1986 Supreme(Cal) 233

High Court Of Calcutta
Dipak Kumar Sen, Monjula Bose
COMMISSIONER OF INCOME-TAX - Appellant
Versus
UNION CARBIDE INDIA LTD. - Respondent
Income-Tax Reference 379  Of  1981
Decided On : 06/03/1986

Capital work-in-progress in a new industrial undertaking is to be included in the computation of 'capital employed' for the purpose of relief under Section 80j of the Income-tax Act, 1961.

Headnote:

INCOME TAX - Section 80j - Capital employed - Capital work-in-progress - Whether to be included in the computation of 'capital employed' for the purpose of relief under Section 80j of the Income-tax Act, 1961.

Fact of the Case:

The assessee, Union Carbide India Ltd., set up a new industrial undertaking called "Electrolytic Manganese Company" in the relevant assessment year. The Income-tax Officer excluded the value of the capital work-in-progress in respect of the said undertaking on the ground that on the basis of average, capital work-in-progress prior to its installation had to be excluded from the value of the assets. The Commissioner (Appeals) accepted the contention of the assessee and the matter thereafter came up before the Tribunal by way of further appeal by the Revenue.

Finding of the Court:

The Tribunal held that the controversy was covered by a decision of the Calcutta High Court in CIT v. Indian Oxygen Ltd. [1978] 113 ITR 109 and following the said decision upheld the order of the Commissioner (Appeals ).

Issues: 1. Whether the Tribunal was justified in holding that capital work-in-progress in the industrial undertaking Electrolytic Manganese Company, should be included in the computation of 'capital employed' for the purpose of the relief under Section 80j of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that while computing the capital for the purpose of relief under Section 80j, the accrued proportionate interest on borrowed capital has to be excluded in view of the fact that the retrospective nature of the amendment of the Finance Act, 1980, has been challenged before the. Hon'ble Supreme Court ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the Income-tax Officer's action to deduct 'proportionate interest accrued in respect of borrowed funds' while computing the capital employed for the purposes of Section 80j, vide his order dated October 31, 1977, giving effect to the orders of the Commissioner of Income-tax under Section 263, dated January 20, 1976, and of the Appellate Tribunal, dated May 13, 1977, when no such direction was given by the Commissioner of Income-tax or the Tribunal in their aforesaid orders ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that while computing the capital for the purpose of relief under Section 80j, the accrued proportionate interest on borrowed capital has to be excluded in view of the fact that the retrospective nature of the amendment of the Finance Act, 1980, has been challenged before the Hon'ble Supreme Court ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the Income-tax Officer's action to deduct 'proportionate interest accrued in respect of borrowed funds' while computing the capital employed for the purposes of Section 80j, vide his order dated October 31, 1977, giving effect to the order of the Appellate Assistant Commissioner, dated June 27, 1977, when no such direction was given by the Appellate Assistant Commissioner ? 6. Whether, on the facts and in the circumstances of the case, the Tribunal erred in not admitting the grounds relating to the computation of capital employed in several industrial undertakings taken before the Tribunal in cross-objections as an aspect of the computation of capital employed in the matter of allowing relief under Section 80j already considered by the Commissioner of Income-tax (Appeals) in his order dated October 28, 1978, and the plea raised in this behalf was purely one of law involving no further investigation ?

Ratio Decidendi: 1. The controversy raised in the question is covered by the decision of the Calcutta High Court in Indian Oxygen Ltd,'s case [1978] 113 ITR 109 and, therefore, it could not be said that the Tribunal was not justified in holding that the capital work-in-progress had to be taken into account in computing the capital for the purpose of Section 80j of the Act. 2. The controversy raised in the question is covered by the decision of the Supreme Court in Lohia Machines Ltd. 's case [1985] 152 ITR 308, which had laid down that borrowed capital has to be excluded in the computation of the capital employed for the purpose of Section 80j. On a parity of reasoning, interest accruing on such borrowed capital has necessarily to be excluded.

Final Decision: 1. Question No. 1 is answered in the affirmative and in favour of the assessee. 2. Question No. 2 is answered in the negative and in favour of the Revenue. 3. Question No. 3 is answered in the affirmative and in favour of the Revenue. 4. Question No. 4 is answered in the negative and in favour of the Revenue. 5. Question No. 5 is answered in the affirmative and in favour of the Revenue. 6. Question No. 6 is not answered as the assessee did not press for an answer.