1988 (5) TMI 26 - HC - Income Tax

Summary

Issues:
1. Calculation of capital employed in the assessee's industrial undertaking without deducting liabilities.
2. Allowance of relief under section 80J for the full year even if the factory ran for only three months.

Analysis:

Issue 1: Calculation of Capital Employed
The case involved a dispute regarding the computation of capital employed in the assessee's industrial undertaking under section 80J of the Income-tax Act, 1961. The Income-tax Officer allowed the deduction on a lower amount compared to what the assessee claimed. The Appellate Assistant Commissioner ruled in favor of the assessee, holding that the relief under section 80J should be given on the full amount claimed. The Tribunal upheld this view. The Revenue contended that the Supreme Court decision in Lohia Machines Ltd. v. Union of India supported their position. However, the Court analyzed the provisions of rule 19A(3)(b) and found that the assessee did not meet the conditions required for the claimed deduction. The Court concluded that the Tribunal's decision in favor of the assessee on this issue was incorrect and not supported by the law.

Issue 2: Relief under Section 80J
The second issue revolved around whether the relief under section 80J should be allowed for the full year, even if the new industrial undertaking operated for only a portion of the year. The Court cited decisions from various High Courts and a Circular from the Central Board of Direct Taxes supporting the view that the relief should indeed be granted for the full year. The Court emphasized that the deduction should not be reduced proportionately based on the operational period of the undertaking. Given the consistent judicial precedents and the Circular's guidance, the Court upheld the Tribunal's decision in favor of the assessee on this issue.

In conclusion, the Court ruled that the Tribunal was not justified in upholding the order of the Appellate Assistant Commissioner regarding the calculation of capital employed, as it was not in line with the law. However, the Tribunal's decision to allow relief under section 80J for the full year was deemed justified.