COMMISSIONER OF INCOME TAX vs METTUR BEARDSELL LTD.

K. Gnanaprakasam J.

By order dated 19-4-1982, in T. C. P. No. 288 of 1981 this court directed the Tribunal to refer the following questions :

(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Income Tax Officer was not

correct in restricting the relief u/s 80J on time basis when the new unit had worked only for 8 months during the previous year relevant to the

assessment year 1974-75 ?

(2) Whether, on the facts and in the circumstances of the case and having regard to the provisions of rule 19A(3) of the Income Tax Rules, 1962,

the Appellate Tribunal was right in holding that the borrowing and the amounts of current liabilities should not be deducted in arriving at the capital

for computation of relief u/s 80J of the Income Tax Act, 1961 ?

As far as the first question is concerned an identical question was answered by this court in the case of Commissioner of Income Tax, Tamil

Nadu-I Vs. Simpson and Company, , wherein this court has held that :

In construing a provision for exemption or relief, it should be liberally construed. The reason behind this rule of interpretation is that the

administrative authorities or the courts should not whittle down the plenitude of the exemption or relief granted by Parliament by laying stress on

any ambiguity here or there.

By the observation so made, this court has allowed such an exemption in favour of the assessee.

The ratio of that decision is applicable to this case and the first question is answered in favour of the assessee and against the revenue.

With regard to the issue raised in the second question it was answered by the Apex Court in the case of Lohia Machines Ltd. and Another Vs.

Union of India (UOI) and Others, , wherein it has been held that (headnote) :

Sub-rule (3) of rule 19A of the Income Tax Rules, 1962, in so far as it provided for the exclusion of borrowed monies and debts and particularly

long-term borrowings in the computation of the capital employed by a new industrial undertaking for the purposes of the tax exemption could not

be said to be outside the rule-making authority conferred on the Central Board u/s 80J(1) of the Income Tax Act, 1961.

and further held that :

The result was that the exclusion of borrowed monies in the computation of the capital employed continued and that was plainly and indubitably in

accord with the intention of Parliament. But when section 80J replaced section 84 and rule 19A was made with a view to giving effect to section

80J a change was deliberately brought about and long-term borrowings from approved sources were brought into computation of the capital

employed. This change was, however, short lived and with effect from 1-4-1972, the original position was restored. The Finance Minister made it

clear by way of a preface in his Budget Speech that he proposed to exclude debentures and long-term borrowings in computing the capital

employed and in accordance with this statement, rule 19A was amended so as to exclude all borrowed monies. The amending rule was laid before

each House of Parliament and there was no dissent or disapproval. It is not possible to believe that despite the statement of the Finance Minister

on the floor of the House and the placing of the amending rule before each House, Parliament was not aware as to what the amended rule 19A

provided. Parliament must be presumed to have known that rule 19A was amended in accordance with the statement of the Finance Minister and

the amended rule 19A provided for exclusion of borrowed monies in computing the capital employed and yet Parliament even if it thought that such

exclusion was contrary to its true intent, did not take any steps to rectify the position. Then again, while moving the Finance (No. 2) Bill, 1980, the

Finance Minister stated on the floor of the House that the intention of Parliament has always been to exclude borrowed monies in computing the

capital employed and, therefore, section 80J was sought to be amended by incorporating rule 19A in the section with retrospective effect. This

legislative history traced by us clearly shows beyond doubt that Parliament throughout, save in respect of the period from 1-4-1968, to 31-3-

1972, approved of exclusion of borrowed monies in computing the capital employed being in conformity with its intention and regarded such

exclusion as being within the terms of section 15C or section 84 or section 80J, as the case may be.

By observing so, the Apex Court has stated that that the assessee cannot have the inclusion of the capital borrowed in the computation of the

capital employed"" and disallowed the claim of assessee.

Applying the ratio of the said judgment, we answer the second question in favour of the revenue and against the assessee.