2002 (12) TMI 48 - HC - Income Tax

1. Whether on the facts and in the circumstances of the case the Tribunal was justified in law in holding that the value of the work-in-progress has to be treated as part of the capital employed for the purpose of relief under section 80J of Income-tax Act 1961? - 2. Whether on the facts and in the circumstances of the case the Tribunal was justified in law in holding that the deduction under section 80-O of the Act should be calculated on the gross fees received by the assessee-company? - The reference is accordingly disposed of by answering both the questions in the affirmative that is in favour of the assessee and against the Revenue

Summary

Issues:
1. Whether the value of work-in-progress should be considered part of the capital employed for relief under section 80J of the Income-tax Act, 1961?
2. Whether the deduction under section 80-O should be calculated on gross fees received by the assessee-company?

Analysis:

Issue 1:
In the assessment years 1979-80 and 1980-81, the Tribunal referred the question of whether the value of work-in-progress should be included in the capital employed for section 80J relief. The Assessing Officer initially excluded work-in-progress from capital employed, but the Commissioner of Income-tax (Appeals) accepted the assessee's claim. The Tribunal, relying on a previous court judgment, upheld the inclusion of work-in-progress in capital employed. The High Court confirmed this decision, stating that the cost of work-in-progress is indeed part of the capital employed for section 80J relief.

Issue 2:
For the assessment year 1979-80, the question arose regarding the calculation of deduction under section 80-O on gross fees received by the assessee-company. The Income-tax Officer calculated the deduction based on net earning, contrary to the assessee's claim for deduction on gross earnings. The Commissioner of Income-tax (Appeals) supported the assessee's position, following a decision of the Madras High Court. The Tribunal upheld this decision, and at the final hearing, the Revenue's counsel acknowledged that section 80-O requires consideration of gross income, not net income, for deduction calculation. Consequently, the High Court ruled in favor of the assessee, affirming that the deduction under section 80-O should be calculated based on gross fees received by the company.

In conclusion, the High Court disposed of the reference by answering both questions in the affirmative, favoring the assessee and against the Revenue, with no order as to costs.