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.

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