1992 (10) TMI 4 - HC - Income Tax

Summary

Issues:
Whether the fixed deposit should be included in the computation of capital for making out the relief under section 80J of the Income-tax Act, 1961.

Analysis:
The judgment pertains to a reference made by the Income-tax Appellate Tribunal regarding the inclusion of fixed deposit receipts (F.D.R.) amounting to Rs. 4,01,500 in the computation of capital for the assessment year 1974-75. The State Government undertaking, as the assessee, argued that the F.D.R. should be considered for computing the capital employed in the undertaking. The Income-tax Officer initially refused to include the F.D.R. amount, citing that it was not invested in an industrial undertaking. However, the Appellate Assistant Commissioner disagreed with the Income-tax Officer's reasoning, pointing out the lack of proper justification for deducting the amount and relying on rule 19A of the Income-tax Rules, 1962. The Appellate Assistant Commissioner, supported by the Tribunal's order for previous years, concluded that the F.D.R. should be included under specific clauses of the Rules.

The Appellate Assistant Commissioner further applied sub-rule (4) of rule 19A, which dictates that the value of investments, including F.D.R., not contributing to computing business profits and other surplus funds not needed for business purposes, should be deducted if they exceed borrowed funds. The Appellate Assistant Commissioner's interpretation was upheld by the Appellate Tribunal, affirming that the F.D.R. could be included in the computation of capital employed. The judgment emphasized that there is no legal requirement for the money invested in F.D.R. to be utilized for business purposes to be considered in capital computation. The reasoning of the Income-tax Officer was deemed incorrect, while the Appellate Assistant Commissioner's analysis was deemed appropriate. The judgment concluded in favor of the assessee, ruling that the fixed deposit should indeed be included in the computation of capital for the purpose of relief under section 80J of the Income-tax Act, 1961.