1987 (2) TMI 47 - HC - Income Tax

Summary

Issues:
1. Jurisdiction of the Commissioner of Income-tax to revise the order of the Income-tax Officer under section 263 of the Income-tax Act.
2. Inclusion of borrowed capital in 'capital employed' for granting relief under section 80J.

Analysis:

Issue 1: Jurisdiction of the Commissioner to revise the order under section 263:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the jurisdiction of the Commissioner of Income-tax to revise the order of the Income-tax Officer. The Commissioner, after finding the assessment order prejudicial to the Revenue, issued a notice under section 263(1) and directed the Income-tax Officer to compute relief under section 80J in a specific manner. The Tribunal and the Commissioner held that the relief granted was erroneous, leading to a reference to the High Court. The High Court, considering the validity of rule 19A of the Income-tax Rules, upheld the Commissioner's jurisdiction to revise the order, as the assessing officer had erred in law, which was prejudicial to the Revenue. The first issue was decided in favor of the Revenue.

Issue 2: Inclusion of borrowed capital in 'capital employed' for section 80J relief:
The second issue pertained to whether borrowed capital should be included in 'capital employed' for granting relief under section 80J. The Supreme Court, in a separate judgment, clarified that the assessing officer had no jurisdiction to grant relief under section 80J on borrowed capital, as it could not be excluded from the computation of 'capital employed.' The Court ruled in favor of the Revenue on both questions, emphasizing that the relief claimed by the assessee could not have been granted considering the provisions of rule 19A of the Rules. The High Court answered both questions in favor of the Revenue, leading to the dismissal of the reference.

Conclusion:
The High Court's judgment confirmed the Commissioner's jurisdiction to revise the assessment order under section 263 and clarified that borrowed capital cannot be excluded from the computation of 'capital employed' for section 80J relief. The decision was based on the validity of rule 19A of the Income-tax Rules and the Supreme Court's interpretation of the relevant provisions. The reference was disposed of in favor of the Revenue, with costs awarded against the assessee.