Gujarat High Court
Commissioner Of Income-Tax vs Baroda Rayon Corporation. on 21 March, 1993
Equivalent citations: (1994)118CTR(GUJ)205, [1994]208ITR454(GUJ)
JUDGMENT
G. T. NANAVATI J. The following three questions are referred to this court by the Income-tax Appellate Tribunal under section 256(1) of the Income-tax Act, 1961 :
"(1) Whether the Income-tax Appellate Tribunal was right in law in holding that the provisions of sub-rule (3) of rule 19A of the Income-tax Rules, 1962, were bad in law and that hence while computing the capital employed for the purpose of section 80J, the said provisions had to be ignored ?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the deficiency in question had to be determined on the basis of computation of capital employed in accordance with rule 19A and not rule 19 of the Income-tax Rules ?
(3) If the assessee has previous year of 15 months, whether the amount of capital employed during the previous year should be computed at the rate of six per cent. per annum as provided under section 80J for period of 12 months or 15 months ?"
Questions Nos. 1 and 2 are referred at the instance of the Revenue, whereas question No. 3 is referred at the instance of the assessee.
The assessee established a new industrial undertaking in the accounting year relevant to the assessment year 1964-65. In this case, we are concerned with the assessment year 1968-69. The accounting year relevant to this assessment year was from October 1, 1966, to December 31, 1967. During the assessment proceedings before the Income-tax Officer, the assessee claimed relief of deduction under section 80J(1) and the Income-tax Officer granted that relief computing the capital employed in terms of rule 19A(3). The assessee also claimed relief under section 80J(3) and that relief was also granted on the basis of section 84 read with rule 19. Initially, in the appeal filed before the Appellate Assistant Commissioner of Income-tax, the assessee had raised a dispute that the Income-tax Officer had committed an error in granting relief under section 80J(1) for a period of 12 months only instead of 15 months. Later on, an additional ground was raised before the Appellate Assistant Commissioner regarding the method of computing the capital employed for the purpose of that section. The Appellate Assistant Commissioner agreed with the view taken by the Income-tax Officer as regards the period to be taken into consideration and also the method adopted for computing the capital employed for the purpose of section 80J. As regards the additional ground with respect to deficiency and how it should be computed, it was contended before the Appellate Assistant Commissioner that the capital employed for that purpose should be computed in terms of rule 19A and the Income-tax Officer was in error in computing it on the basis of rule 19. The Appellate Assistant Commissioner accepted the contention raised on behalf of the assessee and held that the computation should have been done in accordance with the provisions of rule 19A. The assessee and the Revenue were both aggrieved by the order of the Appellate Assistant Commissioner and, therefore, they preferred cross-appeals to the Tribunal. The Tribunal also agreed with the view taken by the Income-tax Officer and the Appellate Assistant Commissioner that the capital employed during the previous year should be computed at the rate of six per cent. as provided by section 80J for a period of 12 months and not for a period of 15 months. The reason given by the Tribunal was that the amount of capital employed is to be computed for each previous year and, therefore, calculation was required to be made for one year irrespective of the length of the previous year. With respect to the method to be adopted for computation of capital employed, the Tribunal held that sub-rule (3) of rule 19A being ultra vires, that sub-rule should have been ignored and the capital employed was required to be computed after ignoring the provisions of sub-rule (3). As regards the claim that the deficiency was required to be worked out on the basis of computation of capital employed in accordance with rule 19A, the Tribunal accepted the contention of the assessee following the decision of the Bombay Bench of the Tribunal. As the Revenue was aggrieved by the decision that sub-rule (3) of rule 19A was invalid and, therefore, was required to be ignored, and also by the decision that the deficiency in question had to be determined on the basis of the capital employed in accordance with rule 19A, it moved the Tribunal for referring questions Nos. 1 and 2 to this court. As the assessees contention that the amount of capital employed during the previous year should have been computed at the rate of six per cent. as provided by section 80J for a period of 15 months was not accepted, it moved the Tribunal for referring question No. 3 to this court.
What is contended by learned counsel for the Revenue is that the point which falls for consideration as a result of question No. 1 is now covered by the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. In that case, the Supreme Court has held that sub-rule (3) of rule 19A is a valid piece of subordinate legislation Following that decision, it will have to be held that the Tribunal erred in law in holding that while computing capital employed for the purpose of section 80J, sub-rule (3) of rule 19A was required to be ignored.
With respect to question No. 2, it was submitted by learned counsel for the Revenue that we should not interpret the provision of section 80J in such a manner as to confer a double benefit on the assessee as it can be assumed that the Legislature does not intend a double benefit unless a double benefit is expressly granted. He submitted that if in respect of the previous year relevant to the assessment year commencing from April 1, 1967, the capital employed was already determined for the purpose of section 84, and if relief under section 84 was claimed and was granted, then, if the capital employed is again determined on a different basis for the purpose of finding out deficiency, then, that would result in double benefit and that could not have been the intention of the Legislature. He, therefore, submitted that in cases where the assessment year is 1967-68, the capital employed would mean capital employed as calculated under section 84 and not as calculated in terms of sub-section (3) read with rule 19A. Section 80J was inserted in the Act in place of section 84 with effect from April 1, 1968. Rule 19A was also introduced in the rules with effect from April 1, 1968. Before April 1, 1968, the relief contemplated by sub-section (3) of section 84 was not available to the assessee. Under section 84, income-tax was not payable by an assessee on so much of the profits and gains derived from any industrial undertaking or business of a hotel or from any ship, as did not exceed six per cent. per annum on the capital employed in such undertaking or business or ship, computed in the prescribed manner. Rule 19 had provided for the method of computation of the capital employed. Thus, the nature of relief was quite different and the purpose for which capital was to be computed was also different. For the first time, on April 1, 1968, a new relief was made available to the assessee whereby the assessee was permitted to carry forward and set off the deficiency against profits and gains derived from any industrial undertaking or business of a hotel. While making that provision, the Legislature also provided the method of calculating the capital employed for that purpose and that becomes clear from the use of words "on the relevant amount of capital employed during the previous year". What is meant by relevant amount of capital employed during the previous year". What is meant by relevant amount of capital employed becomes clear if we turn to sub-section (1) of section 80J. Sub-section (1) of section 80J as it stood at the relevant time read as under :
"(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the aggregate of the deductions, if any, admissible to the assessee under section 80H and section 80-I) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year)."
Thus, the relevant amount of capital employed during the previous year was the amount computed in the manner prescribed, meaning thereby, the manner prescribed by the Rules. There is no dispute that the relevant rule in this behalf is rule 19A. Therefore, if we read sub-section (3) along with sub-section (1), then it becomes clear that the Legislature intended that the amount of capital employed for the purpose of section 80J should be computed in terms of rule 19A. Therefore, for computing the capital employed for the purpose of section 80J, the only relevant rule which can be looked into is rule 19A and the capital could not have been computed in terms of rule 19 as contended by learned counsel for the Revenue. In view of this clear intention of the Legislature, the contention raised on behalf of the Revenue that as the Legislature ordinarily does not confer a double benefit as the expression used in sub-section (3) of section 80J should be construed as the capital employed as calculated under section 84 so far as the assessment year 1967-68 is concerned, cannot be accepted. The view which we are taking is also supported by the decision of the Karnataka High Court in Kirloskar Asea Ltd. v. CIT [1979] 118 ITR 703, wherein it has been held that for the assessment year 1968-69, the provision relating to tax concession for newly established industrial undertaking was governed by section 80J and not section 84 and for the purpose of section 80J, the tax concession had to be computed under rule 19A and not rule 19. The Karnataka High Court has further observed that though the tax concession for the purpose of assessment for the assessment year 1967-68 had been correctly computed under section 84 read with rule 19, yet, for the purpose of determining the deficiency (unabsorbed tax concession) in the assessment year 1967-68, which should be set off against profits and gains in the assessment for the assessment year 1968-69, such tax concession had to be determined in accordance with section 80J which provided for such carry forward for the first time. Therefore, for recomputing the tax concession for the assessment year 1967-68, for the purpose of determining the deficiency to be set off under section 80J in the assessment for the assessment year 1968-69, it was rule 19A and not rule 19 that should be applied. The Bombay High Court also, following that decision, has held likewise (see CIT v. United Carbon India Ltd. [1989] 178 ITR 444).
As regards question No. 3, it was submitted by learned counsel for the assessee that the assessee would be entitled to the relief at the rate of six per cent. per annum for the period during which the new undertaking had worked during the relevant previous year. In support of this contention, he relied upon a decision of this court in CIT v. Sarabhai sons Ltd. [1983] 143 ITR 473. That was a case where the undertaking was granted relief only for nine months and a contention was raised on behalf of the Revenue that since the new undertaking had only worked for a part of the year, it was entitled to only proportionate relief. Even though the new undertaking had worked only for a part of the year, the assessee in that case was held entitled to the relief for the whole period. It was urged that though this is a converse case, the same contention in which considerable force was found by this court would be available in this case also. In our opinion, there is no substance in this contention. The reason is that the relief which is available is for the assessment year and not the accounting year. For the sake of consistency also, it has to be held that the relief will have to be computed on the basis of 12 months and not 15 months.
For the reasons stated above, question No. 1 is answered in the negative, that is, in favour of the Revenue and against the assessee. Question No. 2 is answered in the affirmative, that is, against the Revenue and in favour of the assessee. Question No. 3 is answered in terms of what we have held above. Reference is disposed of accordingly. No order as to costs.