Capital employed under section 80J cannot be restricted to opening-day asset values; Rule 19A was held ultra vires.

Rule 19A of the Income-tax Rules could not restrict the computation of "capital employed" under section 80J to the value of assets on the first day of the computation period, because the statutory relief was intended to promote investment in newly established industrial undertakings and the Act did not require such a narrow date-specific method. The earlier legislative scheme and computation rules showed that capital employed was not confined to opening-day value unless the legislature said so expressly. Rule 19A was therefore ultra vires section 80J to that extent, and the assessee was entitled to a broader computation basis; the disallowance by the Income-tax Officer could not stand.

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Issues: Whether rule 19A of the Income-tax Rules, 1962, in requiring the value of assets as on the first day of the computation period to be adopted for computing capital employed, is within the scope of section 80J of the Income-tax Act, 1961.

Analysis: Section 80J granted deduction at six per cent per annum on the capital employed in a newly established industrial undertaking, computed in the prescribed manner. The prior legislative pattern under section 15C of the Income-tax Act, 1922 and section 84 of the Income-tax Act, 1961, together with the earlier computation rules, showed that the expression "capital employed" was not understood as being confined to the opening day value alone. The provision was intended to encourage investment in industrial undertakings, and where the legislature intended a computation with reference to a particular date it said so expressly. On that basis, a rule-making provision could not narrow the statutory relief by restricting capital employed to the first day of the computation period.

Conclusion: Rule 19A was ultra vires section 80J to the extent that it confined computation to the value of assets on the first day of the computation period. The assessee was entitled to have capital employed computed on the broader basis, and the disallowance made by the Income-tax Officer could not stand.

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