Tribunal Upholds Exclusion of Borrowed Capital in Relief Computation Under Income-tax Act

The Tribunal, in a case concerning the computation of relief under section 80J of the Income-tax Act, 1961, upheld the exclusion of borrowed capital as mandated by the retrospective amendment introduced by the Finance (No. 2) Act, 1980. The Tribunal emphasized the validity of the amendment until declared unconstitutional by the Supreme Court and rejected the assessee's request to defer relief computation pending the Supreme Court's decision on the amendment's constitutionality. The matter was remitted back to the Income Tax Officer for recomputation of profit under section 80J in line with the majority view.

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Issues Involved:
1. Computation of relief under section 80J of the Income-tax Act, 1961, including the consideration of borrowed capital.
2. Retrospective amendment of section 80J by the Finance (No. 2) Act, 1980.
3. Jurisdiction of the Tribunal to follow amended provisions pending Supreme Court decision.
4. Consistency in Tribunal's decisions and remitting matters back to the ITO for recomputation.

Issue-wise Detailed Analysis:

1. Computation of Relief under Section 80J:
The primary issue in this case revolves around the computation of relief under section 80J of the Income-tax Act, 1961. The assessee, a private limited company engaged in the manufacture of yarn, claimed that the relief should be computed on the capital employed, including borrowed capital. The Income Tax Officer (ITO) excluded borrowed capital from the computation, following the amended provisions of section 80J as per the Finance (No. 2) Act, 1980. This exclusion was upheld by the Commissioner (Appeals), leading to the present appeal by the assessee. The Tribunal noted that the decision of the Hon'ble Madras High Court in Madras Industrial Linings Ltd. v. ITO was not applicable since it did not consider the amended provisions of section 80J.

2. Retrospective Amendment of Section 80J:
The Finance (No. 2) Act, 1980, introduced a retrospective amendment to section 80J, effective from April 1, 1972, mandating the exclusion of borrowed capital in computing the capital employed. The Tribunal emphasized that this amendment was valid and applicable until declared unconstitutional by the Supreme Court. The Tribunal referenced decisions from various High Courts, including CIT v. Toshiba Anand Lamps Ltd., Traco Cable Co. Ltd. v. CIT, and CIT v. K.N. Oil Industries, which supported the exclusion of borrowed capital following the amendment.

3. Jurisdiction of the Tribunal:
The Tribunal clarified that it lacked jurisdiction to question the constitutionality of the amended section 80J. It must follow the law as it stands on the statute book. The Tribunal reiterated that the amended section 80J remains valid until the Supreme Court rules otherwise. Hence, the Tribunal rejected the assessee's contention to defer the relief computation until the Supreme Court's decision on the pending writs challenging the amendment's constitutionality.

4. Consistency in Tribunal's Decisions:
The Tribunal highlighted the importance of consistency in its decisions. The Judicial Member noted that the Tribunal had consistently followed the amended section 80J in Madras and other jurisdictions, rejecting the argument to await the Supreme Court's decision. However, the Accountant Member disagreed, referencing the Tribunal's decision in Sundaram Fasteners Ltd., where the matter was remitted back to the ITO to await the Supreme Court's decision. The Accountant Member also cited the Gujarat High Court's decision in CIT v. Surat District Co-operative Milk Producers Union Ltd., which supported remitting the matter back to save public time and cost.

Third Member's Decision:
Due to the difference of opinion between the Judicial and Accountant Members, the matter was referred to the Third Member, who agreed with the Accountant Member. The Third Member emphasized consistency with previous Tribunal decisions in Secals Ltd. and Simco Meters Ltd., which involved similar issues. The Third Member concluded that the case should be remitted back to the ITO for recomputation of the profit under section 80J after the Supreme Court's decision on the amendment's validity.

Final Order:
The Tribunal, following the majority view, decided to remit the matter back to the ITO for recomputation of the profit under section 80J after the Supreme Court or Madras High Court's decision on the retrospective amendment's validity becomes available. The appeal was dismissed, and the order of the Commissioner (Appeals) was confirmed.

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