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TMI Blog1975 (9) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (4) of section 80J of the Income-tax Act, 1961. For the assessment year 1971-72, the relevant previous year for which is the year ending on September 30, 1970, the petitioner submitted its return for assessment to income-tax and the petitioner stated that the petitioner was entitled to deduction in the computation of its total income for the said assessment year 1971-72, under the provisions of section 80J of the Act of 1961, out of the profits and gains derived by it from the said undertaking, of so much of the amount thereof as did not exceed the amount calculated at the rate of 6 per cent. per annum on the capital employed in the said industrial undertaking in the said previous year relevant to the said assessment year. On that basis, according to the petitioner, the petitioner was entitled to a deduction of Rs. 40,57,324. The capital employed during the previous year, according to the petitioner's calculation, was Rs. 6,76,22,072. Six per cent. of the said amount of capital would amount to Rs. 40,57,324. The petitioner made a claim accordingly before the Income-tax Officer. The computation made by the petitioner was based not only on the value of assets and liabilities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o implement the working out of the scheme of the section, rules were framed (see Indian Income-tax (Computation of Capital of Industrial Undertakings) Rules, 1949) and rule 3 on the computation of capital employed in an undertaking for the purpose of section 15C of the Indian Income-tax Act, 1922, provided as follows: " 3. (1) For the purpose of section 15C of the Act, the capital employed in an undertaking to which the said section applies shall be taken to be-- (a) in the case of assets acquired by purchase and entitled to depreciation-- (i) if they have been acquired before the computation period, their written down value on the commencing date of the said period; (ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period; (b) in the case of assets acquired by purchase and not entitled to depreciation-- (i) if they have been acquired before the computation period, their actual cost to the assessee ; (ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period; (c) in the case of assets being debts due to the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of the business, shall be left out of account, but where any investments in the beneficial ownership of the person carrying on the business are so left out of account, the sum (if any) to be deducted under sub-rule (3) in respect of borrowed money shall be computed as if the principal of the borrowed money were reduced by the value of those investments. (6) For the purpose of ascertaining the average amount of capital employed in a business during any computation period, the profits or losses made in that period shall, except so far as the contrary is shown, be deemed (a) to have accrued at an even rate throughout the said period ; and (b) to have resulted, as they accrued, in a corresponding increase or decrease, as the case may be, in the capital employed in the business." When the Income-tax Act, 1961, repealed the Indian Income-tax Act, 1922, section 84 was introduced to further the same purpose as section 15C of the Indian Income-tax Act, 1922. The relevant sub-section provided as follows : " 84. (1) Save as otherwise hereinafter provided, income-tax shall not be payable by an assessee on so much of the profits or gains derived from any industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h having been previously used for, any purpose is transferred to the undertaking or hotel at the time of its formation, shall not be taken into account for computing the capital employed in cases to which the Explanation to section 84 applies." As a result of the amendment effected by the Finance (No. 2) Act, 1967, these amendments in section 84 were effective for the prescribed period and from 1st April, 1968, section 84 stood repealed and section 80J was introduced. Section 80J provides as follows : " 80J. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases.--(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the aggregate of the deductions, if any, admissible to the assessee under section 80H and section 80HH) of so much of the amount thereof as does not exceed the amount c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el. 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." The question is whether rule 19A, in so far as by sub-rule (2) it stipulates that the aggregate amount representing the value as on the first day of the computation period should be the basis for the determination of capital employed in an industrial undertaking for the purpose of relief to be granted under section 80J of the Act of 1961, is valid. It was submitted that the purpose of section 80J was to grant tax holiday or relief in respect of the capital employed in the new industrial undertaking of specified types, in respect of capital employed therein up to a certain percentage, namely, 6 per cent. The purpose of the section is to encourage deployment of capital in those industries. The deduction is given in respect of the previous year in respect of the capital employed. This section does not provide as such as to whether the capital had to be employed during a part or the whole of the previous year. In the parenthesis portion of the section, however, it is provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any judicial interpretation. There is only the indication how the rule-making authority understood the expression " capital employed " in section 15C of the Indian Income-tax Act, 1922, and section 84 of the Act of 1961, before its amendment in 1967. The main consideration upon which, in my opinion, this question has to be resolved is, whether having regard to the purpose for which provision of section 80J of the Act was introduced, it was the legislative intent to restrict the capital employed in any manner so as to limit it to the first day of the computation period. It was suggested that such a basis might lead to incongruous results ; for instance, if an assessee deploys a large amount of capital on the first day of the previous year then he would be entitled to deduction under section 80J even though on the next day or some time thereafter he withdraws capital ; on the other hand, an assessee who introduces or brings in capital not on the first day but some time thereafter and keeps the capital employed for a good part of the previous year would not be entitled to the benefits of section 80J as the capital was not employed on the first day of the previous year. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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