Rajasthan H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that relief under s. 80J of the IT Act, 1961, is allowable to the assessee on borrowed capital ?

Counsel Appeared

B.R. Arora, for the Revenue : Rajesh Balia, for the Assessee

S.S. BYAS, J.:

The Tribunal, Jaipur Bench, Jaipur, has referred the following question of law to this Court for adjudication : ” Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that relief under s. 80J of the IT Act, 1961, is allowable to the assessee on borrowed capital ? “

The assessee, Lodha Enterprises, jodhpur, is a duly registered partnership firm dealing in the business of manufacture and sale of iron bars (round and flat). The assessment year is 1977-78. In the return filed by the assessee for the aforesaid year, it claimed a sum of Rs. 51,733 as deduction under s. 80J of the IT Act, 1961 (hereinafter to be referred to as “the Act”). The ITO disallowed the deduction of the aforesaid amount. The assessee went up in appeal. In the appeal, the CIT (Appeals), by his order dated March 7, 1979, directed the ITO to allow relief under s. 80J. In doing so, he followed the view taken by the Calcutta High Court in Century Enka Ltd. vs. ITO 1976 CTR (Cal) 433 : (1977) 107 ITR 909 (Cal) and Madras Industrial Linings Ltd. vs. ITO 1978 CTR (Mad) 45 : (1977) 110 ITR 256 (Mad). The Revenue went in appeal before the Tribunal. The appeal was dismissed and the view taken by the CIT (Appeals) was upheld. The CIT thereafter moved an application to the Tribunal to make the reference. The Tribunal thereafter has made this reference.

We have heard Mr. B. R. Arora, for the Revenue, and Mr. Rajesh Balia, for the assessee. It was argued by Mr. Arora, learned counsel for the Revenue, that the view taken by the Calcutta and Madras High Courts in the decisions referred to above, has been overruled by their Lordships of the Supreme Court in Lohia Machines Ltd. vs. Union of India (1985) 44 CTR (SC) 328 : (1985) 152 ITR 308 (SC). As such, the orders of the CIT (Appeals) as well as of the Tribunal deserve to be set aside. Mr. Balia, learned counsel for the assessee, with all fairness, conceded that in view of the law laid down in the case of Lohia Machines Ltd. (supra), he has nothing to say. Suffice it to say that the view taken in the cases of Century Enka Ltd., Madras Industrial Linings Ltd. and other like cases, by the Calcutta, Madras, Allahabad, Punjab and Haryana and Andhra Pradesh High Courts has been overruled and the view expressed by the Madhya Pradesh High Court in CIT vs. Anand Bahri Steel and Wire Products (1981) 121 CTR MP) 166 : (1982) 133 ITR 365 (MP) and CIT vs. K. N. Oil Industries (1982) 26 CTR (MP) 169 : (1982) 134 ITR 651 was approved by their Lordships of the. Supreme Court in the case of Lohia Machines Ltd. (supra). It would be useful to reproduce the following passage of the judgment rendered in the case of Lohia Machines Ltd. (headnote) : ” (i) In so far as it provided for the exclusion of borrowed monies and debts and particularly long-term borrowings in the computation of the ‘capital employed’ by a new industrial undertaking for the purposes of the tax exemption could not be said to be outside the rule-making authority conferred on the Central Board under s. 80J(1) of the IT Act, 1961, and was a perfectly valid piece of subordinate legislation; (ii) that r. 19A, in so far as it provided for computation of the ‘capital employed’ as on the first day of the computation period, was within the rule-making authority of the Central Board under s. 80J (1); (iii) that, since r. 19A did not suffer from any infirmity and was valid in its entirety, the Finance (No. 2) Act, 1980, in so far as it amended s. 80J, by incorporating the provisions of r. 19A, as subs. (1A) in s. 80J, with retrospective effect from April 1, 1972, was merely clarificatory in nature and was, accordingly, valid.”

The Tribunal was thus not justified and correct in holding that deduction under s. 80J of the IT Act, 1961, is allowable to the assessee on the entire amount claimed to be the ” capital invested ” by the assessee in its industrial undertaking including borrowed capital, ignoring the provisions of r. 19A of the IT Rules, 1962.

The reference is answered in the negative, that is, against the assessee and in favour of the Revenue. Parties will bear their own costs of this Court.

[Citation : 170 ITR 107]