DIPAK KUMAR SEN, J.

( 1 ) UNDER Section 256 (1) of the Income-tax Act, 1961 (" the Act "), the following questions have been referred as questions of law arising out of the order of the Tribunal for the opinion of this court at the instance of the assessee : "1. Whether, on the facts and in the circumstances of the case, in computing the capital employed for working out the deduction under Section 80j of the Income-tax Act, 1961, the depreciation in respect of the assets already allowed has to be considered ?

( 2 ) WHETHER, on the facts and in the circumstances of the case, in computing the capital employed for the purpose of deduction under Section 80j of the Income-tax Act, 1961, the written down value of the assets has to be considered as per the income-tax records and not as per the assessee's books ? "2. The following questions have also been referred for the opinion of this court as questions of law arising out of the order of the Tribunal at the instance of the Revenue : " 3. Whether, on the facts and in the circumstances of the case, an appeal preferred by an assessee who had not filed any objection to the draft assessment order as provided under Sub-section (2) of Section 144b of the Income-tax Act, 1961, is maintainable under Section 246 (1) of the Income-tax Act, 1961 ? 4. Whether, on the facts and in the circumstances of the case and on proper interpretation of Section 80j of the Income-tax Act, 1961, borrowed capital is to be included in the capital computation for the purpose of deduction under Section 80j of the Income-tax Act, 1961 ? 5. Whether, on the facts and in the circumstances of the case, the average capital and not the capital as it stood on the first day of the year under consideration should be taken as the capital employed for the purpose of deduction under Section 80j of the Income-tax Act, 1961 ? 6. Whether, on the facts and in the circumstances of the case, the current revenue liabilities constitute a part of the capital employed for the purpose of deduction under Section 80j of the Income-tax Act, 1961 ?"

( 3 ) IN Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308, the Supreme Court has held that Rule 19a of the Income-tax Rules, 1962, does not suffer from any infirmity, is valid in its entirety and that by incorporating the provisions of the said Rule 19a in the amended Section 80j of the Act, with retrospective effect, the Finance Act, 1980, only clarified the law and is also valid.

( 4 ) RULE 19a (2) (i) provides that in determining the value of the assets for computation of the capital employed, if the assets are entitled to depreciation, their written down value would be taken into account. Therefore, the written down value of the assets has to be determined in accordance with the Act. It is settled that in the case of assets acquired in the accounting year, the written down value means the actual cost to the assessee. In the case of assets acquired before the accounting year, the written down value means the actual cost of acquisition less the aggregate of all deductions of depreciation actually allowed (not merely allowable) to the assessee in past years. To the extent as above, the depreciation already allowed would have to be considered.

( 5 ) THE answer to the two questions raised by the assessee is given as stated above.

( 6 ) FOLLOWING the decision of the Supreme Court in Lohia Machines Ltd. 's case [1985] 152 ITR 308, we answer question No. 4 referredat the instance of the Revenue in the negative and in favour of the Revenue. It is made clear that borrowed capital is not to be included in the capital computation.

( 7 ) QUESTION No. 5 referred at the instance of the Revenue is answered by stating that the capital as it stood on the first day of the year under consideration should be taken to be the capital employed. This answer is also on the basis of the decision of the Supreme Court in Lohia Machines Ltd. 's case [1985] 152 ITR 308.

( 8 ) IN view of the answer to questio

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