Borrowed capital excluded from section 80J capital employed, with rule 19A requiring its removal from the assets base.

Borrowed money is not includible in "capital employed" for section 80J relief because the Supreme Court position treats borrowed capital as excluded from that computation. Accordingly, when value of assets is determined under rule 19A(2), rule 19A(3) requires borrowed funds to be left out of the assets base used for calculating capital employed. The reference was answered in favour of the Revenue and against the assessee.

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Issues: Whether borrowed money forms part of "capital employed" for the purpose of section 80J of the Income-tax Act, 1961, and whether such borrowed money can be excluded under rule 19A(3) of the Income-tax Rules, 1962 while computing the value of assets under rule 19A(2).

Analysis: The question referred turned on the effect of the Supreme Court ruling that borrowed capital is not includible in the capital employed for section 80J relief. Once that position was accepted, the computation under rule 19A had to exclude borrowed funds from the assets base used for determining capital employed.

Conclusion: Borrowed money cannot be included in "capital employed" under section 80J, and it is liable to be excluded under rule 19A(3). The reference was answered in favour of the Revenue and against the assessee.

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