Commissioner of Income Tax, Tamil Nadu-IV vs Metal Powder Co. Ltd.

Ramanujam, J.—The assessee in this case is a public limited company carrying on business in the manufacture and sale of aluminium powder

and aluminium paste. The assessee is entitled to relief under s. 80J of the I.T. Act, 1961. For the year 1971-72, in working out the capital base for

purposes of calculating relief under s. 80J, the assessee, while filing its return, had not taken into account the provision for taxation. Later, the

company had taken into account the tax liability for 1967-68 at Rs. 1,11,469 and for 1968-69 at Rs. 1,73,668. The ITO found that in the

balance-sheet the assessee had made a provision for tax on the first day of the accounting year, viz., October 1,1969, at Rs. 3,66,566. He

therefore, deducted the said sum of Rs. 3,66,566, from the capital employed in aluminium powder unit No. I and computed the capital in that unit

at Rs. 31,00,503. As regards the aluminium paste unit No II, the ITO accepted the claim of the assessee that relief under s. 80J is due on this unit

as well. However, he found, that this had to be worked out only for 18 days and accordingly he limited the relief under s. 80J on a proportionate

basis to Rs. 766.

The assessee appealed to the AAC, contending (1) that what was deductible was the actual tax due and not the provision made in the balance-

sheet, and (2) that the relief under s. 80J so far as the aluminium paste unit No. II is concerned, was for the whole year and not only for the period

of 18 days for which the unit had worked during the assessment year. The AAC, after perusing r. 19A, held that the assessee''s contention that the

actual tax alone should be deducted from the capital employed and not the entire provision made in the balance-sheet, was correct. As regards the

limiting of the relief non a proportionate time basis in respect of this unit, the AAC rejected the claim of the assessee.

Aggrieved by the order of the AAC, both the assessee and the Revenue, so far as it is against them, appealed to the Income Tax Appellate

Tribunal. The Tribunal rejected the Revenue''s appeal, agreeing with the AAC that what should be deducted from the capital employed is only the

actual amount of tax due and not the provision made in the balance-sheet. In the assessee''s appeal, the Tribunal agreed with the assessee''s

contention that the relief under s. 80J should be given in respect of the paste unit for the whole year and that the relief cannot be confined to the

period during which the unit worked during the assessment year.

Aggrieved by the decision of the Tribunal, the Revenue has sought and obtained a reference to this court on the following two questions :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the provision for taxation made in the

balance-sheet cannot be excluded from the capital employed under rule 19A(3) for the purpose of computation of relief u/s 80J ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to the

deduction u/s 80J at six per cent. on the capital employed without it being limited on a proportionate time basis though the concern had worked

only for a part of the year ?

So far as question No. 2 is concerned, it is concluded by the judgment of this court in Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson

and Company, . The said decision of this court was the subject-matter of a SLP before the Supreme Court and the said SLP has since been

dismissed by the Supreme Court in Nawabganj Sugar Mills Co. Ltd. v. CIT (S.L.P. Civil Nos. 8136, 8138, 7309, 8501 and 7582 of 1980).

Hence the decision in Commissioner of Income Tax, Tamil Nadu-I Vs. Simpson and Company, has become final and conclusive. The second

question has, therefore, to be answered in the affirmative and against the Revenue.

Coming to the first question, it is seen that it involves a proper interpretation of r. 19A(3) of the I.T. Rules, 1962. As already stated, the actual

liability for Income Tax in the years 1967-68 and 1968-69 was to the extent of Rs. 2,85,137. But, the assessee has made a provision for tad in the

balance-sheet as on the first day of the accounting year, viz., October 1, 1969, in a sum of Rs. 3,66,566. The ITO deducted the entitle sum of Rs.

3,66,566 from the aggregate amount as determined under r. 19A(2) while according to the assessee, the sum of Rs. 2,85,137, the actual liability

towards tax, should alone be deducted. This contention of the assessee has found acceptance in the hands of the AAC and the Tribunal.

We are of the opinion that the view taken by the AAC as well as the Tribunal is quite consistent with r. 19A. Rule 19A(1) says that for purpose

of s. 80J, the capital employed in an industrial undertaking shall be computed in accordance with sub rr. (2) to (4). Sub-rule (2) of r. 19A directs

the aggregation of all the amounts representing the value of the assets as on the first day of the computation period of the undertaking to which s.

80J applies and sub-r. (3) provides for certain deductions from the said aggregate determined as per sub r. (2). sub-rule (3) says that the

aggregate of all the amounts borrowed and debts owed by the assessee, including the amount due towards any liability of tax, will have to be

deducted under the rule. Explanation 2 to this sub-rule defines as to what are the amounts due to wards any liability in respect of tax. It says that in

the case of advance tax due under the provisions of the Act, it should be taken to have become due on the date on which such advance tax has

become payable and in respect of any other tax, the tax should be taken to have become due on the first day of the period within which it is

required to be paid. Thus, Expln. 2 to sub-r. (3) contemplates as deduction towards tax liability only those amounts which have become due and

payable and it does not contemplate mere provision made by the assessee towards the liability to tax. In this case, as already stated, the actual

amount the on the relevant date, i.e., on October 1, 1969, was only a sum of Rs. 2,85,137 and that alone is deductible under sub-r. (3) of r. 19A,

and not a sum of Rs. 3,66,566, for which provision has been made in the balance-sheet. In our view, the Tribunal has correctly understood r. 19A

and its decision does not call for any interference.

We are a were that r. 19A(3) has been struck down by a decision of this court in Madras Industrial Linings Ltd. Vs. Income Tax Officer and

Others, , and the matter is now pending before the Supreme Court. However, we proceeded to dispose of this case on the basis that even if r.

19A(2) is valid and were to be followed, the decision of the Tribunal has to be accepted as correct.

In this view of the matter, question No. 1 also is answered in the affirmative and against the Revenue. The Revenue will pay costs to the

assessee. Counsel''s fee Rs. 500.