TMI Blog1978 (6) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... 19A (3) of the Income-tax Rs whittle down the effect of s. 80 J of the IT Act, 1961? For the asst. yr. 1973-74, the agitation is also regarding the confirmation of disallowance of a sum of Rs. 19,418 claimed as travelling expenses in connection with the visit of one of the Directors abroad. For the assessee, claim was also made for weightage deduction under s. 35B on the said expense of Rs. 19,418 or such part of the same which may be considered as allowable. For the asst. yr. 1974-75, the disallowance of Rs. 4, 166 out of the depreciation claim on cars is also contested. No other ground was pressed. As a matter of fact, other grounds were specifically given up and, therefore, while deciding these appeals, we shall not be referring to the Memorandum of Appeals. For the Revenue, Shri R.R. Gupta accepted that the issue, as framed, do arise out of the assessee's appeals. 3. The appellant-company, hereinafter referred as the assessee, claimed deductions under s. 80 J amounting to Rs. 2,55,128 and Rs. 4,52,560 for the two assessment year respectively. The ITO, Distt. II (1), Patiala, hereinafter referred to the ITO, however, restricted the claim to Rs. 74,761 and Rs. 84,125 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be taken as capital employed for the purpose of computing relief under s. 80J without deducting any sum by way of liabilities." Since the other issue decided by the Tribunal in the Special Bench case are not relevant to the case before us, we do not consider it necessary to refer to those aspects. Following the reasoning adopted by the Tribunal in the said Special Bench case, we hold that the total authorisation of the assessee's assets of the new industrial undertaking should be taken as capital employed for the purpose of computing relief under s. 80 J without deducting any sum by way of liabilities. For the Revenue, Shri. R.R. Gupta very vehemently contended that the Special Bench of the Tribunal has not laid down the correct law and in fact there was no conflict between s. 80J and r. 19A(3). He argued that no mental exercise is necessary to come to a common man's understanding that unless liabilities are deducted, capital as employed cannot be determined. For the assessee, the learned Advocate submitted that the purpose of s. 80 J-relief was to encourage establishment of new industrial undertaking with a maximum capital employed and if one has to go to the borrowings an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The kind of situation discussed above arises because the industrial undertaking as such is not a person. In modern industrial development, various persons pool together their resources for setting up or acquiring and running, as the case may be, an industrial undertaking. The total outlay in the undertaking in commonly understood by all concerned as its capital. This capital may come in various forms giving different kinds of legal rights to the contributors. The diversity of the sources from which the capital comes in, does not affect the character of the capital employed in the undertaking. This is how businessmen and industrialists look upon such matters. The point may be clarified by dealing with various hypothetical situations. 35. An industrial undertaking may require total financial resources of Rs. 9 lakh. In one case, they may be put up by a firm constituted by A, B and C and each of them may contribute Rs. 3 lakh. In this case, the capital of the undertaking and also of the firm A, B, and C is Rs. 9 lakh. Now if the undertaking is set up by A as the sole proprietor contributing Rs. 3 lakh and B C should not join in as partners but may agree to pool their resourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. It appears to us that in all these different kinds of situations, the extent of resources ploughed into the undertaking are the same. The businessman finds it difficult to recognise that there is a distinction in the amount of capital employed in the undertaking in the last kind of case on the one hand and the three other kinds of cases on the other hand. 37. We may consider another illustration of a person having certain amount of resources or capital of his own. Let us say, these are in the sum of Rs. 15 lakh. The industrial undertaking may also need total investment of resources of Rs. 15 lakh. Now he may put in all his capital in the undertaking or he may invest only a part of it, i.e. Rs. 10 lakh in the undertaking and borrow Rs. 5 lakh, or he may not put any part of his capital in the undertaking, but borrow a sum of Rs. 15 lakh for the purpose of the undertaking. From the point of view of the businessman, the capital will be Rs. 15 lakh in all cases whereas the capital of the concerned person invested in the undertaking will be Rs. 15 lakh, Rs. 10 lakh and none in the three respective situations mentioned earlier. 38. The same point can be illustrated by envisagin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s bars word 'capital' but the expression "...the capital employed in the industrial undertaking (or ship or business of the hotel, as the case may be).." 52. Now once it is recognised that the expression used in the section is" capital employed in the industrial undertaking", attention is at once focussed upon the industrial undertaking and as discussed earlier at length, 'capital' of the undertaking as understood in common parlance is the amount of resources put into it towards its assets and even when this concept is translated in terms of accountancy, it is the fixed capital as well as the floating capital together. It is manifest that there is neither scope nor need to look for the source or the nature of the resources. Such capital is recognised as a category because it is employed in an undertaking. While doing so, the expression used does not indicate that it makes any distinction between the contribution of any particular person whether he is the proprietor of the undertaking or has financed it in some other capacity." We have reproduced the above portions from the Special Bench order but we rely on the said order as whole to decide this case and if we were to reprodu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious notes taken and the efforts made by him for the purpose of promotion of sale. No such resolution or report have been made available to me except that the expenditure was approved by the company. In addition to the arguments given by the ITO, I am not inclined to allow the claim in the absence of the report of Sh. Labroo on his visit abroad and the purpose for which he was deputed abroad. The disallowance made by the ITO is, therefore, upheld" For the assessee, a letter dt. 25th Feb., 1972 from the Reserve Bank of India, Exchange Control Department, New Delhi, has been placed before us and the document being a contemporaneous evidence has been considered by us or necessary to adjudicate the issue though there is no mention made of the same either in the assessment or in the AAC's orders. It shall have lots of argument if we reproduce the Reserved Bank of India's authorisation of export promotion visit of Sh. B.M. Labroo: "Ref. No. EC. DR. TH. 1463/16-M-131/72 (1463B) dt. 25th Sept., 1972 M/S. Maltex Malstore (P) Ltd., Post Box No. 45, Patiala Dear Sir/s. Export promotion visit of your representative Sh. B.M. Labroo, to as per permit enclosed. With re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign tour expenses amounting to Rs. 19,497.50 were to be borne by the company. While adjudicating the question, we should not forget the assessee, is a limited company and there is some kind of control over its affairs by the Central Government also. If there was anything mischievous or bogus about the claim, the some would have been pointed out either by the company's auditors or it would have come to the company's notice. May be that the assessee did not derive any pecuniary benefits out of Mr. Labroo's visit but from there, inference cannot be drawn that the visit was not undertaken for export promotion. If the assessee intended a foreign market and failed in its endeavour the purpose would still be for business. For the Revenue, it was strongly contested that since the ITO and the AAC, had no occasion to look into the Reserve Bank of India's authorisation, the document in this regard should not be taken on record. Such objection, we are not inclined to accept because right from the assessment stage it was in the knowledge of the Revenue's authorities that Mr. Labroo visited foreign countries and that fact has not been controverted. Now a foreign visit is controlled and keeping ..... X X X X Extracts X X X X X X X X Extracts X X X X
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