COMMISSIONER OF INCOME TAX Vs. MAHAKOSHAL POTTERIES

JUDGEMENT

(1.) THIS is a reference under s.256(1) of the IT Act 1961 at the instance of the Revenue to decide the following question of law :

(2.) THE assessee carries on the business of manufacture and sale of fire bricks earning an income out of this business. THE relevant assessment year is 1975-76. In the return filed by the assessee, it claimed a deduction under s. 80-J of the Act on the basis that it had borrowed a sum of Rs. 2,40,000 form the Madhya Pradesh Finance Corporation and Rs. 64,531 from other creditors so that the same should not be deducted in computing the capital employed in the industrial undertaking for purposes of relief under s. 80-J of the Act r/w r. 19-A of the IT Rules, 1962 framed thereunder. THE ITO rejected the assessee's plea and deducted both these amounts from the capital employed by the assessee granting relief of only 6 per cent amounting to Rs. 22, 464. THE assessee's appeal to the AAC was dismissed. However, the assessee's further appeal to the Tribunal has been allowed and the Tribunal has directed the ITO not to deduct the borrowed capital of Rs. 2,40,000 and Rs. 64,531 while computing the capital employed in the industrial undertaking for purposes of allowing deduction under s. 80-J of the Act.

(3.) CONSEQUENTLY the reference is answered in favour of the Revenue and against the assessee as under :