1977 (10) TMI 1 - HC - Income Tax

Appeal To Tribunal, Capital Employed, New Industrial Undertaking, Tax Holiday For New Industrial Undertaking

Issues Involved:

1. Whether the Tribunal was right in law in allowing the assessee to raise an additional ground regarding the non-deductibility of debts and liabilities in computing the capital employed under section 15C of the Indian I.T. Act, 1922, or section 84 of the I.T. Act, 1961.
2. Whether the Tribunal was right in law in holding that the assessee was entitled to include half of the profits of the relevant year for computing the capital employed for the purpose of business under section 15C of the Indian I.T. Act, 1922, for 1960-61 and 1961-62, and/or under section 84 of the I.T. Act, 1961, for 1963-64.

Issue-wise Detailed Analysis:

Issue 1: Allowing Additional Ground Regarding Non-Deductibility of Debts and Liabilities

The Tribunal permitted the assessee to raise an additional ground that no deduction could be made for debts and liabilities when computing the capital employed for the purposes of section 15C or section 84. The Revenue argued that this ground was not raised before the Income-tax Officer (ITO) or the Appellate Assistant Commissioner (AAC) and thus should not be allowed at the Tribunal stage. The Tribunal relied on its earlier decisions and Supreme Court rulings in Hukumchand Mills Ltd. v. CIT and CIT v. Mahalakshmi Textile Mills Ltd., which it believed supported its decision to allow the additional ground.

However, the High Court found that the Tribunal's reliance on these Supreme Court decisions was misplaced. The High Court clarified that the decisions in Hukumchand Mills and Mahalakshmi Textile Mills did not contradict the earlier decision of the Gujarat High Court in CIT v. Karamchand Premchand Pvt. Ltd., which held that new grounds not raised before lower authorities could not be entertained at the Tribunal stage. The High Court emphasized that the subject-matter of an appeal before the Tribunal is limited to what was decided by the AAC, either expressly or impliedly. Since the additional ground was not raised before the ITO or the AAC, it could not form the subject-matter of the appeal before the Tribunal.

The High Court concluded that the Tribunal erred in allowing the assessee to raise the additional ground regarding the non-deductibility of debts and liabilities.

Issue 2: Inclusion of Half of the Profits in Computing Capital Employed

The second issue was whether the Tribunal was correct in holding that the assessee was entitled to include half of the profits of the relevant year for computing the capital employed for the purpose of business under section 15C of the Indian I.T. Act, 1922, for the assessment years 1960-61 and 1961-62, and/or under section 84 of the I.T. Act, 1961, for the assessment year 1963-64.

The High Court noted that the decision of this court in CIT v. Elecon Engineering Co. Ltd. completely covered this issue in favor of the assessee. The court held that the Tribunal was right in law in holding that the assessee was entitled to include one-half of the profits of the relevant years for the purpose of computing the capital employed for working out the relief under section 15C or section 84, as applicable.

Conclusion:

The High Court answered the questions referred to it as follows:

- Question 1: In the negative, in favor of the Revenue and against the assessee.
- Question 2: In the affirmative, in favor of the assessee and against the Revenue.

Each party was directed to bear its own costs of the reference.

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