Mrs. Sujata Manohar, J.
1. The assessee is a limited company carrying on the business of manufacturing pharmaceutical products. The assessment years involved are 1967-68 to 1970-71. The point at issue for all the four years under reference is regarding the computation of capital employed in the new industrial undertaking for the purpose of section 84 for the assessment year 1967-68 and section 80J for the remaining assessment years. One of the contentions which was urged by the assessee before the Tribunal by way of an additional ground was to the effect that no part of borrowed moneys and deposits taken from distributors ought to have been deducted from the capital for the purposes of the above sections as these were not 'debts' which were 'due' for payment on the relevant dates. A major part of the borrowings of the assessee consisted of loans received from banks by way of overdrafts against hypothecation of stock-in-trade. The Tribunal has upheld the contention of the assessee that, under these sections read with the rules in force at the relevant time, borrowed moneys and debts due by the assessee which were required to be deducted were moneys and debts which were due and payable on the first day of the computation period, (the last day of the accounting period for the last assessment year) and not merely moneys and debts owed on that date. From the decision of the Tribunal (we are not concerned with other aspects of the Tribunal's order), the following questions have been referred to us under section 256(1) of the Income-tax Act, 1961. Question No. 1 is referred to us at the instance of the Revenue while question No. 2 is referred to us at the instance of the assessee. The questions are :
At the instance of the Revenue :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for the purpose of rule 19(3), a distinction has to be made between 'debts owed' and 'debts due' and that only debts that had become due for payment as at the end of the accounting period should be excluded while computing the capital for the purpose of section 84/80J rebate/relief ?' At the instance of the assessee : '(2) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that, in computing the capital employed in the assessee's industrial undertaking, a deduction was not required to be made in respect of the borrowed money and debts due by the assessee ?'
2. In order to answer these questions, it is necessary to note that, for the assessment year 1967-68, the relevant section applicable was section 84 read with rule 19(3) of the Income-tax Rules as then in force.
3. The relevant provisions of rule 19 were as follows :
'19. (1) For the purpose of section 84, the capital employed. . . shall be taken to be - . . . .
(3) Any borrowed money and debt due by the person carrying on the business shall be deducted. . .
For the assessment years 1968-69 to 1970-71, section 84 was replaced by section 80J of the Income-tax Act, 1961, and rule 19(3) was replaced by rule 19A(3).
4. The relevant portions of rule 19A as in force during these assessment years were as follows :
'19A. Computation of capital employed in an industrial undertaking or a ship or the business of a hotel for the purposes of section 80J. - (1) For the purposes of section 80J, the capital employed in an industrial undertaking. . . . shall be computed in accordance with sub-rules (2) to (4). .
(3) From the aggregate of the amounts as ascertained under sub-rule (2) shall be deducted the aggregate of the amounts, as on the first day of the computation period, of borrowed moneys and debts due by the assessee (including amounts due towards any liability in respect of tax, not being - . . . .
(b) in the case of any assessee (including a company) any moneys borrowed from an approved source for the creation of a capital asset in India, if the agreement under which such moneys are borrowed provides for the repayment thereof during a period of not less than seven years.
Explanation.
(i) 'approved source' means the Government or the Industrial Finance Corporation of India or the Industrial Credit and Investment Corporation of India Ltd. or any banking institution. . .
The scheme of section 84 and section 80J as well as the relevant rules framed thereunder have been considered at length by the Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. While analysing these sections and the Rules framed thereunder, in order to determine the constitutional validity of these Rules, the Supreme Court has said, inter alia, that, prior to April 1, 1968, as well as after April 1, 1972, the prevailing position was that borrowed moneys were required to be deducted while computing capital for the purposes of these sections. Only for a short period from April 1, 1968, to April 1, 1972, when rule 19A(3) was in operation as set out earlier borrowed moneys of the kind specified in sub-rules (a) and (b) of that rule were included in the computation of capital employed. The Supreme Court has analysed these sections on the basis that, while computing the capital employed for the purposes of sections 84 and 80J, all borrowed moneys have to be deducted irrespective of when they fall due for repayment - save and except for the limited period from April 1, 1968, to April 1, 1972, when rule 19A(3) was in force where certain kinds of borrowed moneys which would fall under rule 19A(3) (a) and (b) would be included in the computation of capital. It said (headnote page 311) : 'The legislative history shows beyond doubt that Parliament throughout, save in respect of the period from April 1, 1968, to March 31, 1972, approved of exclusion of borrowed monies in computing the 'capital employed' as being in conformity with its intention and regarded such exclusion as being within the terms of section 15C or section 80J, as the case may be'.
5. Rule 19(3) of the assessment year 1967-68, and rule 19A(3) for the subsequent assessment years, both use the phrase 'borrowed moneys and debts due'. The term 'debts' would ordinarily be wide enough to cover all kinds of debts incurred by an assessee. For example, it would cover the tax liability of an assessee, any amounts which the assessee may be liable to pay for the supply of raw material, wages due and payable to workers, moneys borrowed from banks or other financial institutions, private borrowings and so on. Therefore, the term 'debt' would ordinarily include borrowed moneys also. But, in rule 19(3) as also in rule 19A(3), 'borrowed money' is referred to separately in conjunction with 'debts due'. Therefore, there is a clear intention on the part of the Legislature to provide separately in this rule for the deduction of all borrowed moneys apart from debts due. The term 'debts due' which succeeds the term 'borrowed money', therefore, will not include within its ambit borrowed money which has been specifically and separately referred to earlier in the rule. In respect of 'borrowed money', the Supreme Court, in the case of Lohia Machines Ltd. : [1985]152ITR308(SC) , has clearly held that all borrowings - whether long-term or short-term, will have to be deducted from the capital of a company for the purposes of section 84 and section 80J, with certain exceptions for the period April 1, 1968; to April 1, 1972. Therefore, the contention of the assessee that only such borrowed moneys as are due and payable on the first day of the computation period should be deducted cannot be accepted. All borrowed moneys, irrespective of whether they have become due and payable on the first day of the computation period, are required to be deducted under rule 19(3) as well as rule 19A(3). In the case of rule 19A(3), however, there is a specific provision made in respect of any moneys borrowed from approved sources - which would include a banking institution, for the creation of a capital asset in India, if the agreement under which the moneys are so borrowed provides for repayment during a period of not less than seven years. Any borrowing from a banking institution which falls in this category can be included in the computation of capital for the purposes of section 80J because of the express inclusion of such borrowing under rule 19A(3) at the relevant time. This exception would apply in the case of the assessee for the assessment years 1968-69, 1969-70 and 1970-71.
6. All debts of the assessee other than borrowed moneys, during all the assessment years in question, would fall under the phrase 'debts'. As far as these other debts are concerned, the phrase 'debt due' clearly indicates that these debts must be due and payable on the first day of the computation period for the assessment years when rule 19A(3) was in force, and on the last day of the accounting period when old rule 19 was in force. Debts which are not so due and payable, though they may be owing by the assessee, are not liable to be deducted. Our court has held that there is a clear distinction between 'debts due' and 'debts owed'. In the case of CIT v. National Organic Chemical Industries Ltd. : [1978]115ITR56(Bom) , a Division Bench of this court stated that debts are of two kinds : solvendum in praesenti and solvendum in futuro. A debt which is payable at a future date is a debt owing while the debt which is now due and payable is a debt due. The Division Bench relied upon a decision of the Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT : [1966]59ITR767(SC) , while making the distinction between the concept of a debt owed and a debt due. The Division Bench in the case of National Organic Chemicals Industries Ltd. : [1978]115ITR56(Bom) considered the question of computation of capital for the purposes of section 80J. The Division Bench in that case, however, did not consider the question of borrowed moneys in the context of section 80J. It was only concerned with the second part of the rule dealing with 'debts due'. The decision of the Division Bench was also rendered prior to the decision of the Supreme Court in the case of Lohia Machines Ltd. : [1985]152ITR308(SC) . Therefore, the Division Bench has not pronounced upon the question whether borrowed money should be included in 'debts due', and if so, whether only borrowed money which is due for repayment on the first day of the computation period (or the last day of the accounting period as the case may be) should be deducted.
7. The next decision on which the assessee relied is a decision of a Division Bench of this court in the case of CIT v. Gynamij India Ltd. : [1990]181ITR265(Bom) . In that case, the Division Bench has also considered section 84 of the Income-tax Act, 1961. The second question which was referred to the Division Bench was : 'Whether only those liabilities which are due and payable on the relevant date should be deducted or all the liabilities which are owed but which are not due and payable on the relevant date should be deducted ?' The answer to this question proceeded on a concession given by the Revenue that this question was governed by the decision of this court in the case of National Organic Chemical Industries Ltd. : [1978]115ITR56(Bom) . In view of this concession, the court answered the question by saying that only those liabilities which were due and payable on the relevant date could be deducted. The decision, therefore, is not a reasoned decision; it proceeds on a concession. The question before the Division Bench was very widely worded to cover both borrowed moneys as well as other debts. As we have stated earlier, the decision in National Organic Chemical Industries Ltd. : [1978]115ITR56(Bom) , was only confined to the term 'debts due'. The case of National Organic Chemical Industries Ltd. : [1978]115ITR56(Bom) did not deal with the question of borrowed moneys. Therefore, the decision of the Division Bench in Gynamij India Ltd. : [1990]181ITR265(Bom) also does not throw any light on the controversy before us, namely, whether, in the case of 'borrowed moneys', only those borrowed moneys which are due and payable on the first day of the computation period should be deducted or borrowed moneys which may be payable at a future date should also be deducted. In view of the decision of the Supreme Court in Lohia Machines Ltd. : [1985]152ITR308(SC) , all borrowed moneys have to be deducted, whether they are payable in praesenti or payable in futuro. The contention of the assessee that 'due' applies to 'borrowed money' as well as 'debts' cannot, therefore, be accepted. In the premises, question No. 1 which is referred to us is answered as follows :
For the purpose of rule 19(3) which was in force for the assessment year 1967-68, only 'debts due' for payment as on the last day of the accounting period should be excluded while computing the capital for the purpose of section 84 save and except for borrowed moneys. The latter are required to be deducted while computing the capital for the purpose of section 84 irrespective of whether they are due and payable on the last day of the accounting period or not.
For the rest of the assessment years, only debts due for payment as on the first Bay of the computation period should be excluded while computing the capital for the purpose of section 80J. If the debts, however, consist of or include borrowed moneys which fall within the description of rule 19A(3) (b), the same are to be included while computing the capital for the purpose of section 80J.
8. On the second question, Mr. Ponda, learned counsel appearing for the assessee, drew our attention to the decision of the Supreme Court in the case of CIT v. V. Damodaran : [1980]121ITR572(SC) , and submitted that the second question ought not to have been referred to us by the Tribunal at the instance of the assessee in the same reference application. We are not examining this submission because, in any view of the matter, our answer to question No. 1 covers the second question which is raised at the instance of the assessee. Therefore, there is no need to answer question No. 2.
9. The questions are answered accordingly.
10. Looking to the circumstances, there will be no order as to costs.