1974 (7) TMI 32 - HC - Income Tax

Summary

Issues Involved:

1. Correct determination of the amount of capital employed under section 84(1) of the Income-tax Act, 1961.
2. Inclusion of the sum of Rs. 1,45,110 under rule 19(5) of the Income-tax Rules, 1962.

Detailed Analysis:

Issue 1: Correct Determination of the Amount of Capital Employed

The assessee claimed that the capital employed was Rs. 32,21,400, and sought relief under section 84(1) of the Income-tax Act, 1961, based on this amount. However, the Income-tax Officer computed the capital employed at Rs. 21,23,545. The Income-tax Officer's computation included the written down value of assets, average cost of additions, non-depreciable assets, and other assets, while deducting secured and unsecured loans, current liabilities, and other deductions. The Appellate Assistant Commissioner upheld this computation, noting that the profits had already been factored into the calculation of capital employed. The Tribunal also agreed, stating that the excess of assets over liabilities automatically included the profits during the year.

Issue 2: Inclusion of the Sum of Rs. 1,45,110 under Rule 19(5)

The assessee argued that Rs. 1,45,110, representing average profit for the year, should be added to the capital employed as per rule 19(5) of the Income-tax Rules, 1962. The Tribunal found that the Income-tax Officer had already included profits in the computation of capital employed by considering current assets and liabilities. Rule 19(5) deems profits or losses to accrue evenly throughout the year, impacting the capital employed. However, the Tribunal held that if profits or losses are already included in the calculation, no further adjustment is necessary.

Conclusion:

The court concluded that the amount of capital employed was correctly determined at Rs. 21,23,545, and no further addition of Rs. 1,45,110 was required. The method used by the Income-tax Officer, which included current assets and liabilities, already accounted for the profits of the year. Therefore, the provisions of rule 19(5) did not necessitate an additional adjustment. The question referred was answered in favor of the revenue, with no order as to costs.