J. S. Verma, Actg. C.J. - This is a reference under s. 256(1) of the Act IT 1961 at the instance of the revenue to decide the following question of law :
'Whether, on the facts and in circumstances of the case, the Appellate Tribunal was justified in holding that assessee is entitled to a deduction under s. 80J on the entire capital without differentiating between own capital and borrowed capital ?'
2. The assessee carries on the business of manufacture and sale of fire bricks earning an income out of this business. The relevant assessment year is 1975-76. In the return filed by the assessee, it claimed a deduction under s. 80-J of the Act on the basis that it had borrowed a sum of Rs. 2,40,000 from the Madhya Pradesh Finance Corporation so that the same should not be deducted in computing the capital employed in the industrial undertaking for purposes of relief under s. 80-J of the Act r/w r. 19A of the IT Rules, 1962 framed thereunder. The ITO rejected the assessees plea and deducted both these amounts from the capital employed by the assessee granting relief of only 6% amounting to Rs. 22,464. The assessees appeal to the AAC was dismissed. However, the assessees further appeal to the Tribunal has been allowed and the Tribunal has directed the ITO not to deduct the borrowed capital of Rs. 2,40,000 and Rs. 64,531 while computing the capital employed in the industrial undertaking for purposes of allowing deduction under s. 80-J of the Act.
3. Aggrieved by the view taken by the Tribunal, the revenue sought a reference to this court which has been made by the Tribunal to decide the above question of law.
4. The point for our decision is no longer rea integra as the same has been concluded by the recent decision of the Supreme Court in Lohia Machiners Ltd. and Anr. v. Union of India and Ors. : [1985]152ITR308(SC) . This decision of the Supreme Court settles the controversy existing earlier as a result of conflicting decisions of the High Courts by deciding that in such a situation, deduction of the amounts has to be made for purposes of s. 80-J of the Act. It is obvious from the decision of the Supreme Court that the conclusion reached by the Tribunal is not justified.
5. Consequently the reference is answered in favour of the revenue and against the assessee as under :
'The Tribunal was not justified in holding that the assessee is entitled to a deduction of the aforesaid amounts of Rs. 2,40,000 and Rs. 64,531 under s. 80-J of the Act.'
There shall be no order as to costs.