TMI Blog1978 (1) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ? " The facts necessary for answering the questions referred to us are these: In this reference, we are concerned only with the assessment year 1969-70. The assessee is a public limited company carrying on business of manufacturing pharmaceuticals in Hyderabad. For purposes of computing the capital under r. 19A(2) and determining the relief under s. 80J of the I.T. Act, 1961 (hereinafter referred to as " the Act "), the assessee claimed that certain liabilities, which are due but not payable, should be deducted for arriving at the figure of capital employed. Against the figure of total credits of Rs. 26,010, the assessee claimed that the liability to the extent of Rs.6,28,028 should not be taken as liability, as the same is not due and payable as on December 31, 1967, i.e., at the end of the previous year. The ITO did not agree with this plea and took the total figure as liability since, in his view, the proper date to be taken into account to determine the question whether the amount is due or not is not the closing date of the previous year but the first day of the computation period according to r. 19A(2). The AAC did not agree with the view of the ITO and upheld the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rama Rao, the learned counsel appearing for the revenue, contended that the Tribunal was in error in holding that the ITO has to take into account only the borrowed moneys and debts, which are due and payable as on January 1, 1968, for making deductions under sub-r. (3) of r. 19A, but not all amounts which the assessee owed as per the figures available from the balance-sheet. The Tribunal came to this conclusion on the basis of the decision of the Tribunal, Bombay Bench " E". The contention of Mr. P. R. Ramachandra Rao, the learned counsel for the assessee, are these: (1) The expression used in r. 19A(3), prior to the amendment of the said rule in 1972, is " debts due " and not " debts owed " by the assessee and in view of the amendment made by the legislature, the view expressed by the Supreme Court in Kesoram Industries Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 is not applicable; (2) r. 19A(3) cannot override, abridge or take away the benefit conferred by s. 80J of the Act and, as such, r. 19A(3) is ultra vires; and that the rule must yield to the statutory provision. Mr. Rama Rao, the learned counsel appearing for the revenue, submitted that it is not open to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference, can go into the challenge that the rule is ultra vires. The learned counsel relied upon the decision of the Jammu Kashmir High Court in CIT v. Shri Krishen Chand Charitable Trust [1975] 98 ITR 387, to which reference has also been made by Palkhivala in his Law and Practice of Income-tax, Vol. I, 7th Edn., at page 1156. No doubt, the learned judges there have stated that the scope of the section, which provides for exemption, was restricted by the rule and that the exemption granted by that section cannot be taken away by the rule. It is true that that was also a case of reference under the Act ; but it does not appear that the attention of the learned judges was invited to the decisions of the Supreme Court in K. S. Venkataraman Co. (P.) Ltd. v. State of Madras [1966] 60 ITR 112, C. T. Senthilnathan Chettiar v. State of Madras [1968] 67 ITR 102 and Kanpur Vanaspati Stores v. CST [1973] 32 STC 655. Mr. Ramachandra Rao, in this connection, invited our attention to the decisions in Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 (SC), CIT v. Sardar Lakhmir Singh [1963] 49 ITR 70 (SC), Punjab Distilling Industries Ltd. v. CIT [1965] 57 ITR 1 (SC), A. H. Wadia v. CIT [1949 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot question the vires of that statute or any of the provisions thereof whereunder it functions. It must act under the Act and not outside it. If it acts on the basis of a provision of the statute, which is ultra vires, to that extent it would be acting outside the Act. In that event, a suit to question the validity of such an order made outside the Act would certainly lie in a civil court." This view was endorsed in the subsequent decision of the Supreme Court in C. T. Senthilnathan Chettiar v. State of Madras [1968] 67 ITR 102. In that case, the appellant was not allowed to question the vires of s. 9(1) of the Madras Agrl. I.T. Act, 1955, since the question could not be raised before the agricultural income-tax authorities and neither the High Court nor the Supreme Court could go into that question in a revision or reference from the decision of those authorities. In Kanpur Vanaspati Stores v. CST [1973] 32 STC 655, the Supreme Court, following the earlier cases, reiterated the legal position thus : " Further, it is now well settled by the decision of this court that no one can challenge the validity of a provision of an Act or rule made there-under or even a notification issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as required by the rules and not " debts owed " by the assessee. The controversy before the AAC and before the Tribunal was over the interpretation to be given to the words " debts owed by the assessee ". It was only the interpretation of the rule that was in issue and decided by the AAC and the Tribunal. The question that r. 19A(3) should be ignored and that, for purposes of entitling the assessee to the benefit of deduction, only s. 80J should be taken into consideration was never raised. This court cannot permit the assessee to raise a new question or a new plea which has not been referred and which is not connected with the questions referred to us. In R. C. No. 18 of 1976 decided on 27th September, 1977 [Addl. CIT v. G. M. Omarkhan [1979] 116 ITR 950 (AP)], after referring to the relevant provisions of the Act, a Bench of this court, of which one of us (Obul Reddi C.J.) was a member, expressed the opinion that it is not open to an assessee or the Commissioner to move this court under s. 256(2) unless there was an application in the first instance under sub-s. (1) of s. 256 and the Tribunal had failed to make a complete statement of the case and draw up the question of law whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before it. Section 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. Sub-r. (1) of the said rule lays down that the capital employed in an industrial undertaking or the business of a hotel shall be computed in accordance with sub-rr. (2) to (4). Sub-r. (2) only speaks of the aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking or of the business of the hotel and also provides for the mode of ascertainment of the capital employed. Sub-r. (3), with which we are now concerned, says that from the aggregate of the amounts as ascertained under sub-r. (2), the borrowed moneys and debts owed by the assessee as on the first day of the computation period shall be deducted. According to Mr. Ramachandra Rao, the words " debts owed by the assessee " should mean the debts due and payable as on the first day of the computation period. It is not in dispute that, in this case, the first day of the computation period is January 1, 1968. We do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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