1. The following questions of law have been referred for the opinion of this Court by the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dated June 13, 1994, in respect of the assessment year 1982-83:
(1) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in upholding the order of the Commissioner of Income-tax (Appeals) deleting addition of Rs. 7,200 made by the Assessing Officer in view of Section 37(4) for rent paid by the assessee for guest house?
(2) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal erred in directing the Assessing Officer to exclude the liabilities on pro rata basis in respect of the tractor division and foundry unit for computing capital employed in the new unit?
2. The assessee claimed a sum of Rs. 7,200 on account of rent paid to PSIDC for their guest house. The Assessing Officer disallowed the said amount under Section 37(4) of the Income-tax Act, 1961 (for short, 'the Act'). The Commissioner of Income-tax (Appeals) accepted the assessee's contention, which view has been upheld by the Tribunal.
3. The assessee claimed relief under Section 80J of the Act for the tractor division which was negatived by the Assessing Officer. The Assessing Officer did not accept the pro rata liability in computing the capital employed in the tractor division and foundry division nor included the value of work-in-progress in the capital employed. The Commissioner of Income-tax (Appeals) held that the assessee was entitled to deduct the pro rata liability and to include work-in-progress in the capital employed for allowing deduction under Section 80J of the Act. Reliance was placed on the judgment of this Court in CIT v. Dalmia Dadri Cement Ltd. . It was also held that the issue of pro rata liability was covered by the decision of the Tribunal dated April 25,1990, in the assessee's case for the assessment year 1981-82.
Question No. 1:
4. We find that the issue stands covered against the assessee in view of the judgment of the hon'ble Supreme Court in Britannia Industries Ltd. v. CIT : [2005]278ITR546(SC) , wherein it was observed at page 558:.In our view, the intention of the Legislature appears to be clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purposes of a guest house of the nature indicated in Sub-section (4) of Section 37. When the language of a statute is clear and unambiguous, the courts are to interpret the same in its literal sense and not to give it a meaning which would cause violence to the provisions of the statute. If the Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for the purposes of business or profession, then it would not have felt the need to amend the provisions of Section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in Sub-section (5) of Section 37 and the provisions of Sections 31 and 32 would have been sufficient for the said purpose. The decisions cited by Dr. Pal contemplate situations where specific provision had been made in Sections 30 to 36 of the Act and it was felt that what had been specifically provided therein could not be excluded under Section 37. The clarification introduced by way of Sub-section (5) to Section 37 was also not considered in the said case.
5. Accordingly, the first question is answered against the assessee and in favour of the Revenue. However, finding that the amount involved in the case is very small, we direct that effect to this order be not given in the case of the assessee in the present case. For this view, we may refer to the Full Bench judgment of this Court in CIT v. Smt. Aruna Luthra
Question No. 2:
6. Learned Counsel for the assessee points out that the Bombay High Court in Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO : [1973]92ITR241(Bom) held that for giving effect to the provisions of Section 80J of the Act, liabilities in respect of a new industrial unit could be deducted from the aggregate value of the assets of the industrial undertaking. The discussion in the said judgment at page 258 is as under:
Section 80J(1) provides that the assessee is to be allowed a deduction of 6 per cent, per annum on the capital employed in the industrial undertaking from the gross total income of the assessee. Rule 19A provides for computation of capital employed in an industrial undertaking. Sub-rule (1) provides that for the purpose of Section 80J the capital employed in an industrial undertaking shall be computed in accordance with Sub-rules (2) to (4). Sub-rule (2) provides that the aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking shall first be ascertained. Sub-rule (3) provides that from the aggregate of the amount so 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. At first look Sub-rules (2) and (3) appear to provide that from the aggregate value of the assets of each undertaking the aggregate of the liabilities of the assessee shall be deducted. The assessee in this case owns 4 industrial undertakings. The result of such interpretation would be that from the assets of each industrial undertaking the entire borrowings of the assessee in respect of all the industrial undertakings are to be deducted for arriving at the capital employed in an industrial undertaking. On the face of it, this is an absurd proposition. If you want to arrive at the capital employed by an assessee in a particular industrial undertaking, you cannot arrive at it by deducting from the assets of that particular undertaking the liabilities not only of that industrial undertaking but also of three other industrial undertakings. This is mathematically, absurd. What you want to find is the capital employed in an industrial undertaking. This cannot be mathematically done by deducting from its assets the liabilities of other undertakings. One will, therefore, have to give a reasonable interpretation to Sub-rule (3) by adding after the words 'borrowed moneys and debts due by the assessee', the words 'in respect of the industrial undertaking in which the capital employed is to be computed'. We accordingly hold that, on a true interpretation of Rule 19A, in respect of each undertaking, the liabilities of the assessee in respect of that industrial undertaking only are to be deducted from the aggregate value of the assets of the same industrial undertaking. The controlling words in sub-rule (1) viz., 'for the purpose of Section 80J the capital employed in an industrial undertaking... shall be computed... must govern Sub-rules (2) and (3).
7. It is pointed out that the said judgment was also followed by the Gujarat High Court in CIT v. Cadila Chemicals P. Ltd. : [2005]278ITR633(Guj) , wherein it was also noticed that the view of the Bombay High Court has been accepted by the Department. Circular No. 380 dated April 10, 1984, (see : [1984]149ITR1(Delhi) has also been relied upon by learned Counsel for the assessee, which is as under:
Section 80J of the Income-tax Act, 1961, provides that in computing the taxable income of an assessee from a newly established industrial undertaking, ship or business of a hotel, a deduction shall be allowed at the rate of 6 per cent, (with effect from April 1, 1976 at the rate of 7.5 per cent, in the case of a company) of the capital employed in the industrial undertaking, ship or business of the hotel. Rule 19A of the Income-tax Rules, 1962, prescribed the manner of computation of the capital employed for this purpose. Sub-rule (2) of Rule 19A provided that the aggregate of the amounts representing the value of the assets of the undertaking shall first be ascertained in the manner specified therein. Sub-rule (3) of Rule 19A provided that from the amount ascertained under Sub-rule (2), the aggregate of the borrowed moneys and debts due by the assessee shall be deducted. The Bombay High Court in the case of Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO : [1973]92ITR241(Bom) , while interpreting Rule 19A held that in respect of each undertaking the liabilities of the assessee in respect of that industrial undertaking only were to be deducted from the aggregate value of the assets of the same industrial undertaking. The Board considered this judgment and accepted the interpretation given by the High Court for harmonious working of Rule 19A.
2. Section 80J(1A) was inserted by the Finance (No. 2) Act 1980, adopting the provisions made in Rule 19A. The language of Section 80J(1A) is the same as in Rule 19A. Hence, the Board is of the view that the judgment of the Bombay High Court is equally applicable to the provisions made in Sub-section (1A) of Section 80J.
8. Accordingly, we answer this question in favour of the assessee and against the Revenue.