Section 80J computation, accrued income, and surtax deductibility were governed by existing precedent on capital, accrual, and business expenditure.

For section 80J relief, capital employed had to be computed without deducting liabilities to third parties, following the Supreme Court rule in Lohia Machines Ltd., and the assessee's claim on that point failed. The sum of Rs. 3,34,369 was not treated as accrued income for the relevant year, applying the Court's earlier ruling in Seksaria Biswas Sugar Factory, and the assessee succeeded on that issue. Surtax liability was not allowable as business expenditure under section 37(1), in line with Lubrizol India Ltd., so the Revenue's position prevailed on that question.

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Issues: (i) Whether, for computing relief under section 80J, the gross value of assets was to be taken without deducting liabilities to third parties; (ii) whether the sum of Rs. 3,34,369 was assessable as accrued income during the relevant previous year; (iii) whether surtax liability of Rs. 4,63,075 was allowable as business expenditure under section 37(1) of the Income-tax Act, 1961.

Issue (i): Whether, for computing relief under section 80J, the gross value of assets was to be taken without deducting liabilities to third parties.

Analysis: The question was covered by the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India, which governed the computation of capital employed for the purpose of section 80J.

Conclusion: The issue was answered in the negative and in favour of the Revenue.

Issue (ii): Whether the sum of Rs. 3,34,369 was assessable as accrued income during the relevant previous year.

Analysis: The question was covered by the earlier decision of the Court in CIT v. Seksaria Biswas Sugar Factory, on the basis of which the amount was held not assessable as accrued income for the year in question.

Conclusion: The issue was answered in the affirmative and in favour of the assessee.

Issue (iii): Whether surtax liability of Rs. 4,63,075 was allowable as business expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis: The question was covered by the decision of the Court in Lubrizol India Ltd. v. CIT, under which surtax liability was not allowable as business expenditure.

Conclusion: The issue was answered in the affirmative and in favour of the Revenue.

Final Conclusion: The reference was answered by rejecting the assessee's claim on the first and third questions, allowing the assessee's contention on the second question, and declining to answer the fourth question as academic.

Ratio Decidendi: For section 80J computation, capital employed is determined in accordance with the governing judicial rule on gross assets and liabilities, accrued income must be taxed only when it truly accrues, and surtax liability is not allowable as business expenditure under section 37(1).

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