Commissioner Of Income-Tax vs Partap Steel Rolling Mills Pvt. ...
1994 Latest Caselaw 49 Del

JUDGMENT

D.K. Jain, J.

1. At the instance of the Revenue, the following question of law for the assessment year 1975-76 have been referred for the opinion of this court under section 256(1) of the Income-tax Act, 1961 (for short, "the Act") :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the Commissioner of Income-tax had no jurisdiction to revise under section 263 of the Income-tax Act, 1961, the order of the Income-tax Officer dated July 28, 1978, which had merged into the appellate orders of the Commissioner of Income-tax (Appeals) dated February 28, 1979, and of the Tribunal dated May 1, 1980 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the amount of Rs. 8,26,700 should not be excluded for purposes of capital employed under rule 19A of the Income-tax Rules for purposes of deduction allowable under section 80J of the Income-tax Act, 1961, for the assessment year 1975-76?"

2. While completing the assessment on the respondent/assesses for the previous year ended June 30, 1974, relevant to the assessment year 1975-76, the Income-tax Officer allowed some relief under section 80J of the Act. The assessed appealed against the relief allowed to it under the said section and claimed that it was entitled to a larger deduction under the said section by computing the capital employed in the new industrial undertaking without excluding the borrowed capital, as was down by the Income-tax Officer. The assessed's claim was accepted by the Commissioner of Income-tax (Appeals) as also by the Tribunal in further appeal by the Revenue.

3. Subsequently, the Commissioner of Income-tax, by invoking his jurisdiction under section 263 of the Act issued a notice to the assessed to show cause as to why the relief granted under section 80J of the Act be not recomputed as the relief under the said section had been wrongly allowed by the Income-tax Officer without going into the facts about the admissibility of the claim on certain assets and also whether there was any commercial production in the relevant year. The assessed objected to the proceedings initiated by the Commissioner and it was submitted that there was nothing erroneous and prejudicial to the interests of the Revenue in the order of the Income-tax Officer and further the Commissioner had no jurisdiction under section 263 of the Act to interfere with the order of the Income-tax Officer after the same had merged in the appellate order of the Commissioner (Appeals) and the Tribunal.

4. The Commissioner did not agree with the submissions made by the assessed. He found that the company had purchased some extract land for Rs. 5,89,563 adjacent to the existing land and constructed a building thereon at a cost of Rs. 2,37,137 and that these items were transferred to the building account in the previous year relevant to the assessment year 1976-77 and were also actually used in the industrial undertaking during the said assessment year. The Commissioner felt that the Income-tax Officer had wrongly computed the relief under section 80J of the Act by taking into account the entire assets including the said two new assets as being used for purposes of the industrial undertaking without making any enquiry as to whether the said land and building had in fact been put to use in the relevant assessment year. He was, therefore, of the view that the action of the Income-tax Officer in allowing relief under section 80J of the Act by including the cost of extra land and the cost of building (totalling Rs. 8,26,700) as capital employed was both erroneous and prejudicial to the interests of the Revenue. Accordingly, the Commissioner set aside the assessment and directed the Income-tax Officer to make the assessment de novo.

5. Being aggrieved, the assessed preferred an appeal to the Tribunal. The Tribunal held that the entire claim made by the assessed under section 80J of the Act being the subject-matter of appeal before the Commissioner (Appeals) and the Tribunal, the order of assessment had merged in the appellate orders and, therefore, the Commissioner had no jurisdiction under section 263 of the Act to revise the assessment already framed. On the merits, the Tribunal noticed that a similar issue had been decided by the various High Courts in Jayaram Mills Ltd. v. CEPT [1959] 35 ITR 651 (Mad); CIT v. Indian Oxygen Ltd. ; Ravi Machine Tools (P.) Ltd. v. CIT [1978] 114 ITR 459 (Kar); CIT v. Cibatul Ltd. [1978] 115 ITR 879 (Guj); CIT v. Mohan Meakin Breweries Ltd. [1980] 122 ITR 203 (HP) and CIT v. Alcock Ashdown and Co. Ltd. , wherein it was held that the moment the capital is utilised for the purpose of acquiring any asset for a business, such capital becomes employed in the business, whether the asset itself is actually used in the business or not, so far as the capital is concerned, it continues to be employed in the business. Following the said decisions, the Tribunal held that the cost of the two new assets in question should not be excluded for computing the capital employed under rule 19A of the Income-tax Rules, 1962, for the purposes of deduction allowable under section 80J of the Act. It is against this order that, at the instance of the Revenue, the Tribunal has referred to aforementioned questions.

6. We first take up question No. 2 for the sake of convenience. The short question requiring consideration is whether for the purpose of deduction under section 80J of the Act, the value of the assets under installation or work-in-progress could be included in the capital employed in the business ? In other words, whether the actual user or non-user of the asset acquired is material for the purpose of computation of relief under section 80J of the Act ?

7. On behalf of the assessed, reliance has been placed on the following decisions of various courts, in addition to the judgments relied upon by the Tribunal and referred to above, which fully support the assessed's view-point :

1. CIT v. Southern Agrifurane Industries Ltd. [1988] 174 ITR 697 (Mad);

2. CIT v. Indian Smelting and Refining Co. Ltd. ;

3. Periyar Chemicals Ltd. v. CIT [1986] 162 ITR 163 (Ker);

4. CIT v. Union Carbide India Ltd. ;

5. CIT v. Haryana Tube Mfg. Co. (P.) Ltd. [1989] 179 ITR 519 (P&H);

6. CIT v. Janak Steel Tubes (Pvt.) Ltd. [1989] 179 ITR 536 (P&H);

7. CIT v. Gopi Chand Textile Mills Ltd. [1989] 179 ITR 371 (P&H);

8. CIT v. Century Spg. and Mfg. Co. Ltd. [1990] 181 ITR 214 (Bom);

9. CIT v. Elpro International Ltd. [1989] 177 ITR 20 (Bom);

10. CIT v. Madras Wire Products [1980] 123 ITR 722 (Mad);

11. CIT v. Boehringer Knoll Ltd. ;

12. CIT v. Advani Oerlikon P. Ltd. ;

13. CIT v. Hindustan Polymers Ltd. ;

14. CIT v. Sundaram Industries Ltd. [1987] 166 ITR 35 (Mad); and

15. CIT v. South India Viscose Ltd. [1987] 163 ITR 674 (Mad).

8. We have gone through the provisions contained in section 80J of the Act the judgments relied upon by the assessed. We are in respectful agreement with the consistent view expressed by the various High Courts on the point in these judgments. No reason much less a compelling reason has been brought to our notice by learned counsel for the Revenue to persuade us to depart from the view taken by the other High Courts in the said judgments. In fact, learned counsel for the Revenue admitted that no High Court has expressed a view contrary to the one taken in the aforesaid authorities. In this view of the matter, following the said judgments, we endorse the view taken by the Tribunal that the value of the two assets in question cannot be excluded for the purposes of computing the capital employed under rule 19A for the purposes of deduction allowable under section 80J of the Act.

9. As regards the first question, learned counsel for both the parties submitted that in view of the insertion of the words "on or before or after the first day of June, 1988" by the Finance Act, 1989, with effect from June 1, 1988, to clause (a) of the Explanation to section 263, as substituted by the Finance Act, 1988, the answer to the question should be given in the negative. In view of the stand of the parties and the fact that we have answered question No. 2 in favor of the assessed, we feel that on the facts of the instant case, it is not necessary for us to go into the issue in greater detail and we leave the matter to be examined in depth in some other appropriate case.

10. In the result, question No. 1 is answered in the negative, that is, in favor of the Revenue and against the assessed and question No. 2 is answered in the affirmative, that is, in favor of the assessed and against the Revenue, with no order as to costs.