B.N.SRIKRISHNA, J. - (1.)THIS reference under section 256(1) of the Income -tax Act, 1961 (hereinafter referred to as 'the Act'), made at the instance of the Revenue, refers the following two question of law for the opinion of this court : '(1) Whether, on the facts and in the circumstances of the case, the Tribunal rightly held for the three years that the figure of advance shown to have been made by the hardboard unit to the insulation board unit need not be deducted as a liability while computing the capital employed by the new industrial undertaking manufacturing insulation board ? (2) If the answer to question No. 1 is in the negative, then, should the deduction required to be made for liability be worked out on the basis adopted by the Income -tax Officer or by the Appellate Assistant Commissioner or by the assessee in its second alternative plea, which is dealt with in paragraph 13 of the Tribunals orde ?'
(2.)THE concerned assessment year 1964 -65, 1965 -66 and 1966 -67. The relevant previous years are the year ending on March 31, 1964 and 1965.
The assessee is a limited company incorporated under the provisions of the Companies Act. The assessee was carrying on the business of manufacturing hardboards and insulation boards. The assessee set up its hardboard factory first and the insulation board factory was set up subsequently. There is no dispute between the parties that the two units manufacturing hardboards and insulation boards were to be treated as two separate industrial undertakings for the purpose of claiming relief envisaged under section 84 of the Act (wrongly referred to as section 80J, throughout the statement of case). The hardboard unit started operation in the assessment year 1959 -60 and earned profits from the very commencement. Relief/deduction under section 84 of the Act and under the corresponding section 15C of the Indian Income -tax Act, 1922, was available for a period of five years. The hardboard unit was granted relief under section 15C of the 1922 Act for the assessment year 1959 -60 and under section 84 of the 1961 Act for the assessment years 1961 -62 to 1963 -64. The construction and installation of the insulation board unit was started during the assessment year 1961 -62, but its manufacturing activity commenced only during the previous year relevant to the assessment year 1962 -63. The insulation board unit made losses during the assessment year 1962 -63 and 1963 -64 and hence there was no question of the said unit claiming any relief under section 84 for the said years, although both the units were operating during the assessment years 1962 -63 and 1963 -64.

(3.)THE assessee -company has maintained published consolidated balance sheets and profit and loss accounts for both the units as required under the Companies Act. However, in order, perhaps, to have readily available accounts of each units separately, the assessee -company maintained account books and balance -sheets and profit and loss accounts, though unpublished for each unit separately. The books of account of the insulation board unit were opened for the first time in 1961 -62. When the construction of the Insulation board unit was taken up during the assessment year 1961 -62, the assessee -company made available funds to the said unit and showed the monies advanced to the said unit as an advance in the account books of the hardboard unit. In the books of account of the hardboard unit, the monies advanced were shown on the assets side and correspondingly they were shown on the liabilities side in the books of the insulation board unit. Since the published accounts were maintained on a common basis, there were no such cross -entries shown in the published balance -sheet and profit and loss accounts. Apart from these inter -unit advances in both sets of accounts, there were certain sundry creditors pertaining to the respective units. The parties are agreed that the sundry creditors shown in the books of each unit pertained to the respective unit and that the balance in those accounts had to be deducted for arriving at the capital employed in each of the units. The figures of the amounts shown in the account books of the assessee -company as due from the insulation board unit for the three assessment years in question as well as for the three preceding years (1961 -62 to 1966 -67) are as under : Assessment year Amount shown due fromthe insulation unit to thehard board unitRs.1961 -62 40.11 lakhs1962 -63 27.96 lakhs1963 -64 24.40 lakhs1964 -65 24.48 lakhs1965 -66 24.16 lakhs1966 -67 36.29 lakhs