COMMISSIONER OF INCOME TAX vs ATLAS CYCLE INDUSTRIES.

ASHOK BHAN, J :

This is a petition filed by the CIT, Haryana, Rohtak, under s. 256(2) of the IT Act, 1961 (hereinafter referred to as the Act) for the asst. yr. 1978-79 directing the Appellate Tribunal, Delhi B Bench, Delhi (hereinafter referred to as the Tribunal) to refer the following question of law for the opinion of this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that loan of Rs. 27,72,796 should be taken into account for working out deduction available under s. 80J ?"

Reference is being made only to those facts which relate to the controversy raised in this petition.

Assessee is a public limited company. Return for the asst. yr. 1978-79 was filed on 27th July, 1978 declaring an income of Rs. 93,53,580. ITO, Addl. Coys-cum-Trusts Ward, Rohtak, examined the case and framed the assessment under s. 143(3) on 21st Oct., 1981 on total income of Rs. 1,04,49,250 after making certain additions/disallowances on several counts. Assessee claimed deduction under s. 80J at the rate of 6% on the capital of Rs. 34,89,312 employed in the rim manufacturing unit against which the assessee-company had borrowed the following amounts :

Investment by cycle unit of Atlas Cycle India Ltd.

27,72,758

Loan from I.E.C.

10,00,000

37,72,758

ITO disallowed the deduction claimed by the assessee by observing as under :

"It is noticed that the deduction has not been worked out in accordance with sub-r. 19A(3). The capital computed is the aggregate of the assets which, on the first day of the computation period, should exclude borrowed amounts and debits owned by the assessee. The assessee has failed to deduct the liability from the capital computed in its calculation. The revised computation in accordance with the rules is enclosed as Annexure B to this order according to which the assessee is not entitled to any deduction under s. 80J in respect of the plant and machinery installed in the rim plant."

With these remarks ITO deducted loan to cycle unit of Atlas cycle Industries (sister unit of the assessee) advanced to the rim manufacturing unit while computing capital and allowing deduction under s. 80J. Assessee being aggrieved filed an appeal before CIT(A) who allowed the appeal of the assessee and held that loan taken by the rim manufacturing unit from cycle unit was to be included in the capital computation for allowing deduction under s. 80J. Revenue did not accept the order of CIT(A) and filed an appeal before the Tribunal who vide its order dt. 29th Feb., 1984 dismissed the appeal of the Department. It was held that :

"The expression borrowed monies and debts owned by the assessee in r. 19A of the IT Rules, 1962 postulate the existence of third parties from whom the monies have been borrowed or incurred. As such the investment by the cycle unit of Atlas Cycle Industries Ltd.. Sonepat cannot be termed to be "borrowed monies and debts" because the rim unit and cycle unit are part and parcel of one and only one identity in law, i.e., the assessee-company. We, therefore, agree with the CIT(A) that the investment made by the cycle unit of Atlas Cycle Industries Ltd. cannot be treated as borrowed monies and debts owned by the assessee. The said amount of Rs. 37,72,758 would thus go into the capital computation base for working out the deduction under s. 80J of the Act."

Revenue did not accept the view of the Tribunal and filed an application under s. 256(1) of the Act for making a reference of the question of law reproduced in the earlier part of the judgment to this Court for its opinion which was declined by the Tribunal holding that the question raised was a question of fact and, therefore, no referable question of law arose from the order of the Tribunal.

Contention raised by the counsel appearing for the Revenue is that the rim manufacturing unit of the assessee was an independent unit and while computing its capital the loan taken by it from the cycle unit of the Atlas Cycle Industries was not allowable deduction from the computation of the capital. This point has not been considered by this Court earlier. Question as to whether the capital borrowed by the unit from another unit of the company is to be deducted from the capital employed in the said unit for the purpose of computation of the capital employed under s. 80J, would certainly be a question of law and the Tribunal has wrongly declined to refer the same to this Court for its opinion.

Accordingly, we direct the Tribunal to refer the question of law reproduced in the earlier part of the judgment to this Court along with the statement of the case for its opinion.