Commissioner of Income Tax vs Shalabh Sharma

P.D. Mulye, J.—The Tribunal, at the instance of the Commissioner, Bhopal has referred the following question of law to this Court for its opinion, u/s 256(1) of the income tax Act, 1961 (''the Act''):

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for the purposes of computing the deduction u/s 80J, borrowed capital as well as capital introduced or investment made on capital account after the first day of the accounting period should also be taken into consideration and, consequently, in directing the ITO to recompute the deduction admissible u/s 80J?"

The facts giving rise to this reference as per the statement of case received may be stated in brief; thus, the respondent-assessee runs an ancillary industry for the BHEL, Bhopal and also carried on job work. During the assessment year 1975-76 the assessee claimed deduction u/s 80J of the Act amounting to Rs. 6,269. The deduction so claimed by the assessee was worked not only on his own capital, but also on the capital borrowed and the capital introduced after the first day of the relevant accounting year. The ITO restricted the assessee''s claim to a sum of Rs. 327 which was worked out at 6 per cent on the assessee''s own capital of Rs. 5,456 which was employed in the business.

The respondent-assessee went in appeal before the Commissioner (Appeals) where it was submitted that rule 19A of the income tax Rules, 1962 was struck down as ultra vires by some High Courts and, hence, the ITO was not justified in computing the deduction u/s 80J in accordance with the said rule. The Commissioner (Appeals) did not accept the assessee''s contention and held that the deduction u/s 80J could not be made in disregard of the provisions of rule 19A and, hence, he accepted the computation as made by the ITO.

Against the order of the Commissioner (Appeals), the assessee filed appeal before the Tribunal, the Tribunal relying on the decisions of the Calcutta High Court in Century Enka Ltd. Vs. Income Tax Officer and Others, the Madras High Court in Madras Industrial Linings Ltd. Vs. Income Tax Officer and Others, the Allahabad High Court in Kota Box Mfg. Co. v. ITO [1978] CTR 373 and also the Special Bench decisions of the Tribunal in the case of Amar Dye-Chem. Ltd. v. ITO [1985] 3 SOT 384 (Bom.) and in ITO v. J.K. Synthetics Ltd. [1982] 1 SOT 415 (Delhi) as well as some decisions of its own Bench came to the conclusion that for the purposes of computing the deductions admissible u/s 80J not only the assessee''s capital but the capital borrowed and also capital introduced after the first day of the accounting year should also be taken into account.

Hence, this reference.

At the hearing of this petition none appeared on behalf of the respondent-assessee.

We have heard the learned counsel for the revenue, Shri R.C. Mukati. He submitted that in view of the Supreme Court decision in Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, the reference has to be answered in favour of the department and against the assessee.

After going through the said judgment, we are of the opinion that the question referred to this Court for its opinion has to be answered in favour of the department and against the assessee. The reference is answered accordingly. No order as to costs.