Capital employed includes an advance to a director treated as a company asset for the computation

The expression "capital employed" was construed broadly and distinguished from capital actually used in the business. An advance to a director was treated as a debt due to the company and therefore as an asset falling within section 19A(2)(iv). The Income-tax Officer's exclusion of that amount from the capital employed computation was held incorrect, and the advance was includible in capital employed. The assessee's computation was accepted.

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Issues: Whether an advance to a director formed part of the assets for computing "capital employed" under section 19A(2)(iv) of the Income-tax Act, 1961.

Analysis: The expression "capital employed" was construed broadly and was distinguished from capital actually used in the business. On that approach, the advance to the director was treated as a debt due to the company and, therefore, as an asset falling within section 19A(2)(iv). The computation made by the Income-tax Officer excluding that amount was held to be incorrect.

Conclusion: The advance to the director was includible in the capital employed, and the assessee's computation was accepted.

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