1986 (12) TMI 375 - HC - Income Tax

Summary

Issues:
1. Computation of capital for relief under s. 80J of the IT Act for asst. yrs. 1971-72 and 1972-73.
2. Inclusion of borrowed money in computing capital for relief under s. 80J of the IT Act.
3. Admissibility of deduction under s. 80-J for income derived from the priority industry.
4. Treatment of cash allowance as part of salary for disallowable expenditure under s. 40(a)(v).

Analysis:
1. The first issue pertains to the computation of capital for relief under s. 80J of the IT Act for the assessment years 1971-72 and 1972-73. The Tribunal had computed the capital based on the average amount of increase or decrease in assets and liabilities during the previous year. However, the High Court, following the decision of the Supreme Court in Lohia Machinery Ltd. case, held that the computation should be as on the first day of the previous year. Therefore, the High Court answered the questions in the negative and in favor of the Department.

2. The second issue involves whether borrowed money should be included in computing capital for relief under s. 80J of the IT Act. The High Court again relied on the Supreme Court decision in the Lohia Machinery Ltd. case and answered the question in the negative and in favor of the Department for both assessment years.

3. The third issue concerns the admissibility of deduction under s. 80-J for income derived from the priority industry. The High Court, considering the decisions of the Supreme Court in Combay Electric Supply Industrial Co. Ltd. case and Lohia Machinery Ltd. case, concluded that the deduction is not admissible for the whole income derived from the priority industry but only for the income computed after making deductions provided in the IT Act. Therefore, the question was answered in the negative and in favor of the revenue.

4. The final issue addresses whether cash allowance should be considered as part of salary for disallowable expenditure under s. 40(a)(v). For the assessment year 1971-72, the High Court answered this question in the affirmative and in favor of the assessee based on a previous decision. However, for the assessment year 1972-73, the High Court noted an amendment to the relevant provision and found that the Tribunal had not considered this amendment. The High Court left it to the Tribunal to reexamine this issue for the latter assessment year in light of the amendment, without expressing any opinion on the interpretation of the amended provision.

In conclusion, the references under the IT Act were disposed of with each issue analyzed and answered as per the relevant legal provisions and precedents cited in the judgment.