Interpretation of Section 80-J: Own and borrowed capital both count for rebate calculation

INDIA RADIATORS LTD. Versus INCOME TAX OFFICER.

INDIA RADIATORS LTD. Versus INCOME TAX OFFICER. - TTJ 005, 640, Issues:
1. Computation of capital employed in a new industrial undertaking for claiming rebate under section 80-J.
2. Whether borrowed capital should be considered along with own capital for calculating the capital invested in the new undertaking.
3. Interpretation of the provisions of section 80-J in relation to the capital invested in new undertakings.
4. Claim for a higher capital figure based on judicial decisions.
5. Consideration of proportion between own and borrowed capital in the investment in the new undertaking.

Issue 1: Computation of capital employed for claiming rebate under section 80-J
The case involved the computation of capital employed in a new industrial undertaking for the purpose of claiming rebate under section 80-J. The assessee deducted current liabilities from fixed assets to determine the capital employed. The Income Tax Officer (ITO) contended that the capital included borrowed funds, and he calculated the relief under section 80-J based on a proportionate basis of own and borrowed capital. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, leading to the appeal before the Tribunal.

Issue 2: Consideration of borrowed capital for calculating capital invested
The assessee argued that both own and borrowed capital should be considered for calculating the capital invested in the new undertaking. Citing judicial decisions, the assessee claimed that the relief under section 80-J should be based on the total investment in the new undertaking, including borrowed funds. The Tribunal agreed with this argument, emphasizing that the law focuses on the money invested in the new undertaking, irrespective of whether it is the assessee's own or borrowed funds.

Issue 3: Interpretation of section 80-J provisions
The Department contended that the provisions of section 80-J only apply to the assessee's own money invested in the business, excluding borrowed funds. However, the Tribunal clarified that the intention of section 80-J is to provide relief to those investing in new undertakings, regardless of whether the investment comprises the assessee's own or borrowed funds. The Tribunal's decision was supported by previous judicial rulings.

Issue 4: Claim for a higher capital figure
The assessee claimed that the actual capital figures should be higher based on judicial decisions. While the Tribunal agreed with this assertion, it noted that the assessee had not raised this claim before the lower authorities. The Tribunal suggested that the assessee could seek relief by making a proper application to the Departmental Authorities.

Issue 5: Proportion between own and borrowed capital in the investment
The Tribunal observed that there were no facts supporting the assumption that a proportion of own and borrowed capital was invested in the new undertaking. Without evidence of borrowed funds being diverted to the new division, the Tribunal could not conclusively state that borrowed money was utilized. Although the case could have been sent back to the ITO for further investigation, the Tribunal's decision to allow the appeal on a legal question rendered this unnecessary.

This detailed analysis covers the various issues raised in the legal judgment, providing a comprehensive overview of the arguments presented and the Tribunal's decision on each matter.