Rule 19a of the Income-tax Rules, 1962, is ultra vires to the extent that it restricts the computation of capital employed to the first day of the computation period, as it curtails the relief granted under Section 80j of the Income-tax Act, 1961.

( 1 ) WHETHER Rule 19a of the Income-tax Rules, 1962, providing for the computation of capital employed in an industrial undertaking or a hotel business for the purpose of Section 80j of the Income-tax Act, 1961, restricts the scope of reliefs under Section 84 of the Income-tax Act, 1961, is the question that falls for consideration in this application under Article 226 of the Constitution.

( 2 ) THE petitioner is Century Enka Ltd. The petitioner carries on business, inter alia, of manufacture, process and sale of polymide, polyester, rayons or any other type of man-made fibres of silk, wool, cotton or any other types of natural fibres. In the year 1969 the petitioner established an industrial undertaking at Ghosari Post, Poona, for the manufacture of and/or process of nylon yarn and other fibres. It is the case of the petitioner that the said undertaking satisfies the conditions laid down by Sub-section (4) of Section 80j of the Income-tax Act, 1961. For the assessment year 1971-72, the relevant previous year for which is the year ending on September 30, 1970, the petitioner submitted its return for assessment to income-tax and the petitioner stated that the petitioner was entitled to deduction in the computation of its total income for the said assessment year 1971-72, under the provisions of Section 80j of the Act of 1961, out of the profits and gains derived by it from the said undertaking, of so much of the amount thereof as did not exceed the amount calculated at the rate of 6 per cent. per annum on the capital employed in the said industrial undertaking in the said previous year relevant to the said assessment year. On that basis, according to the petitioner, the petitioner was entitled to a deduction of Rs. 40,57,324. The capital employed during the previous year, according to the petitioner's calculation, was Rs. 6,76,22,072. Six per cent. of the said amount of capital would amount to Rs. 40,57,324. The petitioner made a claim accordingly before the Income-tax Officer.

( 3 ) THE computation made by the petitioner was based not only on the value of assets and liabilities as on the first day of the previous year but also on the average amounts of increases and/or decreases in the assets and liabilities during the previous year.

( 4 ) THE respondent No. 1, the Income-tax Officer, made the assessment under Section 143 (3) of the Act of 1961, for the assessment year 1971-72 and in so assessing rejected the contention of the petitioner and applied Rule 19a of the Income-tax Rules, 1962, for computation of the capital employed. The Income-tax Officer computed the capital employed as on the first day of October, 1969, and determined the same at Rs. 5,26,59,600. The amount of admissible deduction under Section 80j of the Income-tax Act, 1961, was determined at Rs. 31,60,555 being the amount of 6 per cent. of the said Rs. 5,26,59,600.

( 5 ) THE petitioner has made this application under Article 226 of the Constitution of India on the 24th day of May, 1972, against the said assessment order dated the 18th February, 1972. The subject-matter of challenge in this application is the applicability of Rule 19a of the rules, 1962, in determining the capital employed in the petitioner's undertaking for computation of deduction under Section 80j of the Act of 1961. In order to determine this question, in this case, it would be relevant to refer to the legislative history of Section 80j of the Act of 1961. For the purpose of giving relief to the new industrial undertakings of the capital employed in such undertaking the Indian Parliament seems to have been motivated in introducing Section 15c to the Indian Income-tax Act, 1922, The same was inserted by Section 13 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949. The said Section as introduced in 1949 provided as follows :"15c. Exemption from tax of newly established industrial undertakings.-- (1) Save as otherwise hereinafter provided,