AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the following question of law has been referred to this court at the instance of the Commissioner :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to full relief under Section 80j of the Income-tax Act, 1961, without restricting the period during which the industrial unit had worked ?"

( 2 ) THE facts leading to the said reference are as stated hereinafter.

( 3 ) THE assessee is a company. The claim of the assessee for the assessment year 1974-75 for relief under Section 80j of the I. T. Act, 1961, was rejected by the ITO on the ground that the benefit could not be allowed as the capital computed came to nil for the relevant period. On appeal, the AAC directed the ITO to allow the relief under Section 80j. While giving effect to the order of the AAC, the ITO restricted the relief under Section 80j to the extent of l/l2th only on the ground that the new industrial unit worked only for one month during the relevant accounting year, which is the calendar year in this case. According to the ITO, the new industrial unit started production only on December 1, 1977, and was operated only for a period of one month. The AAC held that the relief contemplated under Section 80j of the Act extended over a period of five years and it would not be proper or correct to reduce capital so arrived at by a further reduction with reference to the period for which the industrial undertaking had worked. He, therefore, held that the ITO was not correct in restricting the rule of Section 80j of the Act proportionately to 1/12th of the total relief for the period during which the new industrial unit had worked. He, therefore, directed to allow full relief under Section 80j without restricting the same to the period during which the industrial unit had worked.

( 4 ) THE Department preferred an appeal to the Appellate Tribunal. The Tribunal took the view that the term ''per annum" occurring in the expression "6% per annum on the capital employed" used in Section 80j (1) of the Act meant "yearly" having regard to the scheme whereby the benefit was extended over a period of five years and that it would not be proper or correct to reduce the capital so arrived at by a further deduction by reference to the period for which the undertaking had worked. The Tribunal further observed in that case that it was apparent that by the use of the words "per annum", the intention could only be to show that the amount at 6% was the ceiling up to which the relief would be available for each of the four succeeding assessment years. The Tribunal, therefore, held that the deduction under Section 80j should be allowed on a full year basis at the rate of 6% on the capital employed in the industrial undertaking.

( 5 ) THE profits of new industrial undertakings, ships and hotels which fulfil the conditions prescribed by Section 80j are entitled to exemption from income-tax to the extent of 6% per annum on the capital employed. The question is, if the undertaking has functioned for only a part of an accounting year, the deduction should be allowed to the full extent of 6% or the percentage is to be reduced in proportion to the part of the year during which the undertaking was in production and operation. This question has to be decided in the light of the relevant provision of the Act and the objects thereof.

( 6 ) THE relevant provisions of Section 80j as it stood at the material time are as follows :"80j. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases.-- (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be

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