1992 (1) TMI 188 - AT - Income Tax

Tribunal Rules on Dividend Inclusion in Capital Calculation, Excludes Tax Provision

Inspecting Assistant Commissioner. Versus Asia Match Company Limited.

The tribunal partially allowed the appeals, upholding the inclusion of the provision for proposed dividends in the capital employed calculation but ... Capital Employed, Industrial Undertaking Issues:Whether the provision for proposed dividends and provision for taxation should be considered as part of the capital employed for the purpose of calculating the deduction under section 80J of the Income-tax Act, 1961.Analysis:The case involved three departmental appeals centered on the issue of whether the provision for proposed dividends and provision for taxation should be included in the calculation of 'capital employed' for the purpose of determining the deduction under section 80J of the Income-tax Act, 1961. The CIT(Appeals) allowed the assessee's claim, considering these provisions as part of the capital employed. The Department objected to this decision, relying on the Supreme Court case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, which held that such sums should be excluded. The Assessing Officer and the Departmental Representative supported this stance, while the assessee's counsel cited the case of Kesoram Industries & Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 (SC) to argue in favor of including these provisions in the capital employed calculation.The tribunal analyzed the provisions of section 80J of the Income-tax Act, which specify the method for computing the deduction admissible, particularly focusing on the deduction related to the capital employed in industrial undertakings. The tribunal highlighted that the deduction under section 80J(1) is based on the capital employed, emphasizing that the higher the capital employed, the higher the deduction. The tribunal examined whether the provision for proposed dividends can be considered a debt owed by the assessee, referring to the Supreme Court's decision in the case of Kesoram Industries & Cotton Mills Ltd. The tribunal concluded that the provision for proposed dividends cannot be regarded as a debt owed by the assessee, aligning with the precedent set by the Supreme Court.Regarding the provision for taxation, the tribunal reiterated the provisions of section 80J(1A)(III) which specify the deduction of borrowed monies and debts owed by the assessee, including amounts due towards any tax liability. Citing the Supreme Court's ruling in Kesoram Industries & Cotton Mills Ltd., the tribunal affirmed that a provision for taxation meets the criteria of a debt and should be deducted from the aggregate value of assets. Therefore, the tribunal held that the provision for taxation should be excluded from the capital employed calculation, overturning the decision of the CIT(Appeals) on this issue.In conclusion, the tribunal partially allowed the appeals, upholding the inclusion of the provision for proposed dividends in the capital employed calculation but overturning the inclusion of the provision for taxation, aligning with the legal principles established by the Supreme Court rulings.