BYAS, J. - (1.) THE Tribunal Jaipur Bench, has referred the following question of law under s. 256 (1) of the IT Act, 1961 (hereinafter referred to as `the Act') for adjudication : "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that in the case of a newly established industrial undertaking for the purpose of s. 80J of the IT Act, 1961 and r. 19A of the IT Rules, 1962, borrowed money formed part and parcel of this capital employed in such an undertaking and that deduction thereof is not proper, and in directing the ITO to recompute the capital employed by the assessee-firm in its newly established industrial undertaking without deducting borrowed monies therefrom?" Material facts, stated in brief, are that the assessee is a partnership firm carrying on the business of manufacturing and sale of fertilizer. THE assessment years are 1973-74 to 1975-76. In the returns filed by the assessee, it claimed a relief under s. 80J of the Act at 6 per cent of the capital employed in its undertaking. THE capital included the borrowed money for the amount of Rs. 17,58,839 for the year 1973-74 Rs. 19,33,853 for the year 1974-75 and Rs. 20,34,455 for the year 1975-76. THE ITO excluded these amounts as they were borrowed moneys. THE assessee contended before the ITO that the deduction of the aforesaid amount should be made under s. 80J and relied upon the judgment of the Calcutta High Court rendered in Century Enka Ltd. vs. ITO & Ors. (1977) 107 123 (Cal). THE ITO did not follow the view taken by the Calcutta High Court as he had earlier refused to follow it. THE assessee went in appeal and the appeal was dismissed by the CIT (A). THE assessee went in further appeal before the Tribunal. THE learned members of the Tribunal did not agree with the view taken by the ITO and upheld in appeal by the CIT (A). Following the earlier decisions given by the Tribunal, the Tribunal held that the borrowed, moneys should not have been deducted while computing the capital employed. THE ITO was directed to recompute the capital employed and accordingly, grant the necessary relief to the assessee. THE CIT thereafter moved the Tribunal to made a reference to this Court and the reference was, accordingly, made.
(2.) WE have heard B. R. Arora, the ld. counsel for the Revenue and Rajesh Balia the ld. counsel for the assessee. It was argued by Mr. Arora, the ld. counsel for the Revenue that the view taken by the Tribunal is based on the pronouncements made in century Enka Ltd's case (supra), Century Enka Ltd. vs. ITO & Ors. 1976 CTR (Cal) 433 : (1977) 107 ITR 909 (Cal),and Madras Industrial Lining Ltd. vs. ITO & Ors. 1978 CTR (Mad) 45 : (1977) 110 ITR 256 (Mad). It was argued that these decisions have been overruled by their Lordships of the Supreme Court in Lohia Machines Ltd. & Anr. vs. Union of India & Ors.(1985) 44 CTR (SC) 328 : (1985) 152 ITR 308 (SC). As such the order of the Tribunal is not proper and should be set aside. Mr. Chaudhary, the ld. counsel appearing on behalf of Mr. R. Balia for the assessee, with all fairness, conceded that tin view of the law laid down in the case of Lohia Machine Ltd. (surpa) he has nothing to say. Suffice it to say that the view taken in the cases of Century Enka Ltd.(supra), Madras Industrial Lining Ltd.(supra), and like others, by the Calcutta, Madras, Allahabad, Punjab & Haryana and Andhra Pradesh High Courts has been over-ruled and the view expressed by the Madhya Pradesh High Court in CIT vs. Anand Bahri Steel & Wire Products (1981) 21 CTR (MP) 166 : (1982) 133 ITR 365 (MP), and CIT vs. K. N. Oil Industries (1982) 26 CTR (MP) 169 : (1982) 134 ITR 651 (MP), was approved by their Lordships of the Supreme Court in the case of Lohia Machines Ltd. (supra). It would be useful to reproduce the following passage of the judgment rendered in the case of Lohia Machines Ltd. (supra). ".......insofar as it provided for the exclusion of borrowed monies and debts and particularly long- term borrowings in the computation of the capital employed by a new industrial undertaking for the purposes of the tax exemption could not be said to be outside the rule-making authority conferred on the Central Board under s. 80J(1) of the IT Act, 1961, and was a perfectly valid piece of subordinate legislation: (ii) that r. 19A, insofar as it provided for computation of the `capital employed' as on the first day of the computation period was within the rule-making authority of the Central Board under s. 80J (1); (iii) that, since r. 19A did not suffer from any infirmity and was valid in its entirety, the Finance (No.2) Act, 1980, insofar as it amended s. 80J by insofar as it amended s. 80 J by incorporating the provisions of r. 19A as sub-s. (1A) in s. 80J, with retrospective effect from 1st April 1972, was, merely classificatory in nature and was, accordingly, valid." The Tribunal was, thus not justified and correct in holding that deduction under s. 80J is allowable to the assessee on the entire amount claimed to be the `capital invested' by the assessee in its industrial undertaking including borrowed capital, ignoring the provisions of s. 19A of the IT Rules, 1962. The reference is answered in the negative, that is, against the assessee and in favour of the Revenue. Parties will bear their own costs of this reference.;