1993 (7) TMI 25 - HC - Income Tax

Assessment Year, Computation Of Capital, New Industrial Undertaking, Set Off, Special Deduction, Tax Concession

Summary

Issues:
1. Validity of sub-rule (3) of rule 19A of the Income-tax Rules, 1962 in computing capital employed for section 80J.
2. Determination of deficiency based on computation of capital employed under rule 19A or rule 19.
3. Computation of capital employed at the rate of six per cent. per annum for a period of 12 months or 15 months for an assessee with a previous year of 15 months.

Analysis:

Issue 1:
The court addressed the validity of sub-rule (3) of rule 19A in computing capital employed for section 80J. The Revenue contended that the Supreme Court's decision in Lohia Machines Ltd. v. Union of India established the validity of sub-rule (3) of rule 19A. The court agreed with this argument, stating that sub-rule (3) of rule 19A is valid subordinate legislation. Therefore, the Tribunal erred in holding that sub-rule (3) of rule 19A should be ignored while computing capital employed for section 80J.

Issue 2:
Regarding the determination of deficiency, the court considered whether the capital employed should be calculated under rule 19A or rule 19 for section 80J. The court rejected the Revenue's argument that using different bases for calculating capital employed would result in a double benefit for the assessee. The court emphasized that section 80J introduced a new relief, distinct from section 84, and required capital employed to be computed in accordance with rule 19A. The court cited precedents from the Karnataka High Court and the Bombay High Court supporting this interpretation.

Issue 3:
The court addressed the computation of capital employed at the rate of six per cent. per annum for a period of 12 months or 15 months for an assessee with a previous year of 15 months. The assessee argued that the relief should be granted for the period the new undertaking operated during the relevant previous year. However, the court held that relief under section 80J is for the assessment year, not the accounting year, and should be computed based on 12 months for consistency.

In conclusion, the court answered question 1 in favor of the Revenue, question 2 against the Revenue and in favor of the assessee, and question 3 based on the above analysis. The reference was disposed of with no order as to costs.