Section 80J capital employed includes scientific research assets; prior deduction under section 35 does not exclude them.

For section 80J relief, assets under erection were treated as covered by an earlier Bombay HC decision, so no reference was called for on that point. Scientific research assets were held to form part of the capital employed in the business for section 80J computation because the section requires inclusion of assets that belong to the business capital base, not only assets used directly in the industrial undertaking. Their value was includible under the computation rules, and the fact that the expenditure had already been allowed under section 35 did not justify exclusion.

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Issues: (i) Whether assets under erection were entitled to relief under section 80J of the Income-tax Act, 1961. (ii) Whether assets used for scientific research formed part of the capital employed in the business for the purpose of computing relief under section 80J of the Income-tax Act, 1961.

Issue (i): Whether assets under erection were entitled to relief under section 80J of the Income-tax Act, 1961.

Analysis: The first question was held to be covered by an earlier decision of the same court, and no useful purpose would be served by directing a reference on that point.

Conclusion: The question was not referable.

Issue (ii): Whether assets used for scientific research formed part of the capital employed in the business for the purpose of computing relief under section 80J of the Income-tax Act, 1961.

Analysis: Deduction under section 35 in respect of scientific research assets was treated as consistent with their relation to the assessee's business. The requirement under section 80J was not that such assets must be used directly in the industrial undertaking, but that they should form part of the capital employed. The computation under rule 19A and section 80J(1A) required inclusion of asset value by reference to written down value or cost of acquisition, and there was no basis for excluding scientific research assets merely because their expenditure had been allowed as a deduction under section 35.

Conclusion: The question was not referable and the value of the scientific research assets was includible in the capital employed for section 80J purposes.

Final Conclusion: The Department's request for reference failed on both questions, and the application was rejected.

Ratio Decidendi: For section 80J, assets need only form part of the capital employed in the industrial undertaking, and scientific research assets relating to the business cannot be excluded merely because their expenditure was fully allowed as a deduction under section 35.

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