Court interprets 'capital employed' under section 80J for income tax relief, includes borrowed capital.

Commissioner Of Income-Tax Versus Southern Agrifurane Industries Limited

Commissioner Of Income-Tax Versus Southern Agrifurane Industries Limited - [1988] 174 ITR 697, 72 CTR 99, 40 TAXMANN 325 Issues:
1. Computation of income for assessment year 1976-77 under section 80J of the Income-tax Act, 1961.
2. Inclusion of borrowed capital, capital work-in-progress, stores in transit, and raw materials in transit in the capital computation for relief under section 80J.
3. Tribunal's decision on the retrospective effect of the amendment of the provisions and its impact on the capital computation.
4. Interpretation of 'capital employed' in an industrial undertaking under section 80J.
5. Comparison of rule 19, rule 19A, and section 80J(1)(a), (2), and (1A)(II) for capital computation.
6. Legal position post-introduction of section 80J(1A) and its effect on the computation of capital for relief under section 80J.
7. Precedents set by previous court judgments on the computation of capital employed for the purpose of granting relief under section 80J.

Analysis:
1. The case involved the computation of income for the assessment year 1976-77 by M/s. Southern Agrifurane Industries Limited, claiming relief under section 80J of the Income-tax Act, 1961. The dispute arose when the Income-tax Officer excluded borrowed capital, capital work-in-progress, stores in transit, and raw materials in transit from the capital computation for relief claimed by the assessee.

2. The Commissioner of Income-tax (Appeals) held that all the excluded items, including borrowed capital, should be included in the capital computation based on precedents set by various High Courts. The Tribunal also supported this decision, emphasizing that the retrospective effect of the amendment did not alter the principle established by previous court judgments, directing the Income-tax Officer to recompute the relief under section 80J accordingly.

3. The Tribunal's decision on the retrospective effect of the amendment, and its affirmation of including the excluded items in the capital computation, was challenged by the Revenue. However, the High Court upheld the Tribunal's decision, emphasizing that the amendment did not change the mode of computation for granting relief under section 80J.

4. The interpretation of 'capital employed' in an industrial undertaking under section 80J was crucial in determining the inclusion of various assets in the capital computation. Previous court judgments highlighted that the actual use of assets in the business was not a prerequisite for considering them as part of the capital employed.

5. A detailed comparison of rule 19, rule 19A, and section 80J(1)(a), (2), and (1A)(II) was conducted to analyze the evolution of the provisions related to capital computation. The court concluded that the latest amendment aimed to integrate the computation process within the section without altering the fundamental principles.

6. Post the introduction of section 80J(1A), the court reaffirmed the legal position established in previous judgments, emphasizing that the definition of 'actual cost' did not change the underlying principle of capital computation. The court cited precedents to support its decision, maintaining consistency in the interpretation of the law.

7. The court referred to previous judgments, such as CIT v. Madras Wire Products and CIT v. Sundaram Industries Ltd., to reinforce its decision regarding the computation of capital employed for granting relief under section 80J. The court's analysis was consistent with the principles established in these precedents, ensuring uniformity in legal interpretation.