HMM LIMITED Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, had referred question. No. 1 for the opinion of this court at the instance of the assessee, while questions Nos. 2 and 3 have been referred at the instance of the Revenue. The questions run as follows : " (1) Whether the Income-tax Appellate Tribunal has been right in law in holding that the assessee was not entitled to the deduction of surtax payable by it in pursuance of the Companies (Profits) Surtax Act, 1964, in arriving at the taxable income ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that, for the purpose of computing capital employed for deduction under Section 80j, liabilities are not to be deducted ? (3) Whether? on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that, for the purpose of relief under Section 80j, the computation of capital should be based on average amounts of in crease/decrease in the assets and liabilities during the relevant previous year ?"

(2.) THE brief factual matrix is that the assessee is a limited company. Reference applications are for the income-tax assessment year 1974-75 for which the relevant "previous year" ended on March 31, 1974. The assessee claimed surtax liabilities as business expenditure which was disallowed by the Income-tax Officer and also by the Appellate Assistant Commissioner. The assessee then came up in appeal before the Tribunal. The Tribunal, placing reliance on the decision of the Special Bench in the case of Amar Dye Chem Ltd. v. ITO in I. T. A. No. 3643/bom. /1974-75, upheld the disallowance of surtax liability. During the course of these very assessment proceedings, the Income-tax Officer did not agree to compute the relief under Section 80j as per the claim of the assessee both in respect of the quantum of capital and the point of time. The assessee carried the matter before the Appellate Assistant Commissioner in appeal. He also took up the additional ground contending that the claim of the assessee under Section 80j of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), be worked out at Rs. 9,40,593 instead of Rs. 5,93,719 as allowed by the Income-tax Officer. The contentions of the assessee did not find favour with the Appellate Assistant Commissioner. The assessee then went up in appeal before the Tribunal. The Tribunal ultimately held that the liabilities be not deducted while computing the capital employed for the purpose of Section 80j of the Act, and an average value of the assets be taken during the year instead of the value of the assets and liabilities as on the first day of the previous year. The Tribunal also accepted the additional ground raised by the assessee that, for the purpose of computing relief under Section 80j, the original cost of the fixed assets be taken into account in the computation of the capital employed and not their written down value.

(3.) WE have heard learned counsel for the parties, besides perusing the relevant record. The controversy whether the assessee was entitled to deduction of surtax while computing its taxable income for the relevant assessment year is not only covered by the decision of this court in Highway Cycle Industries v. CIT [1989] 178 ITR 601, but also by the decisions of the Calcutta High Court and the Gujarat High Court. The Calcutta High Court in Simon Carves India Ltd. v. CIT [1988] 173 ITR 66q and in Organon (India) Ltd. v. CIT [1988] 172 ITR 354, had taken the view that the Tribunal had rightly disallowed the assessee's claim for surtax liability. Similar view was also taken by the Gujarat High Court in S. L. M. Maneklal Industries Ltd. v. CIT [1988] 172 ITR 176. Thus, question No. 1 is answered in the affirmative, i. e. , in favour of the Revenue and against the assessee.