Oswal Woollen Mills Ltd. vs Commissioner of Income Tax

K.S. Bhalla, J.—At the instance of assessee-company, Oswal Woollen Mills Ltd., Ludhiana, the Income Tax Appellate Tribunal, Amritsar, has referred the following two questions for the opinion of this court relating to the assessment year 1972-73 with regard to the said company :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in refusing to admit and adjudicate on the additional ground of appeal in respect of the claim of the assessee for grant of deduction u/s 80J relating to the export wing ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in refusing to admit and adjudicate on the additional ground of appeal in respect of the claim of the assessee for grant of deduction u/s 80J relating to the vanaspati unit ?"

Facts giving rise to the present reference, briefly stated, are as under :

The assessee-company, at the time of its assessment for the assessment year 1972-73 and accounting year ending with December 31, 1971, claimed deduction u/s 80J of the Income Tax Act, 1961 (hereinafter called "the Act"), in respect of profits and gains for its two units, namely, export wing and vanaspati unit, separately . The Income Tax Officer, in his assessment order dated March 20, 1975 (annexure "B"), allowed no deduction with regard to the export wing but some deduction was allowed u/s 80J of the Act so far as vanaspati unit was concerned. In so doing, he excluded secured and unsecured loans of the unit in working out the capital employed. In the case of the export wing, although no deduction was allowed, still realising that the appellate authorities may or may not agree with him so far as denial of such deduction was concerned, he computed the relief admissible and gave its working in annexure ''I'' of his assessment order and there also excluded secured and unsecured loans in working out the figure of capital employed. Feeling aggrieved by the aforesaid assessment order of the Income Tax Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner of Income Tax, vide grounds of appeal, annexure "D". The relevant ground with regard to the deduction u/s 80J of the Act was taken at No. 5 and runs as under :

"that the learned Income Tax Officer has not allowed correctly Section 80J claim in respect of the company''s vanaspati unit and Section 80J claim in respect of the export wing unit has neither been correctly worked out nor allowed."

This naturally meant that both denial of the deduction u/s 80J with regard to the claim in respect of the export wing and the working out of the capital employed was assailed and when the assessee said that deduction u/s 80J of the Act was not correctly worked out, it necessarily implied that mode of computation or working out of the capital employed was attacked by the assessee.

The Appellate Assistant Commissioner, vide his order dated January 22, 1976, annexure "C" affirmed the findings of the Income Tax Officer on the relevant point. While dealing with ground of appeal No. 5 referred to above with regard to the vanaspati unit, he remarked that no details had been furnished before him as to how it has not been correctly worked out. With regard to the export wing, he relied upon the order of the Income Tax Appellate Tribunal for the assessment year 1970-71 so far as the admissibility was concerned and further said that since the claim had been rejected, he did not consider it necessary to go into the correctness of calculation of the claim u/s 80J.

Appeal against the order of the Appellate Assistant Commissioner was preferred to the Income Tax Appellate Tribunal, vide grounds of appeal, annexure "E", wherein under ground No. 6, only disallowance of Section 80J claim amounting to Rs. 40,392 which possibly related to the export wing was assailed and no attack on working out of capital employed or computation of deduction u/s 80J of the Act with regard to either of the two units was made. However, during pendency of the appeal before the Tribunal, vide its application dated April 15, 1977, (annexure "A-2"), the assessee-appellant pleaded additional grounds of appeal (Annexure "A-1"), wherein working out of the deduction by the authorities below u/s 80J with regard to both the units too was assailed and it was made clear that the total capital employed including borrowed money should have been made the basis to work out the deductions. The Tribunal, vide its order dated February 15, 1978 (annexure "F"), irrespective of its decision for the assessment year 1970-71, held that the export wing unit of the assessee qualified for deduction to the tune of Rs. 40,392, observing that it was the duty of the Tribunal to take guidance from the judgment delivered by the Supreme Court which had become available after the earlier decision of the Tribunal and that the Income Tax Officer had already given an alternative finding on the point in the assessment order which is backed by a computation, annexure "I", to his assessment order. But, the Tribunal refused to admit and adjudicate on the additional ground with regard thereto which covers computation or working out of the deduction under the relevant provision of law, That necessitated the application of the assessee-company giving rise to the present reference.

We are of the considered opinion that the additional ground with regard to the computation u/s 80J could not have possibly been considered as a fresh ground, as is obvious from the history of the case traced above and, therefore, should have been admitted by the Tribunal. It was something which rested on the discretion of the Tribunal and could not have been treated as a new point in the manner in which the ground of weighted deduction u/s 35B of the Act was treated, to come to the conclusion that the Tribunal had no jurisdiction with regard thereto. It has been admitted by the Tribunal in the reference order that when the assessee files an application for permission to raise additional grounds of appeal in relation to the subject-matter which is already before the Tribunal by way of appeal, the matter will merely rest on the discretion of the Tribunal and would not be one of the Tribunal''s jurisdiction. This subject-matter obviously was already before the Tribunal in the sense that when an assessee is eligible to qualify for deduction u/s 80J of the Act, the deduction is bound to be computed or worked out correctly. A person who is entitled to get relief from any Tribunal has to be given true relief after working out the same in accordance with law. Deduction u/s 80J of the Act has been allowed with regard to the vanaspati unit in the assessment order itself and with regard to the export wing by the Tribunal. Its working out was assailed before the Appellate Assistant Commissioner under ground No. 5 of the grounds of appeal preferred before him. The same, unfortunately, was not dealt with. As already observed above, once a person alleges that deduction was not correctly made, it necessarily means that he objects to its working out or calculation. With regard to the vanaspati unit, the Appellate Assistant Commissioner remarked that the attack was not properly spelt out and with regard to the export wing, he did not feel the necessity of going into that question because he felt that it did not qualify for such deduction. The Tribunal, however, set aside his said finding and came to the conclusion that it qualified for deduction but strangely enough did not go into the question of computation. Therefore, in the additional ground of appeal, the assessee tried to spell out the course of attack making it clear that the total capital employed was to be taken into consideration without excluding secured and unsecured loans. We think, the additional ground of appeal was, by way of clarification, sought by the Revenue itself when it avoided to read in between the remark of the assessee that deduction was not correctly worked out. The Tribunal, therefore, should have, on the facts and in the circumstances of the case, entertained the additional ground with respect to deduction u/s 80J of the Act and adjudicated upon the same with regard to both the units.

Finance (No. 2) Act, 1980, brought out an amendment retrospectively with effect from April 1, 1972, only, and the new mode of computation provided by Sub-section (1A) to Section 80J of the Act was introduced since then. Earlier, the position was different and as such borrowed money perhaps was also required to be taken into consideration. For that reason too, the Tribunal was called upon to adjudicate with regard thereto. In Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, it was held that the expression, "capital employed" is susceptible of more than one interpretation and it may include long-term borrowings or it may not, depending on the context and the circumstances in which it is used and that the said expression "capital employed" is not a term of art nor is it an expression having a fixed connotation or meaning. In tracing the legislative history behind the use of the word "computed" in relation to "capital employed", it was observed in the said ruling of the apex court that Parliament throughout, save in respect of the period from April 1, 1968, to March 31, 1972, approved of exclusion of borrowed monies in computing the "capital employed", which obviously means that during the period from April 1, 1968, to March 31, 1972, borrowed monies were not excluded in computing the capital employed. It has been made clear in Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, that period of long term borrowings from approved sources were then brought into the computation of the "capita] employed". As the accounting year of the assessee in this case falls within that period, it was incumbent on the Tribunal to admit and adjudicate on the additional ground of appeal in respect of the claim of the assessee for grant of deduction u/s 80J relating to both the export wing as well as vanaspati unit. The Tribunal, therefore, was not right in refusing to do so. Both the questions referred to this court for opinion thus are answered in favour of the assessee. No costs.