1992 (11) TMI 39 - HC - Income Tax

Summary

Issues:
1. Computation of capital for relief under section 84 of the Income-tax Act, 1961.
2. Interpretation of rule 19(3) regarding deduction of borrowed monies and debts due.
3. Application of averaging concept to debts due by the assessee.
4. Clarification on whether deduction should be made only for debts due for payment at the end of the accounting period.

Detailed Analysis:
The judgment pertains to the assessment year 1967-68 and involves a dispute regarding the computation of capital for relief under section 84 of the Income-tax Act, 1961, specifically focusing on the deduction of borrowed monies and debts due as per rule 19(3) of the Income-tax Rules, 1962. The Department argued that the value of liabilities should be taken on an average basis, but the Tribunal rejected this contention. The Tribunal also distinguished between "debts owed" and "debts due," directing the exclusion of only debts due at the end of the relevant accounting period under rule 19(3.

Regarding the first question referred under section 256(1) of the Income-tax Act, the court analyzed rule 19(1) and emphasized that there is no provision for averaging debts due by the assessee. Citing a previous decision, the court concluded that debts due at the end of the relevant accounting period should be deducted for the computation of capital under section 84, rejecting the Department's argument for averaging.

Moving to the second question, the court referenced a previous case to establish that deduction should be made for all borrowed monies and debts due for payment at the end of the accounting period. Only debts that are due for payment at the end of the accounting period are required to be deducted under rule 19(3), clarifying that liabilities not due for payment should not be included in the deduction calculation, except for borrowed monies.

In conclusion, the court answered both questions in favor of the assessee, affirming that averaging debts due by the assessee is not permissible, and deduction should only be made for borrowed monies and debts due for payment at the end of the accounting period. The judgment provides clarity on the interpretation of rule 19(3) and the computation of capital for relief under section 84 of the Income-tax Act, 1961.