Satish Chandra, C.J.

1. THE principal point that arises for consideration in this writ petition is whether Sub-rule (3) of Rule 19A of the I.T. Rules, 1962, was ultra vires the provisions of Section 80J of the I.T. Act, 1961 ?

2. THE petitioner is a partnership firm. It carries on business of manufacture of card board boxes. For the assessment year 1974-75, it claimed relief under Section 80J to the extent of deduction of 6 per cent. on the total capital employed by it including the borrowed1 capital. On this ground, the petitioner firm claimed a relief of Rs. 94,254 on the basis of the total capital either invested by the partners or borrowed by the firm, as on 3rd November, 1972, which was the opening day of the relevant accounting period.

The ITO relying upon Sub-rule (3) of Rule 19A held that the assessee was not entitled to the relief in respect of borrowed capital. He, therefore, allowed the relief to the extent of Rs. 35,798.

3. THE assessee went up in appeal. The AAC held that the term, " capital employed " in Section 80J covered the entire capital invested by the assessee which included borrowed capital also. He, therefore, allowed relief to the extent of Rs. 94,254