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TMI Blog1986 (1) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... ised. This ground is also rejected in the light of our above order. 5. The next ground is that the CIT(A) erred in directing the IAC to admit the claim of the assessee under s. 35(1)(iv) in respect of capital work-in-progress, machinery and equipment in transit. This is rejected in the light of our above order. 6. The next ground is that the CIT(A) erred in directing the IAC to include the value of capital work-in-progress and plant and machinery in transit without appreciating the fact that the decision of the Tribunal in this regard has hot become final. This ground is rejected in the light of our above order since confirmed in I.T.R.C. Nos. 40 41/84 dt. 12th Dec., 1985. 7. The next ground is that the CIT(A) erred in directing the IAC to allow weighted deduction on a portion of the commission paid to M/s HMT (International) Ltd. by the assessee. The observations of the CIT(A) are given below: "The next ground of appeal is regarding rejection of the assessee's claim under s. 35B. The assessee paid certain commission to HMT(International) Ltd. and claimed 10 per cent of that commission amounting to Rs. 6,87,604 for the purpose of weighted deduction under s. 35B. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in directing the IAC to allow deductions under ss. 80J and 80HH on the basis of profits determined on commercial principles after deducting only current depreciation without considering the insertion of s. 80AB by Finance (No. 2) Act of 1980 which is operative from 1st April, 1981. The findings of the CIT(A) are given in para 18 of the his order and are reproduced below: "The next ground of appeal is regarding manner of allowance of relief under ss. 80 and 80HH of the Act. According to the assessee, the deduction under theses two sections is to be computed on the basis of commercial profits prior to depreciation. The IAC, however, has computed the deduction on the basis of the income computed under the IT Act. The Tribunal, vide its order dt. 28th Sept., 1983 upheld the order of the CIT(A) for the asst. yr. 1977-78 holding that profits gains derived from a new industrial undertaking should be considered as profits gains determined on commercial principles. Under the circumstance, I hold that for the purpose of computation of relief under ss. 80J and 80HH, profits determined on commercial principles after allowing current depreciation shall be the basis." (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act, the profits and gains of an industrial undertaking or ship or the business of a hotel to which the provisions of sub-s. (1) shall apply, for the purposes of determining the quantum of deduction under sub-s. (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent year up to and including the assessment year for which the determination is to be made." (d) The order relied upon by the assessee's ld. counsel does not apply to this year as its related to the asst. yr. 1977-78 before the introduction of s. 80AB. Further the words "the amount of income of that nature as computed in accordance with the provision of this Act" make it clear that the industrial unit has to be taken as a separate unit and its income has to be determined in accordance with the provisions of this Act. It requires that the unabsorbed depreciation and previous losses have to be set off against the income "of that nature". As oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion of any assets which form part of the capital of the company. I agree with the assessee. The manner of computation of capital employed is contained in sub-s. (1A) of s. 80J. This speaks of various types of assets and there is nothing to show exclusion of any assets for the purpose of capital computation. The assets used for scientific research which are entitled to deduction under s. 35(1)(iv) have to necessarily relate to the business carried on by the assessee otherwise deduction under s. 35(1)(iv) is not available. The assts owned by the assessee and related to the business of the assessee cannot be excluded from the capital unless there is specific exclusion mentioned in the Act. Under the circumstances, I hold that he assessing authority should recompute the capital by including the value of the capital assets to the extent of Rs. 44,10,303." (i) The Revenue's case in brief is as Explanation—I to s. 80J(1A)(II) states that the actual cost has the same meaning as in cl. (1) of s. 43. Sec. 43(1) states that 'actual cost' means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A)] of s. 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under cl. (iv) of sub-s. (1) of s. 35 or under any corresponding provision of the Indian IT Act, 1922 (11 of 1922)." Sec. 80J(1A)(II): "The aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking or of the business of the hotel to which this section applies shall first be ascertained in the following manner: (i) in the case of assets entitled to depreciation, their write down value; (ii) in the case of assets acquired by purchase and not entitled to depreciation their actual cost to the assessee, (iii) in 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 person 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." Expln. 1: "In this clause, 'actual cost' has the same meaning as in cl. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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