Capital employed includes machinery under installation, but Chapter VI-A deductions fail where gross total income is negative.

Machinery under installation is includible in capital employed for section 80J relief because it represents business capital deployed for the undertaking and is treated on the same footing as work in progress. Deduction under section 80M is unavailable where gross total income is nil or a loss, since Chapter VI-A deductions are capped by gross total income under section 80A(2) and cannot exceed the income computed under section 80B(5). The appeal was therefore allowed only on the section 80J issue and rejected on the section 80M claim.

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Issues: (i) Whether the value of machinery under installation forms part of the capital employed for deduction under section 80J of the Income-tax Act, 1961. (ii) Whether deduction under section 80M of the Income-tax Act, 1961 is admissible where the gross total income is a loss.

Issue (i): Whether the value of machinery under installation forms part of the capital employed for deduction under section 80J of the Income-tax Act, 1961.

Analysis: The relevant computation for relief under section 80J treats the capital employed in the business as including assets connected with the establishment of the undertaking. Machinery under installation represents capital deployed for the business and stands on the same footing as work in progress for the purpose of computing capital employed. The reasoning adopted in the cited High Court decisions was followed.

Conclusion: The value of machinery under installation is includible in the capital employed and the assessee succeeds on this issue.

Issue (ii): Whether deduction under section 80M of the Income-tax Act, 1961 is admissible where the gross total income is a loss.

Analysis: Deduction under Chapter VI-A is subject to section 80A(2), which limits the aggregate of such deductions to the gross total income. Gross total income is the total income computed before Chapter VI-A deductions under section 80B(5). Where the assessed gross total income is nil or a loss, no deduction under section 80M can be allowed.

Conclusion: Deduction under section 80M is not admissible in the absence of positive gross total income and the assessee fails on this issue.

Final Conclusion: The appeal was allowed only to the extent of including machinery under installation in the capital employed under section 80J, while the claim for deduction under section 80M was rejected.

Ratio Decidendi: Capital employed for section 80J may include machinery under installation, but deductions under Chapter VI-A, including section 80M, cannot exceed gross total income and are unavailable where such income is nil or negative.

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