Capital investment for tax exemption includes partner-owned land and firm-built structures where binding circulars prevent denial.

For exemption under section 4-A of the U.P. Trade Tax Act, capital investment was held to include land and building standing in the name of a partner where the unit was a partnership firm. The lease in favour of the firm was treated as ineffective because a person cannot lease property to himself, but the building cost was accepted as part of the firm's investment since it was constructed from the firm's own funds, supported by the balance sheet and chartered accountant's certificate. A departmental circular dated 25 February 1988, binding on tax authorities, also barred denial of exemption merely because the property stood in a partner's name. The unit was therefore entitled to exemption for five years.

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Issues: Whether, for the purpose of exemption under section 4-A of the U.P. Trade Tax Act, 1948, the value of land and building standing in the name of a partner and the cost of construction of the building by the firm were to be included in the capital investment so as to entitle the unit to exemption for five years.

Analysis: The unit was a partnership firm and the land belonged to one of its partners. The lease taken in favour of the firm in respect of land was treated as ineffective because a person cannot lease property to himself. The building was constructed by the firm out of its own funds, as shown by the balance sheet and chartered accountant's certificate, and the expenditure on construction was therefore part of the investment in the unit. The authority also failed to give effect to the departmental circular dated 25 February 1988, which stated that exemption could not be denied merely because the land or building stood in the name of a partner, proprietor or promoter. Since the circular was binding on the tax authorities, the capital investment had to include the land and building.

Conclusion: The land and building were required to be included in the capital investment, and the petitioner was entitled to exemption under section 4-A for five years.

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