Capital employed under section 80J includes non-due liabilities only if actually payable on the relevant date; assessee succeeded.
For computing capital employed under section 80J, only liabilities actually due on the relevant date are deductible under rule 19A(3); interest that had not fallen due on the first day of the accounting year could not be excluded. The Court also accepted inclusion of payments made for capital assets in capital employed under rule 19A(2), following binding precedent on the same point. On both issues, the computation was upheld in favour of the assessee, and relief under section 80J was allowed.
Issues: (i) Whether the assessee was entitled to relief under section 80J of the Income-tax Act, 1961, by including the amount of Rs. 6,98,057 representing payments made for certain capital assets in the capital employed under rule 19A(2) of the Income-tax Rules, 1962. (ii) Whether interest of Rs. 20,310 not due on the first day of the accounting year was liable to be excluded from the liabilities while computing capital employed under rule 19A(3) of the Income-tax Rules, 1962.
Issue (i): Whether the assessee was entitled to relief under section 80J of the Income-tax Act, 1961, by including the amount of Rs. 6,98,057 representing payments made for certain capital assets in the capital employed under rule 19A(2) of the Income-tax Rules, 1962.
Analysis: The question was treated as concluded by the binding decision of the Court in the earlier case on the same point. No further factual or legal elaboration was found necessary, and the inclusion of the amount in the capital employed computation was accepted.
Conclusion: The issue was answered in favour of the assessee.
Issue (ii): Whether interest of Rs. 20,310 not due on the first day of the accounting year was liable to be excluded from the liabilities while computing capital employed under rule 19A(3) of the Income-tax Rules, 1962.
Analysis: Only liabilities that had become due for payment on the relevant date were to be excluded in computing capital employed. The distinction between debts owed and debts due controlled the application of the rule, and interest that had not fallen due on the first day of the computation period could not be treated as a deductible liability.
Conclusion: The issue was answered in favour of the assessee.
Final Conclusion: The reference was answered entirely in favour of the assessee on both referred questions, upholding the computation of capital employed without the disputed exclusion and granting the claimed relief under section 80J.
Ratio Decidendi: For computing capital employed under section 80J, only liabilities that are actually due on the relevant date are deductible, while amounts not yet due cannot be excluded; corresponding payments forming part of capital employed may be included where binding precedent so requires.
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