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Issues involved: Assessment u/s 80J of the Income-tax Act, 1961 for the assessment year 1972-73, validity of rule 19A(2) and rule 19A(3) in computing capital employed for relief under section 80J.
Assessment u/s 80J: The petitioner, a public limited company, claimed relief u/s 80J for Rs. 49,69,033 but only Rs. 21,85,515 was allowed based on assets entitled to depreciation, assets not entitled to depreciation, and current assets. The Judge held that rule 19A(2) directing the capital employed on the first day of the computation period as the basis was beyond the scope of section 80J, citing a previous judgment. The rule was deemed invalid as it whittled down the purpose of section 80J by taking assets on the first day as the basis. Validity of rule 19A(2): The Judge emphasized that rules framed under the Act must carry out the Act's purposes and not diminish its effect. Rule 19A(2) was found to be beyond the rule-making authority as it conflicted with the purpose of section 80J. The Judge referenced a Supreme Court case to support this view and highlighted that in India, subordinate legislation must fall within the rule-making authority's scope to be valid. Validity of rule 19A(3): Rule 19A(3) directed the exclusion of borrowed capital except from approved sources in computing capital employed for relief u/s 80J. The Judge ruled that borrowed money, if employed as capital in a new industrial undertaking, should be considered for computation. Rule 19A(3) was deemed ultra vires as it restricted relief to borrowings from approved sources, going against the authority given under section 80J. Conclusion: The assessment order was set aside, and the Income-tax Officer was directed to make a fresh assessment based on the observations in the judgment. The rule was made absolute with no costs, and there was a stay of operation for six weeks from the date of the order.
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