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Issues:
1. Interpretation of sub-r. (3) of r. 19A of the I.T. Rules, 1962 in relation to s. 80J of the I.T. Act, 1961. Analysis: The case involved a partnership firm engaged in the manufacture of card board boxes claiming relief under s. 80J for the assessment year 1974-75. The firm sought a deduction of 6% on the total capital employed, including borrowed capital. The Income Tax Officer (ITO) disallowed the relief on borrowed capital based on sub-r. (3) of r. 19A. The firm appealed, and the Appellate Assistant Commissioner (AAC) allowed the relief. However, the ITO appealed to the Tribunal, which upheld the disallowance, citing sub-r. (3) of r. 19A, leading to the firm's petition to the High Court challenging the validity of the rule. The petitioner contended that s. 80J intended to provide relief to newly established undertakings based on the capital employed, which should include borrowed funds. The petitioner argued that sub-r. (3) of r. 19A conflicted with the concept of "capital employed" in s. 80J. The High Court referred to decisions by the Calcutta and Madras High Courts, agreeing that sub-r. (3) was ultra vires the rule-making power under the I.T. Act. The Court emphasized that the rule-making authority cannot alter the legislative intent behind the term "capital employed" as used in the statute. The High Court held that the Tribunal's decision, based on sub-r. (3) of r. 19A, to disallow the relief under s. 80J was erroneous. The Court allowed the petitioner's claim for relief of Rs. 94,254 and directed the authorities to amend the orders accordingly. The Court also awarded costs to the petitioner. The Court declined to consider the challenge to the opening part of sub-r. (2) of r. 19A, as it was deemed unnecessary due to the specific claim made by the assessee based on the capital employed as of a particular date. In conclusion, the High Court ruled in favor of the petitioner, holding that sub-r. (3) of r. 19A was ultra vires the rule-making power and directed the authorities to allow the claimed relief under s. 80J.
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