1982 (6) TMI 2 - HC - Income Tax

Summary

Issues Involved:

1. Whether secured and unsecured loans should be deducted from the assets in the computation of capital base for the purpose of section 80J of the Income-tax Act, 1961.
2. Whether rule 19A(2)(iii) of the Income-tax Rules, 1962, is ultra vires the provisions of the Income-tax Act, 1961.
3. Whether the Tribunal and High Court have jurisdiction to pronounce on the vires of statutory provisions under the Income-tax Act.

Issue-wise Detailed Analysis:

1. Deduction of Secured and Unsecured Loans in Computation of Capital Base:

The primary issue was whether secured and unsecured loans should be deducted from the assets when computing the capital base under section 80J of the Income-tax Act, 1961, for the assessment year 1975-76. The Tribunal held that the borrowed capital should be deducted in computing the capital base for the purposes of relief under section 80J. This view was in accordance with the provisions of rule 19A(2)(iii) of the Income-tax Rules, 1962. The assessee, however, contended that this rule was ultra vires the parent Act and should not be applied.

2. Validity of Rule 19A(2)(iii):

The assessee argued that rule 19A(2)(iii) was ultra vires the provisions of the Income-tax Act, 1961, and thus should not guide the computation of the capital base. However, the Tribunal declined to entertain this argument, stating that it could not pronounce on the validity of the provisions of the Act or the Rules made thereunder. The question of the validity of rule 19A(2)(iii) became academic due to the retrospective amendment of section 80J by the Finance (No. 2) Act of 1980, which incorporated the rules of computation, including rule 19A(2)(iii), into the main section 80J itself.

3. Jurisdiction of Tribunal and High Court on Vires of Statutory Provisions:

The larger question debated was whether the Tribunal and the High Court, in reference proceedings, have jurisdiction to decide the vires of statutory provisions. The court noted that the Tribunal is a creature of the statute and can only decide disputes between the assessee and the Commissioner in accordance with the provisions of the Act. The question of constitutionality and vires is foreign to the scope of its jurisdiction. The jurisdiction of the High Court under section 256 of the Act is a special advisory jurisdiction, strictly limited by the provisions of the statute to decide questions of law arising out of the Tribunal's order. The court cited several authoritative pronouncements, including K. S. Venkataraman and Co. (P.) Ltd. v. State of Madras, Dhulabhai v. State of Madhya Pradesh, and others, to support this view.

The court concluded that since the Tribunal itself has no jurisdiction to decide the question of ultra vires of a statutory provision, such a question cannot arise out of the Tribunal's order. Consequently, the High Court, in its reference jurisdiction, cannot embark upon an enquiry as to the constitutionality and vires of a provision.

Conclusion:

In view of the retrospective amendment of section 80J, the relevance of rule 19A(2)(iii) became immaterial. The court, therefore, declined to call for a statement of the case and dismissed the petition. The principles guiding the jurisdiction of the Tribunal and the High Court were reaffirmed, emphasizing that the Tribunal cannot go into the question of vires of statutory provisions, and accordingly, neither can the High Court in reference jurisdiction.