COMMISSIONER OF INCOME TAX Vs. SUPREME PLASTIC INDUSTRIES

JUDGEMENT

(1.) THIS is a reference under s. 256(1) of the Income-tax Act, 1961. The following questions have been referred to us for our opinion : 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that even the development rebate reserve fund has to be treated as capital employed in the undertaking ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the money borrowed should be treated as capital for the purpose of granting relief under section 80J of the Income-tax Act, 1961 ?

(2.) THIS assessment is in relation to assessment year 1975-76. The assessee is a registered partnership Firm. The accounting year is Diwali to Diwali.

(3.) THE next question is, how is the borrowed capital to be treated. Is it to be treated as capital for the purpose of granting relief under s. 80J of the IT Act ? This question was concluded by our decision in CIT vs. M/s. Patwari Udyog (T.C. 315 of 1980) disposed of on 14th September, 1989. THE question whether borrowed capital has to be deducted from capital or not has to be answered in the light of rule r. 19A of the IT Rules. Sub-r. (2) lays down how the capital employed in an industrial undertaking has to be computed. Sub-r. (2) shall be deducted from the aggregate of the amounts as on the first date of the computation period of borrowed money deducted from the computation for ascertaining the capital employer in an industrial undertaking. THE validity of r. 19A was assailed before the Supreme Court in Lohia machines Ltd. vs. Union of India (1985) 152 ITR 308 (SC). THE Supreme Court upheld the vires of that rule. After the pronouncement of the Supreme Court decision and of this Court, THEre is not much left to be stated in regard to the treatment of borrowed capital in the assessment. I an, therefore, of the view that the Tribunal was not right in holding that the money borrowed should be treated as capital for the purpose of granting relief under s. 80J.