Commissioner of Income Tax vs Adoni Vanaspathi Manufacturers

T.N.C. Rangarajan, J.—The brief facts relating to this reference are that the assessee is a company which had established a new industrial undertaking and claimed relief u/s 80J of the Income Tax Act, 1961. For the assessment year 1975-76, the previous year was the period October 27, 1973, to November 13, 1974. On October 27, 1973, the opening capital was Rs. 4,88,117 and there was a borrowed capital of Rs. 10,36,279 and closing balance on that day was Rs. 14,67,677. Originally, the assessee had been allowed deduction u/s 80J in respect of the closing balance as on that date. The assessment was alter revised to reduce the relief by computing the deduction on the basis of the opening balance on that date. The assessee appealed without success but in the second appeal, the Appellate Tribunal accepted the claim of the assessee that the deduction u/s 80J should be based on the capital employed on the first day which included transactions of that day and reflected as the closing balance of that day. At the instance of the Revenue, the following question has been referred :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that rule 19A could be ignored in the computation of relief u/s 80J for the assessment year 1975-76 and whether, the relief as computed in the original assessment is correct under the law in the facts and circumstances of the assessee''s case ?"

In the meanwhile, section 80J has undergone statutory changes incorporating rule 19A and the matter went up to the Supreme Court. In Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, , the Supreme Court upheld the retrospective amendment. Learned counsel for the Revenue has pointed out that one of the arguments made on behalf of the assessee in that case was that the term "capital employed" should include the capital employed throughout the computation period and should not be restricted to the capital employed on the first day. The Supreme Court rejected that contention and held that the restriction of the relief to the capital employed on the first day was valid. However, that itself does not conclude the issue raised in this case, viz., whether the expression "aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking" would refer only to the opening balance on the first day or would also include other transactions and should refer to the closing balance on the first day. Learned counsel for the Revenue points out that the rejection of the argument that the other capital employed during the entire computation period should also be taken into account, includes also the transactions of the first day because immediately after the opening balance, even the transactions of the first day must be taken to be the capital employed during the computation period and not on the first day of the computation period. This stands to reason because the expression "capital employed as on the first day of the computation period" must necessarily refer only to the opening balance on the first day of the computation period, which is the capital actually employed in the inception. The question referred has, therefore, to be answered in the negative, in favour of the Revenue and against the assessee.