2003 (1) TMI 50 - HC - Income Tax

1. Whether on the facts and in the circumstances of the case and on proper interpretation of rule 19A(3) of the Income-tax Rules 1962 the Tribunal was legally correct in holding that for the purposes of deduction under section 80J the amount of borrowed moneys and debts owed by the assessee should be included in the capital employed? - 2. Whether on the facts and in the circumstances of the case and in view of the provisions of rule 19A of the Income-tax Rules 1962 the Tribunal was legally correct in holding that while computing the capital employed half of the profits earned by the unit should be added? - question No. 1 referred is answered in the negative i.e. in favour of the Department and against the assessee. - question No. 2 is answered in the negative i.e. in favour of the Department and against the assessee.

Summary

The High Court of Allahabad ruled on a reference under section 256(1) of the Income-tax Act, 1961 regarding deduction under section 80J. The court held that borrowed capital cannot be included in the capital for the purposes of section 80J. The court also clarified that rule 19(5) of the Income-tax Rules, not rule 19A, should be considered for computing capital employed. The judgment favored the Department and ruled against the assessee on both questions referred.