The main legal point established is that fixed deposit receipts can be included in the computation of capital employed if not used for business purposes, as per Rule 19a of the Income-tax Rules, 1962.

( 1 ) AT the instance of the Commissioner of Income-tax, Allahabad, the Income-tax Appellate tribunal has referred the following question under Section 256 (1) of the Income-tax Act, 1961 (briefly, "the Act"), for the opinion of this court ;

"whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the fixed deposit should be included in the computation of capital for making out the relief under Section 80j of the Act ?"

( 2 ) THE reference relates to the assessment year 1974-75, the accounting period for which ended on March 31, 1974. The assessee is a State Government undertaking which was brought into existence for the development of the industries in the Eastern region of Uttar Pradesh. The assessee undertaking acquired fixed deposit receipts (F. D. R.) of the amount aggregating to Rs. 4,01,500 and claimed that the same was to be included for the purposes of computation of the capital employed in the undertaking. The Income-tax Officer while making the assessment refused to include the aforesaid amount of fixed deposit receipts with the following reasoning : "less : Amount of F. D. Rs. not invested in industrial undertaking--Rs. 4,01,500. "

( 3 ) FOR the above reasoning, the Income-tax Officer refused to include the amount of the F. D. Rs. in the computation of capital employed.

( 4 ) THE assessee then appealed to the Appellate Assistant Commissioner who accepted the contention of the assessee. He observed as follows in paragraph 2 of his order : "i have carefully considered the arguments of the appellant and the provisions of Rule 19a of the Income-tax Rules, 1962, in this regard. The whole confusion appears to have arisen because the Income-tax Officer has not given proper reasoning for deducting the amount of Rs. 4,01,500 and has simply repeated the reasoning given by his predecessors in earlier assessments without pointing out the relevant rule in support of his contention. "

( 5 ) THIS is how the Appellate Assistant Commissioner partly relying on the Tribunals order for the next preceding years 1972-73 and 1973-74, took the view that the amount of the F. D. Rs. was to be included under Clause (ii) of Sub-rule (2) of Rule 19a of the Income-tax Rules, 1962 (for short, "the Rules"), inter alia. The Appellate Assistant Commissioner further relying on sub-rule (4) of Rule 19a of the Rules held that the value of investment including F. D. Rs. the income from which is not taken into account for computing the profits of the business and other moneys not required for the purpose of the business on the first day of the accounting period are to be further deducted in so far as the aggregate of such items exceeds the amount of the borrowed moneys as computed under Sub-rule (3) of Rule 19a of the Rules. Keeping in view clause (ii) of Sub-rule (2) of Rule 19a and Sub-rule (4) of Rule 19a of the Rules, the Appellate assistant Commissioner proceeded to compute the capital employed in the industrial undertaking.

( 6 ) THE legal position as stated by the Appellate Assistant Commissioner has been affirmed by the appellate Tribunal. We see no infirmity in the legal proposition as set down by the Appellate assistant Commissioner in his order which has been affirmed by the Appellate Tribunal. No law has been shown to us that unless money invested in the F. D. Rs. is actually used for the business purposes that cannot be included in the computation of the capital employed. The reasoning given by the Income-tax Officer was, therefore, rightly rejected by the Appellate Assistant commissioner and the Appellate Tribunal. So far as the further working done by the Appellate assistant Commissioner is concerned, that has not been challenged as such and no reference has been made in regard to that and, therefore, we refrain from making any comments as to the correctness of the further working done by the Appellate Assistant Commissioner in his order.

( 7 ) FOR the reasons, we answer the abovementioned questi

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