1987 (7) TMI 2 - SC - Income Tax

New Industrial Undertaking - Whether, on the facts and in the circumstances of the case, the figure arrived at by computation under rule 19(5) was to be added to the figure arrived at by computation under rule 19(1) for determining the average capital employed in the assessee s undertaking - question should be answered in favour of assessee

Summary

Issues:
1. Challenge to the decision of the Gujarat High Court by the Revenue.
2. Computation of rebate under sections 84 and 101 of the Income-tax Act, 1961.
3. Interpretation of Rule 19 of the Income-tax Rules, 1962 for determining average capital employed.
4. Dispute over the admissibility and computation of exemption under section 84 of the Act.
5. Reassessment based on the addition of profits from a new project.

Analysis:
The Supreme Court heard an appeal by the Revenue challenging the decision of the Gujarat High Court in a case involving the computation of rebate under sections 84 and 101 of the Income-tax Act, 1961. The assessee, a public limited company, was undergoing assessment for the second year of a new project. The Income-tax Officer initially computed the assessment with a rebate, which was later recomputed upon reassessment. The Appellate Tribunal, upon appeal, held that the average capital employed should include the average profit as per Rule 19(5) of the Income-tax Rules, 1962. The Tribunal referred a question to the High Court regarding the computation of average capital employed, which the High Court agreed with the Tribunal's conclusion.

The dispute primarily revolved around the interpretation of Rule 19 of the Income-tax Rules, 1962, which outlines the method of computing capital employed in an undertaking. The High Court emphasized the importance of proper interpretation of the relevant provisions of Rule 19, particularly sub-rules (1), (3), and (5). The High Court's decision was based on a detailed analysis of the rule and its sub-rules, determining the value of assets entitled to depreciation and other assets to arrive at the capital employed figure.

Regarding the admissibility and computation of exemption under section 84 of the Act, the High Court highlighted the necessity to resolve the dispute by referring to the specific sub-rules of Rule 19. The High Court's valuation of capital employed included adjustments for loans, liabilities, and profits from the new project. The dispute arose from the Revenue's contention that profits had already been factored into the computation and should not be added again. However, the High Court upheld the addition based on the deeming provision in Rule 19(5) for computation purposes.

Ultimately, the Supreme Court found merit in the reasoning of the High Court and upheld its conclusion, dismissing the appeal by the Revenue. The judgment emphasized the importance of following the specific provisions of the Income-tax Rules for accurate computation of capital employed and entitlement to exemptions. The parties were directed to bear their own costs throughout the legal proceedings.