1984 (11) TMI 98 - AT - Income Tax

Summary

Issues:
1. Exclusion of borrowed capital from capital employed for deduction under s. 80J of IT Act, 1961.
2. Claim of weighted deduction under s. 35B for export inspection fees.

Analysis:

Issue 1: Exclusion of borrowed capital from capital employed for deduction under s. 80J of IT Act, 1961
The assessee-company appealed against the order of the CIT(A)-XIV, Bombay, which disallowed the exclusion of borrowed capital from the capital employed for the purpose of calculating deduction under s. 80J of the IT Act, 1961. The assessee's counsel argued that a retrospective amendment of s. 80J by the Finance (No. 2) Act, 1980 had been stayed by the Supreme Court, and thus, the revenue authorities should not have acted on this amendment. The Tribunal considered the interim order of the Supreme Court in the case of Messrs Lohia Machines Limited and Others vs. Union of India, which stayed the retrospective amendment regarding borrowed capital. The Tribunal remanded the matter back to the CIT(A) to decide afresh considering both the retrospective amendment and the final orders of the Supreme Court on the validity of the amendment.

Issue 2: Claim of weighted deduction under s. 35B for export inspection fees
The assessee claimed a weighted deduction under s. 35B for export inspection fees paid. The counsel argued that the expenses qualified for deduction under s. 35B and referred to the IT Rules inserted in 1981 to support this claim. However, the Departmental Representative contended that the deduction was not applicable as per the rules, especially regarding expenses paid to others for inspection. The Tribunal analyzed the relevant rule, which specified that the deduction applied only if the assessee maintained a laboratory or facility for quality control, not for payments made to others. Consequently, the Tribunal upheld the decision of the revenue authorities and denied the weighted deduction on export inspection fees. The appeal was partly allowed, with the deduction under s. 80J remanded for fresh consideration and the denial of weighted deduction under s. 35B upheld.