1983 (8) TMI 51 - HC - Income Tax

Summary

Issues:
1. Interpretation of rule 19A(3) of the Income Tax Rules, 1962 regarding the deduction of tax provision from capital employed for relief under section 80J.
2. Entitlement of the assessee to deduction under section 80J without limitation on a proportionate time basis.

Detailed Analysis:
The judgment pertains to a case involving a public limited company engaged in the manufacture and sale of aluminium powder and paste, seeking relief under section 80J of the Income Tax Act, 1961. The primary issue revolved around the computation of capital base for relief under section 80J, specifically concerning the deduction of tax provision from the capital employed. The Income Tax Officer (ITO) initially deducted the entire provision for tax made in the balance-sheet, leading to a dispute over whether only the actual tax due should be deducted. The Appellate Assistant Commissioner (AAC) sided with the assessee, emphasizing that only the actual tax amount should be deducted, not the provision amount.

The matter escalated to the Income-tax Appellate Tribunal, where the Tribunal upheld the AAC's decision, emphasizing that only the actual tax due should be deducted from the capital employed. Additionally, the Tribunal agreed with the assessee that relief under section 80J should not be limited on a proportionate time basis but should be granted for the entire year, even if the unit operated for a partial period during the assessment year.

The Revenue challenged the Tribunal's decision by seeking a reference to the High Court on two key questions. The first question revolved around the interpretation of rule 19A(3) of the Income Tax Rules, particularly regarding the deduction of tax provision from the capital employed. The Court analyzed the rule and concluded that only the actual tax amount due should be deducted, aligning with the assessee's position. The second question, regarding the entitlement to deduction under section 80J without proportionate time limitation, was resolved in favor of the assessee based on a precedent judgment that had attained finality.

Despite the pendency of a challenge to rule 19A(3) before the Supreme Court, the High Court upheld the Tribunal's decision, emphasizing that the deduction should be based on the actual tax liability, not the provision made in the balance-sheet. Consequently, both questions were answered in favor of the assessee, with costs awarded to the assessee.