Section 80J l Profits and Gains from Newlyestablished Undertakings
Circular No. 329 was issued by the Central Board of Direct Taxes on 22 February 1982. Its subject is Section 80J l Profits and Gains from Newlyestablished Undertakings.
Answers whether forest lessees extracting timber and other forest produce are entitled to deduction under sections 80HH and 80J. The Board, on the Ministry of Law's opinion, says it depends on the nature of the lessee's activity: where the process is not merely conversion of standing trees into firewood but the manufacture of new saleable commodities, the deduction is available. The annexed opinion works the test out: cutting trees and selling firewood is not manufacture, because no new commodity saleable as such comes into existence, while converting standing trees into sleepers is, because a different commodity with a distinctive name, character and use is brought into being. So to the extent the lessees convert standing trees into sleepers, the deduction under sections 80J and 80HH is available.
A reference had been made to the Board asking whether undertakings extracting timber and forest produce under forest leases qualified for these deductions, and the question was examined in consultation with the Ministry of Law.
| Under the 1961 Act | Now |
|---|---|
| s.1 | s.1 |
| s.80HH | no counterpart recorded |
| s.80J | no counterpart recorded |
SECTION 80J l PROFITS AND GAINS FROM NEWLYESTABLISHED UNDERTAKINGS
574. Undertakings engaged in extraction of timber and other forest produce by leasing out forests - Whether eligible for deduction under the section
1. A reference was made to the Board as to whether undertakings engaged in extraction of timber and other forest produce by leasing out forests would be entitled to deductions under sections 80HH and 80J.
2. The matter was considered by the Board in consultation with the Ministry of Law which had given an opinion [Annex] that the answer to the question posed would depend on the nature of the activity of the forest lessees; however, if the process involved is not merely conversion of standing trees into fire-wood but also manufacture of new saleable commodities, the benefit of deduction under sections 80J and 80HH would be available.
Circular : No. 329 [F. No. 178/53/80-IT(A-I)], dated 22-2-1982.
ANNEX - OPINION OF MINISTRY OF LAW REFERRED TO IN CLARIFICATION
1. We have gone through the order passed by the Income-tax Appellate Tribunal on21-10-1981 in the appeal filed by the forest lessees of Jammu and Kashmir. Before the Tribunal, the assessee advanced arguments on the basis of a letter written by the Minister of State for Finance to a Member of Parliament wherein it is stated that if the process involved in the business of the members of the Jammu Forest Lessees’ Association is not merely conversion of standing trees into firewood but also manufacture of new commodity saleable as such, the benefit of section 80J/80HH of the Income-tax Act, 1961, will be available.
2. The Tribunal observed that it cannot be held that the assessee is manufacturing any new commodity as such.
3. If the process involved is merely conversion of standing trees into firewood or similar articles, it cannot be said that a new commodity saleable as such has come into existence. As pointed out in our previous opinion dated 25-11-1974, the transformation of wood into sleepers could be considered to be a change in the sense of a manufacture, since a new commodity saleable as such, namely, sleepers, is brought into existence by such process.
4. In other words, it is not merely the cuttings of trees and selling of firewood that would amount to manufacture. The process should involve the making of a different commodity having distinctive name, character or use. In the case of trees, the making of sleepers would amount to such a process as would amount to manufacture.
5. The result is that to the extent the Jammu forest lessees convert standing trees into sleepers, they would be entitled to the benefit of section 80J/80HH of the Income-tax Act.
In an assessment of a forest lessee where the section 80HH or section 80J claim is refused on the ground that no manufacture takes place.
Source: the Income Tax Department’s own published text — its page for this instrument.
