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Issues Involved:
1. Interpretation of Rule 19(1) of the Income-tax Rules, 1962. 2. Justification of taking the average value of the debts as at the beginning and at the end of the computation period. Issue-wise Detailed Analysis: 1. Interpretation of Rule 19(1) of the Income-tax Rules, 1962: The primary issue in this case concerns the interpretation of Rule 19(1) of the Income-tax Rules, 1962, particularly whether the proviso to Rule 19(1) applies only to clause (d) or to all sub-clauses (a) to (d). The court examined the language of Rule 19(1), which outlines the computation of capital employed in an industrial undertaking for the purposes of Section 84 of the Income-tax Act, 1961. The proviso to Rule 19(1) specifies that if an asset is acquired during the computation period, its value should be taken at an average value, similar to the average cost for assets covered by clauses (a) and (b). The court concluded that the proviso is intended only for clause (d) and not for clauses (a), (b), and (c). The reasoning is that clauses (a) and (b) already contain language that achieves the same effect as the proviso, making it unnecessary to apply the proviso to these clauses. Additionally, the word "value" in the proviso is not applicable to debts under clause (c), as debts are to be taken at their nominal amounts, not their value. The court also noted that the term "acquired" is meaningful in the context of assets referred to in clauses (a), (b), and (d) but inappropriate for "debts" under clause (c). 2. Justification of Taking the Average Value of the Debts: The second issue is whether the Income-tax Officer (ITO) was justified in taking the average value of the debts as at the beginning and at the end of the computation period. Initially, the ITO computed the debts due to the assessee as Rs. 18,25,606, which was later revised to Rs. 14,40,998 based on an average of the debts at the beginning and end of the accounting year. The Appellate Assistant Commissioner (AAC) disagreed with this revision, stating that the correct figure should be Rs. 18,41,606, as originally calculated. The Tribunal supported the AAC's interpretation, stating that the proviso to Rule 19(1) applies only to clause (d) and not to clauses (a), (b), and (c). The Tribunal observed that the nominal value of the debts should be taken as at the end of the computation period, and there was no need for averaging the debts. The court agreed with the Tribunal's view, emphasizing that the rule does not require averaging for debts under clause (c) and that the concept of averaging is not implicit in Section 84 of the Income-tax Act, 1961. The court further reasoned that if the legislature had intended for all categories, including debts, to be averaged, it would have structured the clauses accordingly. The absence of specific provisions for averaging debts indicates that the rule was not meant to introduce such refinements into the computation of capital. Conclusion: The court affirmed the Tribunal's decision, holding that the proviso to Rule 19(1) applies only to clause (d) and not to clauses (a), (b), and (c). The ITO was not justified in taking the average value of the debts, and the nominal value at the end of the computation period should be considered. The court answered the questions referred to it in the affirmative, in favor of the assessee, and made no order as to costs.
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