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TMI Blog1976 (11) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1957-58 and 1958-59, which could justify the orders passed by the Income-tax Officer under section 154 for both the years ? " The short facts are that the assessee, which is a public limited company, manufactures locomotives and trucks and for the two relevant assessment years it was regarded as having a new industrial undertaking that manufactures automobiles enabling it to obtain the relief under section 15C of the Act. Under section 15C, tax was not payable by an assessee on profits and gains derived from any industrial undertaking which satisfied certain conditions mentioned in the section up to the extent of 6% on the capital employed in the undertaking computed in accordance with the Rules made by the Central Board of Direct Taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated under section 154, the Income-tax Officer took the view that the inclusion of the two amounts of average profits in the capital employed was not justified, since, according to him the assets and liabilities taken into account in the computation of capital had embedded in them the average profits earned during the period under consideration and that there was no justification for a further addition of average profits in determining the capital employed. Accordingly, he deducted the two sums of Rs. 40,47,095 in the first year and Rs. 59,97,244 in the second year from the capital as computed earlier and withdrew the relief granted under section 15C proportionately. The assessee preferred appeals to the Appellate Assistant Commissioner aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l provisions, it was not possible to dismiss as fantastic the argument of the assessee that the rules did contemplate the addition of the profits earned in the year of account to the capital determined by reference to the assets and liabilities. It, therefore, accepted the assessee's appeal. At the instance of the Commissioner the question set out at the commencement of the judgment has been referred to us for our determination. Though in this reference we are really not concerned with deciding the issue on merits, we may state that the question as to whether the amounts of average profits earned by an assessee during the accounting years should be included or excluded while ascertaining the average amount of capital employed in a busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, clearly expressed the view that the provision of the rule being artificial the computation done by the assessee also could not be regarded as absurd or wrong. There is no doubt that "on this question two views are clearly possible and in fact we may point out that the Gujarat High Court in the case of Commissioner of Income-tax v. Elecon Engineering Co. Ltd. [1976] 104 ITR 510 (Guj), while dealing with a similar provision which is to be found in rule 19(5) framed by the Central Board of Direct Taxes under the 1961 Act, has actually taken the view that the amount representing average profits is liable to be added while ascertaining the average amount of capital employed in a business during the relevant computation period. Having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (Bom). Following the decision in T. S. Balaram, Income-tax Officer v. Volkart Brothers [1971] 82 ITR 50 (SC) and this court's decision in the aforesaid case reported in [1974] 94 ITR 519, we are clearly of the view that the rectification orders passed by the Income-tax Officer, for the two assessment years 1957-58 and 1958-59, were not justified. We may also mention that when similar rectification orders were passed by the taxing authority under rule 19(5) while working out the capital for the purpose of section 84 of the Income-tax Act, 1961, the Gujarat High Court in the case of Commissioner of Income-tax v. Premraj Ganpatraj Co. [1974] 95 ITR 447 (Guj) has also taken the view that the rectification was unjustified. In the result, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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