Commissioner of Income Tax vs Zell-ate Limited

Smt. Sujata Manohar, J.—The assessee was carrying on the business of manufacture of sizing machines. During the previous year relevant for asst. yr. 1968-69, the assessee worked in one of the sheds a new unit for manufacturing metallic card clothing, for which, machinery was imported and installed, from time to time. The claim of the assessee under s. 80J was rejected by the ITO on the ground, inter alia, that the entire liabilities of the company were more than the value of the new unit, and, hence, the capital employed in the new industrial undertaking was nil. The AAC, however, directed the ITO to allow the assessee''s claim in full. This order has been upheld by the Tribunal. Hence, the following question is referred to us under s. 256(1) of the IT Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the liabilities of the new industrial undertaking alone and not that of the company as a whole are to be deducted from the assets of the new industrial undertaking for the purposes of capital computation under r. 19A r/w s. 80J ?"

The case of Indian Oil Corporation Ltd. Vs. S. Rajagopalan, Income Tax Officer, Companies Circle II(1), Bombay and Others, , decided by our High Court, directly covers the question before us. The Division Bench in that case has held that the capital employed in an industrial undertaking cannot be mathematically found by deducting from its assets the liabilities of other undertakings. On a true interpretation of r. 19A, in respect of each undertaking, the liabilities of the assessee in respect of that industrial undertaking only are to be deducted from the aggregate value of the assets of the same industrial undertaking. In view of this judgment, the question referred to us is answered in the affirmative and in favour of the assessee. No order as to costs.