Circular No. 378

What it does

Settles that the section 80J deduction is not to be scaled down for the part of the year in which the business was not carried on. Section 80J allowed six per cent per annum of the capital employed for new industrial undertakings, ships and hotels meeting the conditions, and seven and a half per cent per annum for companies where the undertaking began manufacture, the ship was first brought into use or the hotel started functioning after 31 March 1976. The Board accepts the Karnataka High Court's reading of the words 'per annum' in CIT v. Mysore Petrochemical Ltd. [1984] 145 ITR 416, to the same effect as the Madras High Court in CIT v. Simpson & Co. [1980] 122 ITR 283, that the relief is admissible for the whole year whatever the period of operation. The deduction is therefore not to be reduced proportionately.

Why it was issued

The meaning of 'per annum' in section 80J was in doubt, and the Board considered the question after the Karnataka High Court's decision.

Who it reaches

New industrial undertakings, ships and hotels claiming section 80J in their first year of operation
Assessing Officers proportioning the section 80J deduction
Assessees whose section 80J claim was cut down for a part year

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.80J	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

576. Whether deduction is to be reduced proportionately with reference to period for which business was not carried on during relevant previous year
1. Under section 80J a deduction at the rate of 6 per cent per annum of the capital employed is allowed from the profits of new industrial undertakings, ships and hotels which fulfil the prescribed conditions. In case of companies where the new industrial undertakings begin to manufacture after March 31, 1976 or ships are first brought into use after March 31, 1976 or the business of a hotel starts functioning after that date, the deduction is admissible at the rate of 7½ per cent per annum. The question as to the meaning to be given to the phrase ‘per annum’ has been considered by the Board.
2. The Karnataka High Court in the case of CIT v. Mysore Petrochemical Ltd. [1984] 145 ITR 416 has held that the relief under section 80J is admissible for the entire year irrespective of the period of operation of the new industrial undertaking in that year. A similar view has been expressed by the Madras High Court in the case of CIT v. Simpson & Co. [1980] 122 ITR 283. The Board have accepted the interpretation placed on the phrase ‘per annum’ by the Karnataka High Court.
3. In view of the foregoing, the deduction under section 80J should not be reduced proportionately with reference to the period for which the business of the undertakings, ship or hotel was not carried on during the relevant previous year.
Circular : No. 378 [F. No. 178/227/83-IT (A-I)], dated 3-3-1984.

What to watch

The circular decides only the time-proportion point; the computation of capital employed and the other conditions of section 80J are untouched.
The higher rate of seven and a half per cent applies to companies where the qualifying event fell after 31 March 1976.
Section 80J has since gone from the statute, so this bears on claims for the years it applied.

Where you meet it

In an assessment or appeal where the section 80J deduction has been allowed only for the months the undertaking actually worked.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 383 — 250. Approval of Central Government required claiming initial depreciation on new buildings by a hotel 22 June 1984
Circular No. 380 — 579. Decision of Bombay High Court in Indian Oil Corporation’s case - Whether equally applicable to sub-section (1A) ins 10 April 1984
Circular No. 329 — Section 80J l Profits and Gains from Newlyestablished Undertakings 22 February 1982
Circular No. 79 — Section 80K l Dividends Attributable to Profits and Gains from NEW Industrial Undertakings 25 February 1972

← Circular No. 380 · Circular No. 377 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.

What this is