The main legal point established in the judgment is that the computation of profits and gains from an industrial undertaking for the purpose of deductions under section 80J should be based on commercial profits and not restricted by separate treatment of assets or units.

K. Shivashanker Bhat, J.—The question referred for our consideration under section 256(1) of the Income Tax Act, 1961, respect of the assessment year 1979-80 read thus :

"1. Whether, on the fact and in the circumstances of the case, the Appellate tribunal is right in law in upholding the order of the Commissioner of Income Tax (Appeals) who directed the Inspecting Assistant Commissioner to allow depreciation on value of roads, wall and fences ?

2. Whether, on the fact and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income Tax (Appeals) who directed the Inspecting Assistant Commissioner to include the value of work-in-progress, machinery and equipment in transit and under erection in the computation of capital for the purpose of calculating relief under section 80J ?

3. Whether, on the fact in circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income Tax (Appeals) who directed the Inspecting Assistant Commissioner to allow deduction under section 35 of the capital as represented by work in-progress and machinery in transit and under erection in the assessee's research division ? and

4. Whether, on the fact and in the circumstance's of the case, the Appellate Tribunal is right is law in upholding the order or the Commissioner of Income Tax (Appeals) who directed the Inspecting Assistant Commissioner to allow exemption under section 80J on commercial profits ?"

2. There is no dispute that the first three question are now covered against the Revenue.

3. The first question is practically self-contained about the fact. This court in Commissioner of Income Tax Vs. Bangalore Turf Club Limited, (1984) 150 ITR 23 KAR has held that the assessee is entitled to depreciation on the value of roads, etc. Recently, the Supreme Court has also expressed the same view by pointing out that a building cannot be confined to a structure having walls and roof over it. Roads within the factory premises are to be regarded as part of its buildings (vide Commissioner of Income Tax, Bombay Vs. Gwalior Rayon Silk Manufacturing Co. Ltd., AIR 1992 SC 1782 The first question is accordingly answered in the affirmative and against the Revenue.

4. Questions Nos. 2 and 3 also contain the basic facts. Under similar circumstances, the claim of the assessee was upheld by this court in Ravi Machine Tools (P.) Ltd. Vs. Commissioner of Income Tax, ILR (1978) KAR 1527 Following the aforesaid decision questions Nos. 2 and 3 are also answered in the affirmative and against the Revenue.

5. However, the fourth question requires a detailed consideration.

6. The statement of the case is bald except stating that the assessee claimed relief under section 80J based on commercial profits an not profit computed under the provision of the Income Tax Act, 1961. The order of the Appellate Tribunal, again is sketchy. The Appellate Tribunal simply states that the Commissioner (Appeals) relied upon the orders of the Appellate Tribunal for earlier assessment years on this question and, therefore the said order will have to be upheld.

7. The respective contentions of the parties could be gathered from the order of the Appellate Tribunal made in respect of the assessment year 1977-78. We are told that the Revenue accepted the said order and the present question is agitated subsequently by seeking reference when the said order was followed by the Appellate Tribunal in the instant case.

For the assessment year 1977-78 the assessee contended that the profits before deduction of depreciation and investment allowance were sufficient to cover section 80J relief and therefore, it should be granted. For example, it was pointed out that, in respect of the assessee's unit, watch factory No. 3, the net profit prior to depreciation was Rs. 62,17,831. The depreciation as charged to the profit and loss account was Rs. 36,80,690 and the net profit as per the audit