdfit from other businesses or income under any other head is liable to be 
adjusted over agian in computing the profits or gains of the ilCW industrial under-
taking, no such adjustment would equally be permissible in applying the provi-
sion contained in sub-sl!ct.ion (3) of Section 801. [1136 D-H, 1137-i\] 
(2) It is clear from the language of sub-section (I) of Section 80J that 
the profits or gains of a new industrial undertaking from which deduction of the 
relevant amount of capit

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