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Issues:
1. Deduction of six percent of capital employed for a seven-month accounting year. 2. Computation of capital employed for section 80J deduction without deducting liabilities and debts. Detailed Analysis: Issue 1: The first issue pertains to whether six percent of the capital employed should be deducted for a full year, even if the undertaking operated for only seven months in an accounting year. The assessee changed the accounting year to seven months for the assessment year 1975-76 and claimed a deduction under section 80J. The Income-tax Officer held that depreciation and section 80J deduction should be proportionately allowed, not fully at the rate of six percent per annum. The Appellate Assistant Commissioner, relying on a Tribunal decision, upheld the assessee's contention for full deduction at six percent. The Tribunal also supported this view, citing a Bombay Tribunal decision. The High Court, based on precedent and a circular by the Board, ruled in favor of the assessee, affirming entitlement to full deduction at six percent for the capital employed. Issue 2: The second issue concerns the computation of capital employed for section 80J deduction without deducting liabilities and debts. The Income-tax Officer computed the capital employed without deducting liabilities and debts as per rule 19A of the Income-tax Rules. The Appellate Assistant Commissioner and the Tribunal supported the assessee's position, following relevant judgments. However, the High Court, referencing Supreme Court and its own decisions, held that liabilities and debts must be deducted while computing the capital for section 80J purposes. Consequently, the High Court ruled in favor of the Revenue, stating that capital employed for section 80J should be calculated after deducting liabilities and debts. In conclusion, the High Court's judgment addressed the issues of deduction for a partial accounting year and the computation of capital employed for section 80J deduction. The court ruled in favor of the assessee for the first issue but in favor of the Revenue for the second issue, based on legal precedents and interpretations of relevant provisions.
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