Delhi High Court
J.K. Synthetics Ltd. vs Cit on 10 September, 2007
Bench: M B Lokur, S Muralidhar
ORDER
The following questions of law have been referred for our opinion in respect of the assessment year 1968-89:
1. Whether, on the facts and in the circumstances of the case, theTribunal was justified in holding that by passing the impugned orderdated 1-12-1983, the Income Tax Officer was not seeking to rectify hisoriginal order and that the original order of the Income Tax Officer hadmerged with the order of the learned Commissioner of Income-tax (Appeals) and the Income Tax Officer was merely giving effect to the order of the Commissioner (Appeals)?
2. Whether, on the facts and in the circumstances of the case, theTribunal was justified in holding that the direction of the Commissionerof Income-tax (Appeals) in his order was that the Income Tax Officershould recompute the relief under Section 80J de novo and while doingso, he should take into account the borrowed capital also and that theentire subject-matter bearing on the relief under Section 80J was present before Commissioner (Appeals) for consideration?
2. The assessed expanded its industrial unit and claimed the benefit of deduction under Section 80J of the Income Tax Act, 1961 ('the Act). The assessing officer in his order dated 27-3-1972 allowed a sum of Rs. 11,96,863 as deduction under Section 80J of the Act based on the calculation which was set out in Annexure TJ thereto.
3. The calculation showed that the assessing officer had, for the purposes of computing the total capital employed for the purposes of Section 80J of the Act read with rule 19A of the Income-tax Rules, 1962, taken the value of assets as Rs. 2,27,41,730. Out of this amount, the assessing officer deducted the borrowed money and debts disclosed by the assessed in the sum of Rs. 87,92,854. The assessing officer then calculated the net capital employed which was Rs. 2,27,41,730 - Rs. 87,92,854 = Rs. 1,39,48,876.6 per cent on this which was the permissible deduction came to Rs. 8,36,963.
4. Feeling aggrieved, the assessed preferred an appeal, which was decided by the Commissioner (Appeals) ('Commissioner (Appeals)') by an order dated 13-9-1983. While deciding the appeal, the Commissioner (Appeals) was of the view that the assessing officer should recompute the relief under Section 80J of the Act by taking into account the borrowed capital also for the purposes of computation of capital.
5. In our view, what this means is that the assessing officer ought not to have deducted the borrowed money and debts of Rs. 87,92,854 from the total capital employed figure. The effect of this, according to learned Counsel for the assessed, would be that this amount of Rs. 87,92,854 should actually be included in the assets of Rs. 2,27,41,730.
6. There is no dispute about the fact that for the purpose of Section 80J of the Act, the assessed is entitled to the benefit of 6 per cent deduction on a sum of Rs. 2,27,41,730. The question that arises for our consideration is that whether the borrowed money and debts of Rs. 87,92,854 are to be added thereto for the purposes of granting deduction to the assessed under Section 80J of the Act. In our opinion, on a plain reading of the order dated 13-9-1983 passed by the Commissioner (Appeals), the assessed would be entitled to the benefit of Section 80J of the Act in respect of borrowed money and debts of Rs. 87,92,854 as well.
7. Learned Counsel for the revenue submitted that rule 19A of the Income-tax Rules, 1962 has not been correctly interpreted on the facts of this case. The relevant portion of rule 19A reads as under:
19A. Computation of capital employed in an industrial undertaking or a ship or the business of a hotel for the purposes of Section 80J.(1) For the purposes of Section 80J, the capital employed in an industrial undertaking or the business of a hotel shall be computed in accordance with Sub-rules (2) and (4), and the capital employed in a ship shall be computed in accordance with Sub-rule (5).
(3) From the aggregate of the amounts as ascertained under Sub-rule (2) shall be deducted the aggregate of the amounts, as on the first day of the computation period, of borrowed moneys and debts due by the assessed (including amounts due towards any liability in respect of tax), not being -
(a) In the case of an assessed being a company, the amount of the debentures, if any, and
(b) In the case of any assessed (including a company) any moneys borrowed from an approved source for the creation of a capital asset in India, if the agreement under which such moneys are borrowed provides for the repayment thereof during a period of not less than seven years.
8. On an examination of the orders passed we are satisfied that the Commissioner (Appeals)has interpreted rule 19A correctly and even the revenue has accepted the order of the Commissioner (Appeals) in this regard. On the basis of that interpretation, the rule requires the assessed to be given the benefit of borrowed capital for the purposes of Section 80J of the Act. The revenue having accepted this view taken by the Commissioner (Appeals), it cannot be permitted to resile there from on the basis of some grounds not urged earlier.
9. Under the circumstances, the questions referred to us are answered in the affirmative, in favor of the assessed and against the revenue.
The reference is disposed of accordingly.
