TMI Blog1996 (10) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ether, on the facts and in the circumstances of the case, the value of work-in-progress should be included in the computation of capital for the purpose of relief under section 80J of the Income-tax Act, 1961 ?" The assessee is a private limited company engaged in the business of manufacture of chemicals. The assessee claimed deduction under section 80J. As regards the value of capital work in progress, although there was a claim relating to expenditure pending capitalisation, the said claim has been rejected by the Tribunal rendering the situation to that effect a finality. The Income-tax Officer excluded the claim. The reason according to him was that the claim was not relatable to any tangible asset of the business as on the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeded in the context to note that the moment the raw material is purchased and the activity of recruiting and training of labour took place, it can be said that the business has commenced even though the first commercial production has taken place at a later stage. In the context of the situation the contention of the Revenue has been dismissed by the Tribunal as of no substance in view of the above decision of this court in the case of Periyar Chemicals Ltd.'s case [1986] 162 ITR 163 as a binding decision in regard to the situation. Therefore, learned senior tax counsel had to circumscribe his submissions to come out of the rigour of the above decision of this court. As stated in the statement of case itself, it was brought to our not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner: . (ii) in the case of assets acquired otherwise than by purchase and not entitled to depreciation, the value of the assets when they became assets of the business ; " It is submitted by him that it is necessary to appreciate that the capital assets acquired otherwise than by a purchase and not entitled to depreciation would have to be understood in terms of the value thereof in the context of time as to when they could be properly understood to have become assets of the business. Learned senior tax counsel submitted that the capital employed in the context will have to be computed in accordance with clauses (II) to (IV) of sub-section (1A) of section 80J of the Act and the emphasis in regard thereto would have to be appreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el submits that the user is the most important aspect in regard to the question of a claim for depreciation. In understanding the statutory phrase under consideration, the situation as to when the concerned asset became the asset of the business would also be required to be considered meaningfully because these claims are in the nature of exemptions and are required to be understood and applied in that sense of the situation. Learned counsel submitted that the word " use " is to be found in section 32 in the context of a claim for depreciation. He submitted that the situations such as depreciation and deduction are in the nature of benefits offered to the assessee under the relevant statutory provisions and a strict and principled approach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said clause would govern the situation. Therefore, the language of the clause under consideration also additionally goes to support the view taken by this court earlier. The question as taken up for consideration by this court in Periyar Chemicals Ltd.'s case [1986] 162 ITR 163 is available in question No. 3 before it and it is as follows : " Whether, on the facts and circumstances of the case, Rs. 5,59,689, being the value of the work-in-progress should be excluded in the computation of the capital employed for the purpose of determining the amount of deduction allowable under section 80J of the Income-tax Act, 1961, for the assessment year under consideration ? " The said question is taken up for discussion at pages 168 to 169 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same view. Referring to a decision of the House of Lords in Birmingham Small Arms Co. Ltd. v. IRC [1951] 2 All ER 296 (HL), referred to by the Calcutta High Court, especially Lord Tucker, to, the effect that the words " capital employed " point to the conclusion that in their context they do not refer to the actual use made of a particular asset in the relevant accounting period once it is shown to have been a form of capital put into the business and still there. Going through the reasoning of this court in Periyar Chemicals Ltd.'s case [1986] 162 ITR 163, it would not be possible to say that the aspect was not present to the mind of this court when it decided Periyar Chemicals Ltd.'s case [1986] 162 ITR 163 (Ker). The decision is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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