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TMI Blog1988 (4) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... 80J. The assessee-company claimed inter alia relief u/s 80J at Rs. 12,36,356 out of which the Income-tax Officer allowed Rs. 3,43,769. This claim included sec. 80J relief on Plant No. 2 also. The claim for sec. 80J relief on Plant No. 2 (the actual quantum not given) was disallowed by the Income-tax Officer on the ground that the liabilities in Plant No. 2 exceeded the value of the fixed assets as on the opening day and as a consequence there was no capital employed to be computed u/s 80J. The Income-tax Officer arrived at this position in the following manner : Rs. Gross fixed assets as on1-5-197636,10,701 Current assets as on1-5-1976Nil The value of the current assets shown by the assessee at Rs. 16,68,650 are mainly on account of the stock of raw material, shares and advances to Snow Temp Engg. Co. Ltd. made after that as the capital employed is to be taken as on the opening balance, so these current assets are not to be taken into account. ----------- --------------------------- 1,360,701 Less : Rs. Secured loans from I.C.I.C.I. 17,57,367 Due to Plant 1 43,41,176 60,98,543 --------------------- ------------------------ It was in this manner that the loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f unit No. 1 the company required borrowed funds. He therefore held that the claim of the assessee that a sum of Rs. 36,11,901 was invested in unit No. 2 out of the reserves and share capital of the assessee-company was incorrect. Referring to the High Court decisions, he held that the Delhi High Court decision would be applicable only if surplus reserve capital was available and not otherwise. He distinguished the Madras High Court decision by pointing out that in order that there is a borrowed money, there must be a third party and in this case there was no third party and therefore it could not be said that there was any borrowings. Thus, he agreed with the Income-tax Officer that there was no positive figure of capital employed in unit No. 2 for the purposes of allowing relief u/s 80J. 4. It was against this order of the Commissioner (A) that the present appeal was filed urging that the view taken by both the Income-tax Officer and the Commissioner (A) was erroneous and that from the reading of the balance sheet, it would at once be clear that there was enough of surplus capital with unit No. 1 to place it in a position to advance money to unit No. 2 and that unit No. 2 was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a case where own capital reserves and loans borrowed were all mixed up inextricably whether it would be possible to say as to what part of that amalgam was utilised in acquiring fixed assets and as to what part was utilised in acquiring current assets. There is no presumption known to us either way unless it is possible to trace from the accounts as to how the funds were utilised. The surplus working capital shown by the balance sheet of plant No. 1 can therefore be taken to be an indication that funds were available in the hands of plant No. 1 for being invested elsewhere and since the borrowals and own capital were inseparably mixed up, a presumption can be that the working capital was out of share capital reserves and the termed loan was utilised in acquiring fixed assets, though vice versa also is arguable and possible. It is of considerable significance to note that term loans are granted for acquiring fixed assets though not always. In so far as unit No. 2 is concerned, the entire money of Rs. 36 lacs came out of surplus funds available in plant No. 1. For the purposes of granting relief u/s 80J, unit No. 2 is regarded as a separate industrial undertaking inasmuch as unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital and putting it into the new industrial undertaking. Employment of capital in a new industrial undertaking is different from the capital belonging to the assessee-company. If surplus/reserve capital is available with the assessee-company it can utilize a specific amount of this capital for the purchase of the plant, machinery, buildings and other assets of the new undertaking. As soon as the capital is so utilised for acquiring assets for the new undertaking, it will be an employment of capital. The actual amount of capital so utilized/employed in the new undertaking would then qualify for the purpose of calculating the deduction. The utilization of a definite amount of capital appears to be contemplated in order to attract the provisions of the section. Further, as the reserves of the assessee-company are distinct from the assets employed in the old unit it would not be a case of transfer of assets of the old unit or business to the new undertaking. Our view appears to be in consonance with the abovementioned decision of the Supreme Court in Textile Machinery Corporation Ltd. [1977] 107 ITR 195, which speaks of investing substantial funds in the new unit without transfer of as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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