1978 (7) TMI 55 - HC - Income Tax

Summary

Issues involved: The judgment concerns the interpretation of relief under section 84 of the Income Tax Act, 1961, in relation to the capital employed in a new industrial undertaking.

Details of the Judgment:

Assessment Year 1962-63:
The assessee, a public limited company with a new industrial undertaking at Bhavnagar, claimed relief under section 84 of the Income Tax Act, 1961, for the capital employed in the undertaking. The dispute arose as the Income Tax Officer (ITO) disallowed the inclusion of the cost of plant and machinery not installed and workshops under construction in the capital computation. The ITO's decision was based on a strict interpretation of section 84 read with rule 19 of the Income Tax Rules. The assessee's appeal to the Appellate Assistant Commissioner (AAC) was unsuccessful, leading to a second appeal to the Tribunal. The Tribunal ruled in favor of the assessee, emphasizing that the assets in question were part of the integral industrial undertaking at Bhavnagar and had been acquired for business purposes. The Tribunal held that the capital employed should not be limited to assets in actual use, as there was no such restriction in the statutory provisions.

Legal Interpretation:
The Calcutta High Court's decision in CIT v. Indian Oxygen Ltd. [1978] 113 ITR 109 (Cal) was cited, where it was held that "capital employed" includes all assets acquired, not just those in actual use. The High Court referred to House of Lords decisions to support this interpretation. The Calcutta High Court's view was that assets acquired for business purposes are considered employed in the business, regardless of whether they are actively used. The High Court distinguished between "capital employed" and "assets used in the undertaking," emphasizing the broader interpretation of capital employed. The Court concluded that the relief under section 84 should not be restricted by rule 19(6) and should encompass all assets acquired for the business.

Final Decision:
The Bombay High Court, following the principle of uniformity with other High Courts' interpretations, upheld the Tribunal's decision in favor of the assessee. The Court ruled that the amount representing the cost of plant and machinery not installed and workshops under construction should be considered in determining the capital employed for granting relief under section 84. The Commissioner was directed to pay the costs of the reference to the assessee.

This judgment clarifies that for the purpose of relief under section 84 of the Income Tax Act, the capital employed in a new industrial undertaking should encompass all assets acquired for the business, even if they are not yet in active use. The decision emphasizes the broader interpretation of "capital employed" and rejects the notion that relief is limited to assets in actual use.