Commissioner of Income Tax vs Cadila Chemicals P. Ltd.

D.A. Mehta, J.—The following question has been referred by the Income Tax Appellate Tribunal, Ahmedabad Bench "C", u/s 256(2) of the Income Tax Act, 1961 ("the Act").

"Whether, on the facts and in the circumstances of the case, the question regarding computation of capital employed for granting relief u/s 80J of the Income Tax Act, 1961 was rightly decided by the Income Tax Appellate Tribunal ?"

The assessment year is 1982-83 and the relevant accounting period is the calendar year 1981. The assessee, a limited company, claimed relief u/s 80J on the total capital employed of Rs. 1,08,97,124. At the rate of 7.5 per cent, the relief worked out to Rs. 8,17,134. On going through the balance-sheet of the new industrial undertaking of the assessee, namely, Ankleshwar unit, the Assessing Officer found that a sum of Rs. 1,08,95,124 was shown as having been transferred from the head office, which was admittedly the old unit. According to the Assessing Officer, because the old unit had certain borrowings in its separate balance-sheet, the total amount available to the new unit had to be proportionately reduced, because the liability of the new unit was shown as liability of the old unit. He, therefore, worked out the said figure at a sum of Rs. 59,85,542 and deducted the same from the aggregate of the assets worked out by the assessee. Thus the figure of total capital employed in the new unit was reduced to Rs. 49,09,577 and accordingly relief u/s 80J at 7.5 per cent, was worked out at Rs. 3,68,218.

Being aggrieved with the aforesaid order, the assessee carried the matter before the Commissioner of Income Tax (Appeals). The appeal came to be disposed of vide order dated March 30,1988. The Commissioner (Appeals) accepted the contentions raised on behalf of the assessee that the aggregate of the assets could not be reduced by a sum of Rs. 59,85,547 for working out the capital employed. The Commissioner of Income Tax (Appeals) in the process followed the decision rendered by the Bombay High Court in the case of Indian Oil Corporation Ltd. Vs. S. Rajagopalan, Income Tax Officer, Companies Circle II(1), Bombay and Others, . He also referred to a Circular No. 380 dated April 10, 1984, issued by the Central Board of Direct Taxes (CBDT) reported in Additional Commissioner of Income Tax, Delhi-II Vs. Rattan Chand Kapoor,

The Revenue carried the matter in appeal before the Tribunal against the order of the Commissioner of Income Tax (Appeals). The Tribunal upheld the finding recorded by the Commissioner of Income Tax (Appeals) and dismissed the Revenue''s appeal.

Mr. Tanvish U. Bhatt, learned standing counsel appearing on behalf of the applicant Revenue, very fairly submitted that in the light of the circular issued by the Central Board of Direct Taxes the Revenue was not in a position to assail the order of the Tribunal.

Section 80J of the Act provides for deduction in respect of profits and gains from newly established industrial undertaking. For the purpose of working out such a deduction at the prescribed rate capital employed in the newly established industrial undertaking is required to be computed. Sub-section (1A) provides that for the purpose of Section 80J the capital employed in an industrial undertaking shall be computed in accordance with Clause (II) to Clause (IV). As per Clause (II) the aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking is to be ascertained in the first instance. From the said figure the aggregate of the borrowed moneys and debts owed by the assessee is to be deducted as provided in Clause (III). For the present it is not necessary to refer to Clause (IV). The controversy as to what would constitute the aggregate of borrowed moneys and debts owed is no longer required to be gone into in the light of the aforesaid circular issued by the Central Board of Direct Taxes.

In the case of Indian Oil Corporation Ltd. Vs. S. Rajagopalan, Income Tax Officer, Companies Circle II(1), Bombay and Others, , the Bombay High Court has held that for the purpose of arriving at capital employed by the assessee in a particular industrial undertaking one has to deduct from the assets the liabilities of the assessee in respect of that industrial undertaking only. This view has been accepted by the Central Board of Direct Taxes as stated in the aforesaid Circular No. 380 dated April 10, 1984 (see Additional Commissioner of Income Tax, Delhi-II Vs. Rattan Chand Kapoor,

In the circumstances, it is not possible to find any infirmity in the concurrent findings recorded by the Commissioner of Income Tax (Appeals) and the Tribunal that only liabilities pertaining to the new industrial undertaking are to be deducted from the aggregate of the value of the assets of the new industrial undertaking. The question referred is therefore answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

The reference stands disposed of accordingly. There shall be no order as to costs.