Classification of generators and capital employed under 80J turned on valid computation rules and reconsideration after overruling.

Generators fitted with an electric motor were treated as electrical machinery for extra-shift allowance purposes, and the Tribunal's view on that classification was upheld against the assessee. For relief under section 80J, liabilities were to be excluded in computing capital employed, but the Tribunal had relied on an earlier view later overruled by the Supreme Court. As rule 19A(2) and rule 19A(3) of the Income-tax Rules, 1962 were valid and could govern computation of capital employed from the first day of the computation period, the matter required reconsideration on the correct legal basis and was remitted for fresh decision.

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Issues: (i) Whether generators fall under the classification of plant and machinery so as to attract extra-shift allowance. (ii) Whether liabilities were to be excluded in computing capital employed for relief under section 80J of the Income-tax Act, 1961, and whether the matter required reconsideration by the Tribunal.

Issue (i): Whether generators fall under the classification of plant and machinery so as to attract extra-shift allowance.

Analysis: The question was answered by applying the settled view that where the machinery is inbuilt with an electric motor it is treated as electrical machinery. Reliance was placed on the existing judicial view and the circular of the Central Board of Revenue on the subject. On that basis, the generator was not to be treated as electrical machinery for the purpose in issue.

Conclusion: The Tribunal's view on the first question was upheld and the answer was against the assessee.

Issue (ii): Whether liabilities were to be excluded in computing capital employed for relief under section 80J of the Income-tax Act, 1961, and whether the matter required reconsideration by the Tribunal.

Analysis: The Tribunal had relied on an earlier decision which stood overruled by the Supreme Court. The controlling principle was that rule 19A(2) and rule 19A(3) of the Income-tax Rules, 1962 were valid and within the rule-making authority under section 80J, including the provision for computation of capital employed as on the first day of the computation period and the retrospective amendment made with effect from 1 April 1972. Since the Tribunal proceeded on an incorrect legal basis, the matter had to be reconsidered.

Conclusion: The answer on the second question was against the assessee, and the issue was sent back to the Tribunal for fresh decision in accordance with law.

Final Conclusion: The reference was disposed of by upholding the Tribunal on the first question, correcting the legal position on the second, and remitting the matter for fresh adjudication.

Ratio Decidendi: Where a lower authority decides a tax computation issue on a legal basis later overruled by the Supreme Court, the matter must be reconsidered in light of the correct law, and rules made under the charging provision may validly govern the computation of capital employed with retrospective effect if upheld as intra vires.

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