1979 (4) TMI 44 - AT - Income Tax

Summary

Issues:
1. Computation of capital employed in the industrial undertaking under section 80J(1) of the Act for the assessment year 1974-75.
2. Interpretation of rules for computation of capital employed in industrial undertaking.
3. Treatment of borrowed capital and debts owned by the assessee in the computation of capital employed.
4. Application of High Court decisions and Tribunal rulings in determining the capital employed for deduction under section 80J of the Act.

Detailed Analysis:
1. The main issue in the present appeal before the Appellate Tribunal ITAT CALCUTTA-A was the computation of capital employed in the industrial undertaking for the assessment year 1974-75 as per section 80J(1) of the Act. The dispute arose from the treatment of various assets, liabilities, and deductions claimed by the assessee firm and the Income Tax Officer's (ITO) differing computation of the capital employed.

2. The ITO did not accept the assessee-firm's computation and calculated the capital employed based on fixed assets, closing stock, debtors, bank balances, loans, and other liabilities. The ITO followed Rule 19A of the IT Rules, 1962, for the computation. The Appellate Assistant Commissioner (AAC) partially accepted the assessee's contention, reducing the capital by debts owned by the assessee but not loan liabilities. The AAC's computation was based on a High Court decision reported in 107 ITR 909.

3. The Appellate Tribunal analyzed the treatment of borrowed capital and debts owned by the assessee in the computation of capital employed. Referring to High Court decisions and Tribunal rulings, the Tribunal upheld the AAC's order, excluding borrowed capital but deducting debts owned by the assessee from the capital employed. The Tribunal held that certain liabilities, such as development rebate reserve, central sales-tax, outstanding wages, and sundry creditors, did not constitute borrowed capital and should be deducted from the capital employed.

4. The Tribunal further discussed the interpretation of rules governing the computation of capital employed in an industrial undertaking. It referenced a Special Bench ruling in the case of M/s Amar Dye Chem. Ltd., which held that total asset value should be considered as capital employed without deducting any liabilities. Based on this view, the Tribunal concluded that the entire sum representing the values of the assets should be treated as the capital employed for the purpose of deduction under section 80J of the Act.

5. In conclusion, the Tribunal set aside the AAC's computation and determined that the aggregate value of the assets should be considered as the capital employed in the industrial undertaking, entitling the assessee firm to a deduction under section 80J of the Act. The Tribunal's decision was based on the interpretation of relevant rules, High Court decisions, and Tribunal rulings regarding the computation of capital for tax relief purposes.