1999 (10) TMI 16 - HC - Income Tax

Summary

Issues:
1. Inclusion of borrowed capital in the capital employed for relief under section 80J of the Income-tax Act, 1961.
2. Allowability of relief under section 80J for the entire year without reduction based on the actual period of working of the factory during the relevant year.

Analysis:

Issue 1: Inclusion of Borrowed Capital in Capital Employed for Relief under Section 80J:
The dispute revolved around liabilities related to the steel and vanaspati units of the assessee, amounting to Rs. 40,17,654 and Rs. 73,82,136, respectively. The Tribunal referred to a judgment in Kota Box Manufacturing Co. v. ITO [1980] 123 ITR 638, where it was held that borrowings and liabilities should be included in computing the capital employed for the new industrial undertaking. However, this decision was based on sub-rules (1) and (3) of rule 19A, which were later held to be valid by the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. As rule 19A was effective from April 1, 1972, and not applicable to the assessment year 1971-72, the Tribunal's decision was deemed invalid. The matter was to be reconsidered by the Tribunal in accordance with the law. Therefore, the first question was answered in the negative, setting aside the Tribunal's order on this point.

Issue 2: Allowability of Relief under Section 80J for the Entire Year:
The second part of the controversy focused on whether the relief under section 80J should be allowed for the whole year or only for the period the industrial undertaking operated. The Madras High Court's opinion in CIT v. Simpson and Co. [1980] 122 ITR 283 was cited, stating that the words "per annum" in section 80J should be interpreted liberally, allowing the relief for the entire year even if the factory operated for a part of the year. This view was agreed upon, and the second question was answered in the affirmative, favoring the assessee and against the Commissioner.

In conclusion, the judgment clarified the inclusion of borrowed capital in the capital employed for relief under section 80J and affirmed that the relief should be granted for the entire year irrespective of the actual working period of the factory.