1985 (4) TMI 97 - AT - Income Tax

Issues Involved:
1. Computation of capital employed for determining relief under Section 80J of the Income Tax Act, 1961.
2. Interpretation and application of Rule 19A of the Income Tax Rules, 1962.
3. Validity and impact of the retrospective amendment of Section 80J by the Finance (No. 2) Act, 1980.

Detailed Analysis:

1. Computation of Capital Employed for Determining Relief under Section 80J of the Income Tax Act, 1961:

The core issue revolves around the method of computing the capital employed for the purpose of relief under Section 80J of the Income Tax Act, 1961. The assessee-company argued that the actual cost of the assets should be considered, while the Income Tax Officer (ITO) and the Revenue contended that the written down value (WDV) should be used. The CIT (A) supported the assessee's view for the assessment years 1970-71 and 1971-72 but sided with the ITO for the assessment years 1972-73 and 1973-74 due to the retrospective amendment of Section 80J.

2. Interpretation and Application of Rule 19A of the Income Tax Rules, 1962:

The Revenue's representative cited Clause (i) of Sub-rule (2) of Rule 19A, which mandates that in computing capital employed, the WDV of depreciable assets should be used. The Supreme Court upheld the validity of Rule 19A in the case of Lohiya Machines Ltd. and Another vs. Union of India and Others, confirming that the rule aligns with the legislative intent. The assessee's counsel argued that Rule 19A should yield to the substantive provisions of Section 80J, suggesting that the actual cost should be considered instead of the WDV. This argument was based on interpretations from various High Court rulings and the assertion that the market value of assets could be higher than both the WDV and the actual cost.

3. Validity and Impact of the Retrospective Amendment of Section 80J by the Finance (No. 2) Act, 1980:

The retrospective amendment of Section 80J by the Finance (No. 2) Act, 1980, effective from 1st April 1972, was a significant point of contention. This amendment specified that the WDV should be used in computing the capital employed. The Supreme Court validated this amendment in the Lohiya Machines Ltd. case, stating that the amendment was clarificatory in nature. Consequently, for the assessment years 1972-73 and 1973-74, the CIT (A) correctly upheld the ITO's order to use the WDV.

Conclusion:

The Tribunal concluded that for the assessment years 1970-71 and 1971-72, the CIT (A)'s order was erroneous, and the ITO's computation using the WDV should be restored. For the assessment years 1972-73 and 1973-74, the CIT (A)'s order was justified due to the retrospective amendment of Section 80J, and the appeals by the assessee-company were dismissed. Thus, the appeals by the Revenue for the assessment years 1970-71 and 1971-72 were allowed, and the appeals by the assessee-company for the assessment years 1972-73 and 1973-74 were dismissed.

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