1984 (3) TMI 190 - AT - Income Tax

Advance Tax Capital Employed Computation Period Debt Owed Industrial Undertaking Profits And Gains

Summary

Issues:
1. Entertainment expenditure claim
2. Treatment of advance tax liability as debt for computing capital under section 80J

Entertainment Expenditure Claim:
The appeal by the revenue concerns two contentions arising from the Commissioner (Appeals)'s order. The first contention questions the allowance of the entire claim for entertainment expenditure. The second contention pertains to the treatment of advance tax liability as a debt owed by the assessee for computing capital under section 80J(1A)(III) of the Income-tax Act, 1961.

Treatment of Advance Tax Liability:
The case revolves around the deduction of advance tax payable by the assessee-company while computing the capital employed in a new industrial undertaking. The IAC (Assessment) deducted the advance tax amount from the aggregate value of assets under section 80J(1A). The Commissioner (Appeals) held that as the first day of the computation period was 1-7-1979, only the first instalment of advance tax would have been paid by that date, and hence, the remaining instalments did not constitute a liability or debt on the first day of the computation period. The revenue contended that the liability to pay advance tax was present and constituted a debt on the first day of the computation period, citing relevant case laws and statutory provisions. The assessee argued that as the due dates for advance tax payment were after the computation period, the liability should not be deducted while computing the capital.

Analysis:
The Tribunal analyzed the provisions of section 80J(1A)(III) and the arguments presented by both parties. It referred to the Supreme Court's decision in Assam Oil Co. Ltd.'s case, which held that an advance tax instalment payable after the valuation date would still constitute a debt on the valuation date. Despite the specific definitions in section 80J(1A)(III), the Tribunal held that the liability for advance tax accrued on the due dates falling after the computation period and should be treated as a debt for computing capital under section 80J. Therefore, the Tribunal allowed the revenue's appeal, concluding that the Commissioner (Appeals) erred in directing not to deduct the advance tax liability while computing capital for section 80J purposes.

Conclusion:
The Tribunal allowed the appeal filed by the revenue, emphasizing that the advance tax liability should be considered as a debt owed by the assessee for computing capital under section 80J. The decision was based on the interpretation of relevant statutory provisions and the precedent set by the Supreme Court in similar cases.