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TMI Blog1980 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... place of Rs. 13,975 allowed ? " The facts stated are that the assessee is a registered firm deriving income from manufacture and sale of barbed wire and G.I. wire, etc. The relevant assessment year is 1971-72, for which the accounting year ended on 31st March, 1971. The assessee claimed a deduction under s. 80J of the Act. The ITO was of the view that the assessee could be given relief under s. 80J of the Act at 6 per cent. on the net capital employed. In other words, the ITO was of the opinion that the amount borrowed and invested in the industrial undertaking by the assessee could not be taken into consideration for computing capital under s. 80J of the Act. On this basis, the ITO rejected the claim for deduction amounting to Rs. 67,548 and allowed deduction only of Rs. 39,975. The order of the ITO was upheld by the AAC. The Tribunal, however, took a different view. The Tribunal followed a decision of its Bombay Bench and held that the capital employed in an industrial undertaking is the entire investment of the assessee in the undertaking and that no distinction can be made between the assessee's own capital and borrowed capital. The Tribunal ignored r. 19A on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of assets acquired otherwise than by purchase and not entitled to depreciation, the value of the assets when they became assets of the business ; (iv) in the case of assets being debts due to the persons carrying on the business, the nominal amount of those debts; (v) in the case of assets being cash in hand or bank, the amount thereof. Explanation I.-In this rule, 'computation period' means the period for which profits and gains of the industrial undertaking or business of the hotel are computed under sections 28 to 43A. Explanation 2.-The value of any building, machinery or plant or any part thereof as is referred to in clause (a) or clause (b) of the Explanation at the end of sub-section (6) of section 80J shall not be taken into account in computing the capital employed in the industrial undertaking or, as the case may be, the business of the hotel. Explanation 3.-Where the cost of any asset has been satisfied otherwise than in cash, the then value of the consideration actually given for the asset shall be treated as the actual cost of the asset. (3) From the aggregate of the amounts as ascertained under sub-rule (2) shall be deducted the aggregate of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a taxing Act have no jurisdiction to decide the validity of any of its provisions or rules or notifications made, thereunder: [See K. S. Venkataraman and Co. (P.) Ltd. v. State of Madras [1966] 60 ITR 112 (SC) and Dhulabhai v. State of M.P. [1968] 22 STC 416 (SC)].. Indeed, even the High Courts and the Supreme. Court in a reference have normally no jurisdiction to entertain the validity of the taxing Act or a statutory rule or order made under it: [See CIT v. Straw Products [1966] 60 ITR 156 (SC)]. Learned counsel for the assessee, however, has relied upon the decisions of the Calcutta, Madras and Allahabad High Courts in support of his submission that the expression " capital employed " as used in s. 80J is not restricted to the assessee's own capital and that r. 19A(3) is invalid in so far as it provides for the deduction of borrowed moneys in computing the capital employed. These decisions are: Century Enka Ltd. v. ITO [1977] 107 ITR 909 (Cal), Madras Industrial Linings Ltd., v. ITO [1977] 110 ITR 256 (Mad) and Kota Box Mfg. Co. v. ITO [1980] 123 ITR 638 (All). These cases do support the contention of the learned counsel for the assessee, but as they are not binding on us, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very important factor to hold that r. 19A(3) which follows the same pattern as r. 3(3) of the 1949 Rules, is valid and is in line with the intention of Parliament in enacting s. 80J. Where contemporaneous and practical interpretation has stood unchallenged for a considerable length of time, it is regarded as of great importance in arriving at the proper construction of a statute. Further, such an interpretation gains greater weight when the statute as interpreted is re-enacted and is regarded presumptively the correct interpretation of the law. This rule is based upon the theory that the Legislature is acquainted with the contemporaneous interpretation of a statute, especially when made by an administrative body or executive officers charged with the duty of administering or enforcing the law, and, therefore, impliedly adopts the interpretation upon re-enactment: (See Sutherland's Statutory Construction, 3rd Edn., pp. 520, 521, 523, 524). This important principle was not considered by the Calcutta, Madras and Allahabad High Courts in holding that r. 19A(3) in so far as it provides for the deduction of borrowings and debts in the computation of the capital employed, goes beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sees who have to borrow capital are given relief by s. 36(1)(iii) of the Act which permits deduction of interest on borrowed capital in the computation of income. The benefit of s. 36(1)(iii) is obviously not available to those who do not borrow capital to finance their undertakings. This may be the reason for not including borrowed moneys in computing the relief under s. 80J. It is well settled that Parliament has a very wide discretion of making classifications in matters of taxation. It is not possible to argue, nor it is argued, that the construction adopted by us will make s. 80J invalid being violative of art. 14. As explained by us, there are weighty reasons to hold that r. 19A(3) is consistent with the intention of Parliament and does not go beyond the rule-making power conferred by s. 80J. For the reasons given above, we answer the questions as follows: (1) The Tribunal was not justified in ignoring r. 19A(3). (2) The Tribunal was not justified in holding that borrowed capital has not (sic) to be included in the computation of capital employed. (3) The Tribunal was not justified in enhancing the deduction under s. 80J from Rs. 13,975 to Rs. 67,548. There will be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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