The relief at the rate of 6% or 71/2 per cent. per annum provided under s. 80J is in the nature of incentive extended to the assessee who has established a new industrial undertaking. The relief, no doubt, depends upon the commencement of production. But also on the capital employed. Therefore, there shall be no pro-rating for the period of productive operation.

Jagannatha Shetty, J.—The following question has been referred under s. 256(1) of the I.T. Act :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding the order of the Commissioner (Appeals), who directed the Income Tax Officer to allow the relief under Section 80J at full 7 1/2 % of the capital employed even though the under taking worked only for 1 1/2 months ?"

2. The simple facts behind the legal formulation are as follows :

The assesses company claimed relief under s. 80J of the Act for the full assessment year 1977-78, although the company started production only on May 16, 1976. The assessee's accounting year ended on June 30, 1976. The ITO allowed the relief pro rata for 1 1/2 months subsequent to the commencement of the commercial production. The assessee appealed against that order. The Commissioner (Appeals) held that the relief due to the assessee cannot be pro rata reduced for the period of commercial production and the assessee was entitled to full tax rebate for that year. He accordingly directed the ITO to recompute the relief at 7 1/2 per cent. of the capital employed by the assessee. The Revenue took up the matter in appeal to the Tribunal. The Tribunal agreed with the view taken by the Commissioner (Appeals) by following the judgment of the Madras High Court in COMMISSIONER OF Income Tax, TAMIL NADU-I Vs. SIMPSON AND COMPANY., (1980) 122 ITR 283 Mad. The Tribunal, however, referred the aforesaid question for the opinion of this court.

3. Section 80J of the I.T. Act gives relief by way of tax rebate to new industrial undertakings or ships or hotel business in some cases. It provides for a deduction to be allowed; such deduction is possible only when the amount to be deducted has been included in the gross total income. The deduction is to be allowed out of the profits and gains derived from the undertakings, or hotel, or ship as reduced by the deductions, if any, allowed under s. 80HH or s. 80HHA of the Act in respect of the new industrial undertaking and hotel established in backward areas, etc. The said profits and gains must have been included in the assessee's gross total income. The amount to be deducted shall be equal to the said profits and gains not exceeding 6% or 7 1/2 per cent. per annum of the capital employed, as the case may be.

4. The answer to the question lies in a narrow compass and it turns on the meaning to be given to the rate "6% or 71/2 per cent. per annum", in s. 80J. Does it mean that the relief should be pro rata the period of working of the undertaking or should it be for the full year in which the capital was employed, though production was only for a couple of months or couple of days ? Mr. Srinivasan, urged for the former view. Whereas Mr. Sarangan, counsel for the assessee, contended for the latter. Mr. Sarangan submitted that what is relevant to get relief under s. 80J is the employment of the capital and the date of production and if both these conditions are satisfied, then the assessee would be entitled to the relief at the said rate for the first full years, no matter when the production commenced in that year.

5. It seems to us that the contention urged by Sri Sarangan is well founded and must be accepted as correct. Everyone is familiar with the terms per diem, per mensem and per annum. They area indicative of the period for which the rate is prescribed and do not necessarily imply that there shall be pro-rating. Pro-rating depends upon the context in which such terms are used. The relief at the rate of 6% or 71/2 per cent. per annum provided under s. 80J is in the nature of incentive extended to the assessee who has established a new industrial undertaking. That incentive is a available for a full period of 5 years, inclusive of the year in which manufacturing operations started. The relief, no doubt, depends upon the commencement of production. But also on the capital employed. Therefore, there shall be no pro