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TMI Blog1980 (5) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Act, 1961 (hereinafter referred to as " the Act "). Its accounting year starts from April 1 to March 31 of the subsequent year. The assessment year in the present case is 1975-76 for which the relevant previous year is 1974-75. The petitioner filed a return for the above-said assessment year an July 30, 1975, declaring an income of Rs. 1,00,740 but did not take into account the provisions of s. 80J of the Act. Consequently, a revised return was filed by it on October 25, 1975, declaring an income of Rs. 84,900 by taking into consideration r. 19A(3) of the I.T. Rules (hereinafter referred to as " the Rules "), according to which from the aggregate of the amounts as ascertained under sub-r. (2) could be deducted the aggregate of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year) : ........" " 19A. (1) For the purposes of section 80J, the capital employed in an industrial undertaking or the business of a hotel shall be computed in accordance with sub-rules (2) to (4), and the capital employed in a ship shall be computed in accordance with sub-rule (5). (2) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking in the popular sense cannot mean the difference between the total capital and borrowed capital. On the other hand, it will include the total investment in the industrial undertaking whether it is by the proprietor from his own resources or from the borrowings raised from others. The borrowed capital is used for running an industrial undertaking in the same way in which the other capital is used. The purpose for enacting the aforesaid provision is to encourage persons to set up industries. If the aforesaid words are interpreted so as not to include the borrowed capital, the whole purpose of the legislation is frustrated. It is an established principle of law that when there is difficulty in interpreting a statute its primary and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. After taking into consideration all the aforesaid reasoning, I am of the opinion that sub-r. (3) of r. 19A could not be framed under s. 295 read with s. 80J and, therefore, it is ultra vires under s. 80J. In the aforesaid view, I am fortified by the observations in Century Enka Ltd. v. ITO [1977] 107 ITR 909 (Cal). It is held in it by a learned judge of the Calcutta High Court that there is no warrant for restricting the computation of capital in the manner laid down in the rule and in so far as r. 19A(3) does so, it is violative of the authority given under s. 80J and is not carrying out the purpose of the Act. It is further observed that, therefore, r. 19A(3) in so far it directs exclusion of borrowed capital, except from the approve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation must be in such manner as provided in the Rules, the manner being one of the well known methods of computing capital employed. Sub-rule (3) of rule 19A does not prescribe any manner of computation of the capital employed but is a provision which enables deduction being made from the capital employed of certain amounts specified. The section does not warrant any such rule being made nor does it confer any power on the rule-making authority to make any such provision. The framing of such a rule is not for carrying out the purposes of the Act and no rule-making authority can amend the provisions of the Act. Therefore, sub-rule (3) of rule 19A should not be relied on for the purpose of computing the ' capital employed ' under section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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