Rajasthan H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the order of the AAC that capital employed in the assessee’s industrial undertaking should be computed without deducting the amount of liabilities ?

Counsel Appeared

V.K. Singhal & S.L. Sharma, for the Revenue : N.M. Ranka, J.K. Singhi, J.K. Ranka & A.K. Mahamwal, for the Assessee

BY THE COURT :

This reference under s. 256(1) of the IT Act, 1961, at the instance of the Revenue is to answer the following questions of law, namely:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the order of the AAC that capital employed in the assessee’s industrial undertaking should be computed without deducting the amount of liabilities ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the order of the AAC that the relief under s. 80J should be allowed for the full year although the factory ran for three months only ?”

2. The relevant assessment year is 1971-72. For this period, the assessee claimed deduction at the rate of 6 per cent on Rs. 17,65,121 under s. 80J of the IT Act, 1961. The ITO however, allowed rebate only on the amount of Rs. 3,04,780. The ITO took the view that relief under s. 80J of the IT Act, 1961, should be allowed without deducting the liabilities or the amount of subsidy from the capital employed in the business of the new industrial undertaking. Aggrieved by the ITO’s view, the assessee preferred an appeal to the AAC. The AAC accepted the assessee’s contention and held that full relief should be given under s. 80J of the Act on Rs. 17,65,121. The Tribunal has affirmed this view. It has also been held that even though the factory ran for three months only during that period, the deduction to be allowed under s. 80J must be for the full year.

Learned counsel for the Revenue contended that the above-quoted first question is concluded in favour of the Revenue by the decision of the Supreme Court in Lohia Machines Ltd. vs. Union of India (1985) 44 CTR (SC) 328 : (1985) 152 ITR 308 (SC) : TC25R.910. Learned counsel stated, in respect of the second question, that the reported decisions are all in the assessee’s favour and the CBDT has also issued a Circular, dt. 3rd March, 1984, accepting this view. In reply, learned counsel for the assessee contended that the first question is only partly covered by the Supreme Court decision in Lohia Machines Ltd. vs. Union of India (supra), but in respect of a sum of Rs. 6,08,147 out of the total of Rs. 17,65,121, the point is not concluded in favour of the Revenue by that decision.

We shall first take up the abovequoted second question which can be disposed of at the threshhold since it does not require any detailed consideration. The High Courts of Bombay, Calcutta, Gujarat, Kerala, Karnataka, Madhya Pradesh and Madras in several decisions have taken the consistent view that relief under s. 80J should be allowed for the full year, even though the new industrial undertaking ran only for a portion thereof. These decisions are CIT vs. Godrej Soaps Ltd. (1987) 63 CTR (Bom) 114 : (1988) 169 ITR 537 (Bom) : TC25R.902, CIT vs. Oyster Packagers (P) Ltd. (1986) 53 CTR (Cal) 427 : (1985) 152 ITR 471 (Cal) : TC25R.873, CIT vs. Sarabhai Sons Ltd. (1983) 33 CTR (Guj) 268 : (1983) 143 ITR 473 (Guj) : TC25R.862, CIT vs. Protein Products Ltd. (1987) 64 CTR (Ker) 159 : (1987) 167 ITR 157 (Ker) : TC25R.871, CIT vs. Mysore Petro-Chemical Ltd. (1984) 39 CT (Kar) 177 : (1984) 145 ITR 416 (Kar) : TC25R.863, CIT vs. Sanghi Beverages (P) Ltd. (1982) 134 ITR 623 (MP) : TC25R.860, CIT vs. Sanghi Bros. Ltd. (1988) 169 ITR 220 (MP) : TC25R.862, CIT vs. Simpson & Co. (1980) 122 ITR 283 (Mad) : TC25R.856 and Rockweld Electrodes (India) Ltd. vs. CIT (1987) 63 CTR (Mad) 364 : (1986) 158 ITR 819 (Mad) : TC25R.881. It may also be mentioned that a special leave petition against a decision of the Madras High Court following its earlier decision in Simpson and Co.’s case (supra) was rejected by the Supreme Court, which indicates that the Supreme Court has also approved this view. Mention of this fact is found at page 12 of the Statutes section of (1985) 151 ITR. We may also add that Circular No. 378, dt.

3rd March, 1984, reproduced at page 1 of the Statutes section of (1984) 149 ITR and page 77 of (1984) 41 CTR TLT expressly says, following the view taken in this Madras decision and by the Karnataka High Court, that the deduction under s. 80J should not be reduced proportionately with reference to the period for which the business of the undertaking, etc., was not carried on during the relevant previous year. It is, therefore, clear that the Tribunal’s view or, the above quoted question No. 2 being the same, it must be upheld.

5. We shall now consider the argument of learned counsel for the assessee in respect of the above-quoted question No. 1. Admittedly, the Supreme Court in Lohia Machines Ltd. vs. Union of India (supra), upheld the validity of r. 19A of the IT Rules, 1962, in its entirety in relation to s. 80J of the Act and, therefore, the Tribunal’s view contrary to it cannot be upheld. The only question is whether the deduction has to be made in respect of the amount of Rs. 6,08,147 as claimed by learned counsel for the assessee. His argument is that, according to r. 19A(3)(b) as it applied during the asst. yr. 1971-72, the assessee is entitled to relief to the extent of Rs. 6,08,147 under s. 80J of the Act, the same being borrowed from the National Small Scale Industries Ltd. The question is whether this contention can be accepted. There are two conditions which must be satisfied before the assessee can get the benefit of r. 19A(3)(b) as it then existed. These conditions are: (i) that the money should have been borrowed from an “approved source” for the creation of a capital asset in India, and (ii) the agreement should provide for repayment thereof during a period of not less than seven years. For the purpose of this sub-rule, “approved source” is to be understood as defined in the Explanation given thereunder. Even assuming that the “National Small Scale Industries Corporation Ltd.” can fall within the meaning of “approved source” as contemplated by cl. (b), the further condition to be satisfied in respect of this amount is that according to the agreement, repayment thereof should have been made during a period of not less than seven years. It has not been shown to us by learned counsel for the assessee that such an argument was considered by the AAC or the Tribunal so that the requisite foundation on facts is present for the same. However, it has been shown to us that in the assessment order of the ITO dt. 20th Oct., 1975, annexure-A, this aspect was considered and a clear finding was recorded that this provision did not apply because the agreement provides the period of repayment as less than seven years. Apparently, this finding by the ITO was not assailed before the AAC or the Tribunal. The facts which are necessary to provide a foundation for the arguments of learned counsel for the assessee are, therefore, not only non-existent but, on the contrary, the finding in that behalf is to the contrary. There is thus no basis to hold that the assessee is entitled to relief in respect of the sum of Rs. 6,08,147 even according to the Supreme Court decision in Lohia Machines Ltd. vs. Union of India (supra). It follows that the Tribunal’s view in respect of the entire abovequoted question No. 1 in the assessee’s favour cannot be upheld, being contrary to the aforesaid Supreme Court decision.

6. Consequently, the reference is answered as follows: Answer to question No. 1 is that the Tribunal was not justified in upholding the order of the AAC by taking the view in assessee’s favour and against the Revenue. Answer to question No. 2 is that the Tribunal’s view in assessee’s favour is justified.

No costs.

[Citation : 174 ITR 357]