Capitalised interest and section 80J computation rules were held to support the assessee under the applicable statutory regime.

Capitalised interest may be included in actual cost for depreciation and development rebate where existing authority recognises that treatment, and the issue was resolved in favour of the assessee. For deficiency computation under section 80J(3), rule 19A applied rather than rule 19 because the computation had to follow the rule corresponding to the operative statutory provision after section 84 ceased and section 80J came into force. On both questions, the reference was answered against the Revenue.

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Issues: (i) Whether the assessee was entitled to depreciation and development rebate on the interest capitalised for the relevant assessment years. (ii) Whether, for computing the deficiency under section 80J(3), rule 19A of the Income-tax Rules, 1962 applied instead of rule 19.

Issue (i): Whether the assessee was entitled to depreciation and development rebate on the interest capitalised for the relevant assessment years.

Analysis: The first question was covered by existing authority accepting that capitalised interest formed part of the actual cost for the purpose of depreciation and development rebate.

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

Issue (ii): Whether, for computing the deficiency under section 80J(3), rule 19A of the Income-tax Rules, 1962 applied instead of rule 19.

Analysis: The computation had to be made with reference to section 80J and the corresponding rule applicable to that provision. Since section 84 had ceased to operate and section 80J had come into force, rule 19A governed the computation under section 80J. The Court accepted the view consistent with the applicable precedent and the statutory transition.

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

Final Conclusion: Both reference questions were answered against the Revenue and the assessee succeeded on the entire reference.

Ratio Decidendi: Where a new statutory provision has replaced an earlier one, the computation mechanism prescribed for the new provision governs the issue, and capitalised interest may form part of the base for depreciation and development rebate where recognised by the applicable legal rule.

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