1981 (9) TMI 57 - HC - Income Tax

Summary

Issues:
1. Interpretation of item No. 7 in the Fifth Schedule regarding development rebate eligibility for plant and machinery.
2. Computation of capital for deduction under section 80J of the Income-tax Act, 1961.

Analysis:

Issue 1: Interpretation of item No. 7 in the Fifth Schedule for development rebate eligibility:
The case involved a public sector company manufacturing telephone cables seeking a development rebate at 25% under section 33 of the Income-tax Act. The dispute arose when the Income Tax Officer (ITO) denied the claim, contending that telephone cables did not fall under item No. 7 of the Fifth Schedule. The Tribunal held that the term "equipment for generation and transmission of electricity" in item No. 7 should be interpreted conjunctively, meaning both generation and transmission of electricity should be satisfied. It concluded that telephone cables, primarily used for speech transmission and not electricity, did not qualify. The court further analyzed the term "includes" in the provision, emphasizing that the specific mention of transformers, cables, and transmission towers did not encompass all types of cables, specifically those not related to electricity transmission. The judgment favored the Revenue, denying the development rebate claim for the assessee.

Issue 2: Computation of capital for deduction under section 80J:
The second issue revolved around the computation of capital for deduction under section 80J of the Income-tax Act. The dispute centered on whether borrowed capital should be excluded from the capital employed calculation for the 6% deduction. The court referred to the retrospective amendment by the Finance Act of 1980, which mandated the deduction of borrowed amounts from the capital employed. Consequently, the court upheld the ITO's decision to exclude borrowed capital from the capital for computing the deduction under section 80J. The judgment favored the Revenue, affirming the exclusion of borrowed capital from the capital employed calculation for the deduction.

In conclusion, the court's judgment addressed the interpretation of item No. 7 in the Fifth Schedule for development rebate eligibility and the computation of capital for deduction under section 80J. The decision favored the Revenue in both issues, denying the development rebate claim and upholding the exclusion of borrowed capital from the capital employed calculation for the deduction.