JUDGMENT

RANGANATHAN, J. (For himself and V. Ramaswami, J.) :—The seeds of the present controversy were sown as early as in 1946. It is unfortunate that this matter should be coming up before this Court for its consideration nearly five decades later, though it must be pointed out that the issue in its present form is the outcome of an amendment made by the Finance (No. 2) Act, 1980 (hereinafter referred to as the 1980 Act) to the Income-tax Act, 1961 (hereinafter referred to as the 1961 Act). It is also a curious co-incidence that the 1980 Act effected two amendments in the 1961 Act with retrospective effect and the validity of both these provisions have been challenged before the Courts. The first was the controversy with regard to the retrospective amendment of S. 80-J which was settled by this Court by its decision in Lohia Machines Limited v. Union of India, (1985) 152 ITR 308. It is the second amendment to the provisions contained in S. 35(2) of the 1961 Act that has given rise to the present controversy between the parties.

2. The question is really one of interpretation of two important provisions relating to the computation of business income for purposes of income-tax. We