1978 (4) TMI 16

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....er cent. on the total capital employed by it including the borrowed capital. On this ground, the petitioner firm claimed a relief of Rs. 94,254 on the basis of the total capital either invested by the partners or borrowed by the firm, as on 3rd November, 1972, which was the opening day of the relevant accounting period. The ITO relying upon sub-r. (3) of r. 19A held that the assessee was not entitled to the relief in respect of borrowed capital. He, therefore, allowed the relief to the extent of Rs. 35,798. The assessee went up in appeal. The AAC held that the term, " capital employed " in s. 80J covered the entire capital invested by the assessee which included borrowed capital also. He, therefore, allowed relief to the extent of Rs.....

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....orrowed for the time being. In this view, sub-r. (3) was clearly in conflict with the phrase " capital employed " used in s. 80J. Section 80J refers to capital employed as computed in the prescribed manner. Rule 19A gives the manner of computation. Sub-r. (3) of r. 19A provides : " From the aggregate of the amounts as ascertained under sub-r. (2) shall be deducted the aggregate of the amounts, as on the first day of the computation period, of borrowed moneys and debts owed by the assessee (including amounts due towards any liability in respect of tax)." This sub-rule expressly excludes borrowed moneys from the value of the assets computed in accordance with sub-r. (2). It is evident that sub-r. (3) lays down a principle contrary to th....

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....manner of calculation. It does not entitle it to change the sense in which the legislature has used the words " capital employed " in the section. If the legislature meant to include the borrowed moneys, then the rule-making authority which could make rules to carry out the objects of the Act, could not vary the sense of the statutory provisions by providing that borrowed moneys will be deducted from the value of the assets computed in accordance with sub-r. (2). We are, therefore, in respectful agreement with the view of the Calcutta and Madras High Courts that sub-r. (3) of r. 19A was ultra vires of the rule-making power conferred by the I.T. Act. This sub-rule cannot be relied upon for the purpose of computing the capital employed for pu....