TMI Blog1979 (12) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... day of the computation period, but, should be as capital employed during the relevant previous year, as claimed by the assessee-company. This being a legal plea was permitted to be taken by the Tribunal. 4. In the case of M/s. R.S. Metal Industries, Jaipur in respect of asst. yr. 1973-74 (IT No. 1234/JP/1977-78), the assessee-company claimed total value of the assets amounting to Rs. 32,61,803 and it was claimed that the said amount be considered for the purpose of computation of capital, without deducting any sum by way of liabilities. On this basis, the assessee claimed deduction of Rs. 1,95,708 @ 6 per cent of the total value of the assets, employed in the undertaking. The ld. ITO held that the liabilities are to be deducted for the purpose of computation of capital. The ld. ITO worked out the capital employed at Rs. 5,06,570 on the basis of r. 19A of the IT Rules, 1962, and allowed deduction @ 6 per cent in the sum of Rs. 30,390 as against Rs. 1,95,708, claimed by the assessee-company. 5. In respect of asst. yr. 1974-75 (IT No. 843/JP/1978-79), it was claimed that the capital employed in the industrial undertaking was a sum of Rs. 45,63,203, which was the sum total of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and, as such, it would also qualify for rebate under s. 80J of the Act. The ld. ITO was of the view that deduction can be allowed on the basis of the capital as on the first day of the computation period. 13. The assessee took up the matter in appeal. The ld. AAC, after considering the contentions of the assessee, and the decision in the cases of Madras Industrial Linings Limited vs. ITO(1) Century Enka Limited vs. ITO(2) and Kota Box Manufacturing Co. vs. ITO(3) and also the decision of the Tribunal dt. 27th Dec., 1977 given in the case of M/s. Shree Bhagpatia Food Industries Bharatpur(4), held that the borrowed capital will also qualify for rebate under s. 80J of the Act. The ld. AAC also held that the ITO would calculate the average capital by taking the average of capital as on the first day of the computation period, and as on the last day of the computation period. 14. Against that order of the AAC the Department is in appeal before the Tribunal. 15. In the asst. yr. 1977-78 (ITA No. 1474/JP/1979), the assessee-company claimed deduction under s. 80J of the Act at Rs. 51,917. The contention of the assessee was the same which was before the ITO in respect of the asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on the entire capital of the assessee, including the borrowed capital employed in the industrial undertaking. 22. Against the orders of the AAC the Department is in appeals before the Tribunal. 23. Shri Shanti Swaroop Goyal, Agra, in respect of asst. yr. 1973-74 (ITA No. 986/Jp/1978-79), claimed relief under s. 80J of the Act at Rs. 58,321. In claiming the relief, the borrowed capital was also taken into consideration. The ld. ITO was of the view that in view of r. 19A(3) of the IT Rules, 1962, the borrowed capital in the industrial undertaking, except to the extent indicated in the Rules, cannot be taken into consideration, in computing the capital employed for the purpose of granting relief under s. 80J of the Act. According to him, s. 80J of the Act provides that the capital employed must be out of the money belonging to the assessee. 24. The assessee took up the matter in appeal. According to the ld. counsel for the assessee, while granting relief under s. 80J of the Act, capital employed in the industrial undertaking shall be taken into consideration. Reliance was placed on all the decisions referred to above, in preceding paragraphs. 25. The ld. AAC after hearing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected the ITO to recompute the capital employed in the new industrial undertaking, after taking into consideration the borrowed moneys in the computation of the capital employed, and allow the relief under s. 80J of the Act @ 6 per cent on such capital employed. 33. Against this order of the AAC the Department is in appeal before the Tribunal. 34. In the case of Shri B.L. Muraka, in respect of asst. yr. 1975-76 (ITA No. 120/Jp/1979), the claim of the assessee under s. 80J of the Act was for Rs.54,280, but, the ld. ITO allowed the claim at Rs. 23,180 only. According to the ld. ITO the capital employed in the industrial undertaking cannot be taken into consideration, while computing the rebate under s. 80J of the Act. 35. The assessee took up the matter in appeal. The ld. AAC, after considering the contention of the assessee, and the evidence on record, held that the borrowed money would also form part of the capital employed in the industrial undertaking, and, as such, the assessee will be entitled to rebate under s. 80J of the Act at Rs. 54,280. 36. Against this order, the Department is in appeal before the Tribunal. 37. In the case of M/s. Moti Starch Factory, M. Kishan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, it was submitted, on behalf of the assessees, that the said finding of the Special Bench may be followed by the Tribunal on behalf of the assessee that the said finding of the special Bench may be followed by the Tribunal on behalf of the assessee decisions in the cases of Century Enka Limited (2), Madras Industrial Linings Limited (1) and Kota Box Manufacturing Co.(3) were also relied. According to the ld. Counsels for the assessees, in the said decisions, it was held that there is conflict between the s. 80J on the one hand and r. 19A(3) on the other hand. In those decisions, it was also held that r. 19A(3) is against the provisions of s. 80J of the Act, and, as such, while computing relief under s. 80J of the Act, r. 19A(3) of the IT Rules, 1962, will have to be ignored. It was further submitted that against the aforesaid three decisions, there is no contrary decision of any other High Court, and, as such, the Tribunal is under obligation to follow the said decisions. In support of this contention, reliance was placed on the decision in the case of CIT, Vidharbha vs. Smt. Godavaridevi Saraf (6). In the said decision, it was held that until a contrary decision is given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the legislature to be given the same meaning as are ordinarily given to this expression in the commercial, industrial and the accounting world, the legislature would not have qualified the expression on capital employed on by the further expression "computed in the prescribed manner." In providing in the s. 80J that the deduction to be allowed under the section is to be calculated at the given rate on the capital employed computed in the prescribed manner, clearly the legislature did not intend to allow deduction calculated at the given rate on the capital employed as understood and computed in the ordinary manner followed by the commercial, industrial or the accounting world. If there is one and only one method of computing capital employed in an industrial undertaking as followed in the industrial and the accounting world, the Legislative intention underlying the provision made in s. 80J requiring computation of the capital employed in the prescribed manner clearly is not to compute the capital employed in the industrial undertaking for the purpose of s. 80J in the manner ordinarily followed in the industrial and accounting world for the computation of capital employed in a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. According to the ld. Deptl. Representative, s. 80J provides for allowing deductions on the capital employed in an industrial undertaking. The computation of the capital employed in the industrial undertaking has to be made in accordance with and in the manner prescribed in r. 19A of the IT Rules, 1962. Thus, it was contended that the finding of the ld. AAC to the contrary, is wrong. 46. We have heard the parties, and perused the entire evidence on record. Now, we would like to elaborate the contentions of the parties in detail. 47. So, the first point for determination is whether there is any conflict in s. 80J, and the r. 19A(3) of the IT Rules, 1962, or not. This point was directly in issue before the Special Bench of the ITAT, Bombay, in the case of M/s Amar Dye-Chem Limited(s). The Special Bench, after considering all the points and contentions of the parties, gave finding that there is conflict between the two. The Special Bench also held that r. 19A(3) of the IT Rules, 1962, is repugnant to s. 80J of the Act. We adopt all the reasons given by the Special Bench, and agree with the said finding. 48. We may also point out that the Special Bench also placed reliance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Smt. Godavaridevi Saraf. In view of the observations made by the Hon'ble High Court, the Tribunal is under obligation to follow the said decision. 51. The other contention of the Revenue was that there is contrary decision of Andhra Pradesh High Court in the case of Warner Hindustan Ltd. And, as such, the ratio of the decision of the Bombay High Court in the case of Smt. Godavaridevi Saraf is not to be applied. 52. This contention of the Revenue is also not correct. In the decision Warner Hindustan Ltd, there was no finding that there was no conflict between the s. 80J and r. 19A(3). As a matter of fact, this issue was not involved before the High Court. In the High Court, on behalf of the assessee, attempt was made to raise the plea that there is conflict between the s. 80J and r. 19A(3), but the Hon'ble High Court did not permit the assessee to take this plea. It means that in the said decision, before the Hon'ble High Court, there was no controversy whether there was any conflict between the s. 80J and the r. 19A(3). So, the said decision is not an authority on this point. 53. In the decision, Mahendra Mills Ltd. vs. P.B. Desai, AAC anr. the Hon'ble Supreme Court ruled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial Bench only followed the decisions of the Hon'ble Calcutta, Madras and Allahabad High Courts, in the aforesaid decisions. In the said three decisions it was held that there is conflict between s. 80J and r. 19A, in respect of the use of the words "capital employed and its computation". In view of the decision in the case of Smt. Godavaridevi Saraf the Special Bench held that there is conflict between the s. 80J and r. 19A. We are also not saying that r. 19 A(3) is, in any way ultra vires of the Constitution. In view of the aforesaid discussion, it is held that there is conflict between s. 80J and r. 19A(3). So, this contention of the Revenue is not correct. 57. The other contention of the Revenue was that the capital employed in the industrial undertakings, by the assessee, are the funds, resources, or the properties employed by the assessees in the undertakings, which belonged to them. It was further contended that the borrowed capital employed cannot be taken into consideration for granting rebate under s. 80J of the Act, r/w r. 19A of the IT Rules, 1962. The ld. Deptl. Representative, mainly, relied on his written note. It was also contended that the legislature never in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g deduction for the capital employed in the new industrial undertakings was a socio-economic measure. If no deductions in respect of borrowed capital are to be allowed, there will be lesser number of the new industrial undertakings set up as all entrepreneurs may not have sufficient cash. The object of the provision of s. 80J will not be fulfilled if a restricted meaning is given to the words "capital employed in the new industrial undertaking" to mean the own capital of the assessee. So, in view of the decision in the case of Smt. Godavaridevi Saraf(6), it has to be held that for granting relief under s. 80J of the Act, the total value of the assets of the new industrial undertaking shall be taken as the capital employed for the purpose of computing relief, without deducting any sum by way of liabilities. 60. The other main contention of the Revenue is that s. 80J of the Act, in terms, provides for allowing the deduction in the amount calculated at the given rate on the capital employed, "computed in the prescribed manner", i.e. in the manner prescribed by Rules made under this Act. According to the Revenue, the power to make Rules under the Act rests only with the Central Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the total value of assessee's assets or the new industrial undertaking should be taken as capital employed for the purpose of computing relief under s. 80J without deducting any sum by way of liabilities, is not tantamount to its assuming a power to make rules which power actually lies with the Central Board of Direct Taxes. The effect of the finding of the Tribunal is that the particular Rule being repungnant and inconsistent with the s. 80J, it has to be proceeded as if there is no Rule for the purpose of the s. 80J Act. 62. In our opinion, the contention of the Revenue has no substance at all. There is no dispute that the Central Board Direct taxes has the authority to frame the rules under the Act. It is settled by now that the Rules, to framed cannot go against the provisions of the section itself. The Special Bench of the Tribunal in the case of M/s Amar DyeChem Ltd.(5) and the Hon'ble Calcutta, Madras and Allahabad High Courts, have held that r. 19A(3) of the IT Rules, 1962, providing for computation of the capital employed in an industrial undertaking for the purpose of s. 80J of the IT Act, 1961, in so far as it directs that for the purpose of computation of capital em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the relief under s. 80J of the Act. The manner of granting the relief under s. 80J has been laid down in the decision Century Enka Limited(2). Accordingly, it is held that the relief under s. 80J of the Act shall be computed in accordance with the other part of the r.19A, and also in accordance with the observations made by us, in our order. It is further held that r. 19A(3), in so far as, it directs the exclusion of the borrowed capital from the assets, is repugnant to s. 80J and, as such will have to be ignored. Similarly r. 19A(2), in so far as it directs that the capital employed on the first day of the computation period should be taken as the basis, is against the provisions of s. 80J, and as such, it is in consistent with the said section, and, as such, will have to be ignored. Other parts of the r. 19A are very much there. And, while computing the relief under s. 80J, the ld. ITO shall take into account other part of the r. 19A for giving the relief under s. 80J of the Act. 66. In appeal Nos. 1455, 1456 and 843, in the grounds of appeal, there are one or two grounds more, but, they were not argued before the Tribunal. It means, they were not pressed by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
