1996 (7) TMI 102 - HC - Income Tax

Court Directs Tribunal to Refer Tax Law Question, Establishes Precedent

Commissioner Of Income-Tax Versus Atlas Cycle Industries Limited

Commissioner Of Income-Tax Versus Atlas Cycle Industries Limited - [1997] 226 ITR 691, 136 CTR 309, 90 TAXMANN 236 Issues:1. Whether the loan taken by the rim manufacturing unit from the cycle unit should be considered in computing the deduction under section 80J of the Income-tax Act, 1961 for the assessment year 1978-79Rs.Detailed Analysis:The judgment pertains to a petition filed by the Commissioner of Income-tax, Haryana, Rohtak, seeking a reference under section 256(2) of the Income-tax Act, 1961 for the assessment year 1978-79. The issue at hand was whether the loan of Rs. 27,72,796 taken by the rim manufacturing unit from the cycle unit should be included in the computation of deduction under section 80J. The Income-tax Officer initially disallowed the deduction claimed by the assessee, stating that the borrowed amounts and debts owed by the assessee should be excluded from the capital computation. However, the Commissioner of Income-tax (Appeals) allowed the deduction, considering the loan as part of the capital computation. The Tribunal also upheld this decision, emphasizing that the investment by the cycle unit of Atlas Cycle Industries Ltd. should not be treated as borrowed monies and debts owed by the assessee, as both units were part of the same entity. The Tribunal dismissed the Revenue's appeal, leading to the current petition.The Revenue contended that the rim manufacturing unit was independent, and the loan from the cycle unit should not be deducted from the capital employed in the rim unit for computing the deduction under section 80J. The court noted that this specific issue had not been addressed previously. It was argued that whether capital borrowed by one unit from another unit of the same company should be deducted from the capital employed in the unit for computing deduction under section 80J raised a substantial question of law. The court directed the Tribunal to refer the question of law to the court for its opinion, overturning the Tribunal's decision not to make the reference earlier. This ruling highlights the significance of determining the treatment of inter-unit loans within a company for tax deduction purposes, establishing a precedent for future cases involving similar circumstances.In conclusion, the judgment delves into the intricacies of capital computation for tax deduction purposes under section 80J of the Income-tax Act, specifically focusing on the treatment of loans between different units of the same company. The decision underscores the need for clarity on whether such inter-unit loans should be considered in the capital computation, setting a precedent for addressing similar issues in the future.