1994 (11) TMI 72 - HC - Income Tax

Computation Of Capital, Computation Period, Debt Owed, New Industrial Undertaking, Question Of Law, Special Deduction

Summary

Issues:
1. Whether the amount represented by dividends proposed to be declared is deductible in the computation of capital employed for section 80J(1A) of the Income-tax Act, 1961 as a debt owed.

Analysis:
The court addressed the issue of whether the proposed dividends are liable to be deducted in the computation of capital employed for section 80J(1A) of the Income-tax Act, 1961 as a debt owed. The Commissioner (Appeals) held that the amount was not a debt owed on the relevant date, citing the decision in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. The Supreme Court in that case ruled that until the company officially declared the dividend, it was merely a recommendation by the directors, not a debt owed. The Tribunal, applying this precedent, affirmed the decision of the Commissioner (Appeals). The court concurred with the Tribunal's decision, stating that the proposed dividend was not a debt owed on the first day of the computation period, as required by section 80J(1A) for deduction purposes.

The court highlighted that section 80J allows deductions related to the capital employed in newly established industrial undertakings, with capital employed defined in sub-section (1A). The computation of capital employed involves determining the value of assets on the first day of the computation period and making deductions, including debts owed. As of the computation date, only a recommendation for dividend declaration existed, awaiting approval at the general body meeting. Relying on the principles from Kesoram Industries case, the court concluded that the proposed dividend did not constitute a debt owed on the computation date. Therefore, it was not deductible from the aggregate value of assets to determine capital employed under section 80J(1).

In conclusion, the court dismissed the petitions as no referable question arose from the case. The decision was based on statutory provisions and the precedent set by the Supreme Court in the Kesoram Industries case, which, although related to wealth tax, was deemed applicable to section 80J. The court affirmed that the proposed dividend did not qualify as a debt owed for the purpose of computing capital employed under section 80J(1A).