COMMISSIONER OF INCOME TAX Vs. SIMMONDS MARSHALL LIMITED

JUDGEMENT

(1.) THIS is a reference at the instance of the CIT under S. 256(1) of the IT Act, 1961, relating to asst. yrs. 1962 63 and 1963 64. The assessee company is engaged in the business of manufacture and sale of self locking nuts used in various industries. It is an industrial undertaking and it is not disputed that, under S. 84 of the IT Act, 1961, it is entitled to a rebate of tax on profits not exceeding 6 per cent per annum on the capital employed in the undertaking. For that purpose, the capital employed in an industrial undertaking has to be computed under r. 19 of the IT Rules, 1962, which is in the following terms :

(2.) IT was contended on behalf of the assessee before the ITO that in computing the capital employed in its undertaking, the nominal amount of the debts due to it on the last day of the relevant previous year should be taken into account under cl. (c) of r. 19 quoted above, and that the proviso occurring in sub r. (1) of r. 19 being a proviso only to cl. (d), has no application in regard to cl. (c). That contention was rejected by the ITO who held that the proviso governed both cls. (c) and (d) of r. 19(1), and it was, therefore, held by him that the average value of all the current assets acquired during the relevant year should be taken into account for the computation of the capital employed in the undertaking, and the assessment orders pertaining to the assessment years in question were passed on that footing. The assessee appealed to the AAC by two separate appeals, one in respect of each assessment year. As far as the appeal relating to asst. year 1962 63 was concerned, the AAC who heard it agreed with the view of the ITO. As far as the appeal relating to asst. year 1963 64 was concerned, the AAC who heard it, however, took the contrary view, holding that the proviso which follows cl. (d) applies only to that clause and not to cl. (c) of sub r. (1) of r. 19, and he, accordingly, directed the ITO to compute the capital by taking the nominal amounts of the debts due as at the end of the relevant year. A consolidated appeal was preferred to the Tribunal in which it was held that the proviso governed only cl. (d) of r. 19(1), and it was, therefore, directed by the Tribunal that the capital employed in the undertaking should be computed by the ITO by taking the nominal amounts of the debts due to the assessee. It is from that order of the Tribunal that this reference has arisen, and the following question has been submitted for our opinion :

(3.) THE next reason for not accepting the submission of the Revenue is that the word "value" which is used in the proviso in question does not occur in cl. (c), obviously because it has no application in the case of assets in the nature of debts due to the assessee within the terms of cl. (c). Whereas the other assets mentioned in sub r. (1) of r. 19 are capable of bearing a value, or of having their value assessed in a particular manner, there is no question of a debt having any value, and the use of the word "value" in the proviso in question and its significant omission in cl. (c), therefore, also indicates that the proviso was never intended to apply to cl. (c), which is the clause with which we are concerned in this reference. The next and the last reason for rejecting the submission of Mr. Joshi on behalf of the Revenue is that cl. (i) of sub r. (6) of r. 19 makes it clear that the process of averaging is to be resorted to only in the case of assets which can be "used" in the business, and not to an asset in the nature of the debt due to the assessee which cannot be said to be an asset used in the business within the terms of sub cl. (i) of sub r. (6) of r. 19. For all these reasons, in my opinion, the view taken by the Tribunal is correct, and the question referred to us must be answered in favour of the assessee. S.K. DESAI, J.: I agree, and have nothing to add. BY THE COURT : The question referred to us is answered as follows :