Commissioner of Income Tax vs Partap Steel Rolling Mills Pvt. Ltd.

D.K. Jain, J.—At the instance of the Revenue, the following question of law for the assessment year 1975-76 have been referred for the opinion of this court u/s 256(1) of the Income Tax Act, 1961 (for short, "the Act") :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the Commissioner of Income Tax had no jurisdiction to revise u/s 263 of the Income Tax Act, 1961, the order of the Income Tax Officer dated July 28, 1978, which had merged into the appellate orders of the Commissioner of Income Tax (Appeals) dated February 28, 1979, and of the Tribunal dated May 1, 1980 ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the amount of Rs. 8,26,700 should not be excluded for purposes of capital employed under rule 19A of the Income Tax Rules for purposes of deduction allowable u/s 80J of the Income Tax Act, 1961, for the assessment year 1975-76?"

While completing the assessment on the respondent/assesses for the previous year ended June 30, 1974, relevant to the assessment year 1975-76, the Income Tax Officer allowed some relief u/s 80J of the Act. The assessed appealed against the relief allowed to it under the said section and claimed that it was entitled to a larger deduction under the said section by computing the capital employed in the new industrial undertaking without excluding the borrowed capital, as was down by the Income Tax Officer. The assessed''s claim was accepted by the Commissioner of Income Tax (Appeals) as also by the Tribunal in further appeal by the Revenue.

Subsequently, the Commissioner of Income Tax, by invoking his jurisdiction u/s 263 of the Act issued a notice to the assessed to show cause as to why the relief granted u/s 80J of the Act be not recomputed as the relief under the said section had been wrongly allowed by the Income Tax Officer without going into the facts about the admissibility of the claim on certain assets and also whether there was any commercial production in the relevant year. The assessed objected to the proceedings initiated by the Commissioner and it was submitted that there was nothing erroneous and prejudicial to the interests of the Revenue in the order of the Income Tax Officer and further the Commissioner had no jurisdiction u/s 263 of the Act to interfere with the order of the Income Tax Officer after the same had merged in the appellate order of the Commissioner (Appeals) and the Tribunal.

The Commissioner did not agree with the submissions made by the assessed. He found that the company had purchased some extract land for Rs. 5,89,563 adjacent to the existing land and constructed a building thereon at a cost of Rs. 2,37,137 and that these items were transferred to the building account in the previous year relevant to the assessment year 1976-77 and were also actually used in the industrial undertaking during the said assessment year. The Commissioner felt that the Income Tax Officer had wrongly computed the relief u/s 80J of the Act by taking into account the entire assets including the said two new assets as being used for purposes of the industrial undertaking without making any enquiry as to whether the said land and building had in fact been put to use in the relevant assessment year. He was, Therefore, of the view that the action of the Income Tax Officer in allowing relief u/s 80J of the Act by including the cost of extra land and the cost of building (totalling Rs. 8,26,700) as capital employed was both erroneous and prejudicial to the interests of the Revenue. Accordingly, the Commissioner set aside the assessment and directed the Income Tax Officer to make the assessment de novo.

Being aggrieved, the assessed preferred an appeal to the Tribunal. The Tribunal held that the entire claim made by the assessed u/s 80J of the Act being the subject-matter of appeal before the Commissioner (Appeals) and the Tribunal, the order of assessment had merged in the appellate orders and, Therefore, the Commissioner had no jurisdiction u/s 263 of the Act to revise the assessment already framed. On the merits, the Tribunal noticed that a similar issue had been decided by the various High Courts in Jayaram Mills Ltd., Rajapalayam Vs. The Commissioner of Excess Profits Tax, Madras, ; Commissioner of Income Tax Vs. Indian Oxygen Ltd., ; Ravi Machine Tools (P.) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax, Gujarat-II Vs. Cibatul Ltd., ; Commissioner of Income Tax Vs. Mohan Meakin Breweries Ltd., and Commissioner of Income Tax, Bombay City-I Vs. Alcock Ashdown and Co. Ltd., , wherein it was held that the moment the capital is utilised for the purpose of acquiring any asset for a business, such capital becomes employed in the business, whether the asset itself is actually used in the business or not, so far as the capital is concerned, it continues to be employed in the business. Following the said decisions, the Tribunal held that the cost of the two new assets in question should not be excluded for computing the capital employed under rule 19A of the Income Tax Rules, 1962, for the purposes of deduction allowable u/s 80J of the Act. It is against this order that, at the instance of the Revenue, the Tribunal has referred to aforementioned questions.

We first take up question No. 2 for the sake of convenience. The short question requiring consideration is whether for the purpose of deduction u/s 80J of the Act, the value of the assets under installation or work-in-progress could be included in the capital employed in the business ? In other words, whether the actual user or non-user of the asset acquired is material for the purpose of computation of relief u/s 80J of the Act ?

On behalf of the assessed, reliance has been placed on the following decisions of various courts, in addition to the judgments relied upon by the Tribunal and referred to above, which fully support the assessed''s view-point :

Commissioner of Income Tax Vs. Southern Agrifurane Industries Ltd., ;

Commissioner of Income Tax Vs. Indian Smelting and Refining Company Ltd., ;

Periyar Chemicals Ltd. Vs. Commissioner of Income Tax, ;

Commissioner of Income Tax Vs. Union Carbide India Ltd., ;

Commissioner of Income Tax Vs. Haryana Tube Manufacturing Company (P.) Ltd., ;

Commissioner of Income Tax Vs. Janak Steel Tubes (Pvt.) Ltd., ;

Commissioner of Income Tax Vs. Gopi Chand Textile Mills Ltd., ;

Commissioner of Income Tax Vs. Century Spinning and Manufacturing Co. Ltd., ;

Commissioner of Income Tax Vs. Elpro International Ltd., ;

Commissioner of Income Tax, Tamil Nadu-II Vs. Madras Wire Products, ;

Commissioner of Income Tax, Bombay City-II Vs. Boehringer Knoll Ltd., ;

Commissioner of Income Tax Vs. Advani Oerlikon Private Limited, ;

Commissioner of Income Tax, Bombay City-IV, Bombay Vs. Hindustan Polymers Ltd., ;

Commissioner of Income Tax Vs. Sundaram Industries Ltd., ; and

Commissioner of Income Tax Vs. South India Viscose Ltd., .

We have gone through the provisions contained in section 80J of the Act the judgments relied upon by the assessed. We are in respectful agreement with the consistent view expressed by the various High Courts on the point in these judgments. No reason much less a compelling reason has been brought to our notice by learned counsel for the Revenue to persuade us to depart from the view taken by the other High Courts in the said judgments. In fact, learned counsel for the Revenue admitted that no High Court has expressed a view contrary to the one taken in the aforesaid authorities. In this view of the matter, following the said judgments, we endorse the view taken by the Tribunal that the value of the two assets in question cannot be excluded for the purposes of computing the capital employed under rule 19A for the purposes of deduction allowable u/s 80J of the Act.

As regards the first question, learned counsel for both the parties submitted that in view of the insertion of the words "on or before or after the first day of June, 1988" by the Finance Act, 1989, with effect from June 1, 1988, to clause (a) of the Explanation to section 263, as substituted by the Finance Act, 1988, the answer to the question should be given in the negative. In view of the stand of the parties and the fact that we have answered question No. 2 in favor of the assessed, we feel that on the facts of the instant case, it is not necessary for us to go into the issue in greater detail and we leave the matter to be examined in depth in some other appropriate case.

In the result, question No. 1 is answered in the negative, that is, in favor of the Revenue and against the assessed and question No. 2 is answered in the affirmative, that is, in favor of the assessed and against the Revenue, with no order as to costs.