Case on Deduction Calculation under Income-tax Act: Tribunal Upholds Retrospective Amendment

The case involved the computation of deduction under Section 80J of the Income-tax Act, 1961, concerning the exclusion of liabilities from the assets employed by the assessee. The Tribunal decided to apply the law as it stood, supporting the retrospective amendment by the Finance (No. 2) Act, 1980, and dismissing the appeal by the assessee. The Tribunal emphasized following the current law unless declared unconstitutional by the Supreme Court, and remitted the matter back to the ITO for recomputation after the Supreme Court or Madras High Court's decision on the retrospective amendment's validity.

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Issues Involved:
1. Computation of deduction under Section 80J of the Income-tax Act, 1961.
2. Retrospective amendment of Section 80J by the Finance (No. 2) Act, 1980.
3. Validity of the retrospective amendment pending before the Supreme Court or Madras High Court.
4. Jurisdiction of the Tribunal to decide based on the current law versus awaiting the Supreme Court's decision.

Detailed Analysis:

1. Computation of Deduction under Section 80J of the Income-tax Act, 1961:
The primary issue revolves around whether the liabilities should be excluded from the value of the assets employed by the assessee in the new industrial undertaking for computing the capital under Section 80J. The Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had excluded the borrowed capital based on the retrospective amendment by the Finance (No. 2) Act, 1980. The Judicial Member supported this view, stating that the law as it stood must be applied, and there was no justification to await the Supreme Court's decision.

2. Retrospective Amendment of Section 80J by the Finance (No. 2) Act, 1980:
The amendment to Section 80J was made with retrospective effect from 1st April 1972, mandating the exclusion of borrowed capital in the computation of capital employed for the deduction. The Judicial Member cited the Kerala High Court's decisions in Traco Cable Co. Ltd. vs. CIT and CIT vs. Toshiba Anand Lamps Ltd., which upheld the amended provisions. The Accountant Member, however, referred to the ITAT Madras decision in Sundaram Fasteners Ltd., which remitted the matter back to the ITO for recomputation after the Supreme Court's decision on the amendment's validity.

3. Validity of the Retrospective Amendment Pending Before the Supreme Court or Madras High Court:
The Accountant Member argued that the Tribunal should await the Supreme Court or Madras High Court's decision on the validity of the retrospective amendment before finalizing the computation. He cited the Gujarat High Court's decision in CIT vs. Surat District Co-operative Milk Producers Union Ltd., which approved remitting the matter back to the ITO to save public time and cost. The Judicial Member disagreed, emphasizing that the Tribunal must follow the current law unless declared unconstitutional by the Supreme Court.

4. Jurisdiction of the Tribunal to Decide Based on Current Law Versus Awaiting the Supreme Court's Decision:
The Judicial Member asserted that the Tribunal lacked jurisdiction to question the constitutionality of the amended Section 80J and must follow the law as it exists on the statute book. The Accountant Member, however, stressed the procedural aspect, advocating for consistency with the Tribunal's previous decisions in similar cases and the Gujarat High Court's stance on awaiting the Supreme Court's decision.

Conclusion:
The Third Member agreed with the Accountant Member, citing consistency with previous Tribunal decisions in Secals Ltd. vs. Third ITO and Simco Meters Ltd. vs. IAC, and the Gujarat High Court's ruling. The decision emphasized that the Tribunal should 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. The case will now go before the regular Bench for disposal in accordance with the majority opinion. The appeal by the assessee was ultimately dismissed, affirming the ITO and CIT(A)'s application of the amended Section 80J.

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