- (1.) THIS reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue is to answer the following questions of law, namely : "1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified-in upholding the order of the Appellate Assistant Commissioner that capital employed in the assessees industrial undertaking should be computed without deducting the amount of liabilities ?
(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the order of the Appellate Assistant Commissioner that the relief under section 80J should be allowed for the full year although the factory ran for three months only ?" The relevant assessment year is 1971-72. For this period, the assessee claimed deduction at the rate of 6% on Rs. 17,65,121 under section 80J of the Income-tax Act, 1961. The Income-tax Officer however, allowed rebate only on the amount of Rs. 3,04,780. The Income-tax Officer took the view that relief under section 80J of the Income-tax Act, 1961, should be allowed without deducting the liabilities or the amount of subsidy from the capital employed in the business of the new industrial undertaking. Aggrieved by the Income-tax Officers view, the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the assessees contention and held that full relief should be given under section 80J of the Act on Rs. 17,65,121. The Tribunal has affirmed this view. It has also been held that even though the factory ran for three months only during that period, the deduction to be allowed under section 80J must be for the full year. Learned counsel for the Revenue contended that the above-quoted first question is concluded in favour of the Revenue by the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India, 1985 152 ITR 308(SC) . Learned counsel stated, in respect of the second question, that the reported decisions are all in the assessees favour and the Central Board of Direct Taxes has also issued a Circular, dated March 3, 1984, accepting this view. In reply, learned counsel for the assessee contended that the first question is only partly covered by the Supreme Court decision in Lohia Machines Ltd. v. Union of India, 1985 152 ITR 308(SC) , but in respect of a sum of Rs. 6,08,147 out of the total of Rs. 17,65,121, the point is not concluded in favour of the Revenue by that decision. We shall first take up the above-quoted second question which can be disposed of at the threshhold since it does not require any detailed consideration. The High Courts of Bombay, Calcutta, Gujarat, Kerala, Karnataka, Madhya Pradesh and Madras in several decisions have taken the consistent view that relief under section 80J should be allowed for the full year, even though the new industrial undertaking ran only for a portion thereof. These decisions are CIT v. Godrej Soaps Ltd., 1988 169 ITR 537(Bom) , CIT v. Oyster Packagers (P.) Ltd., 1985 152 ITR 471(Cal) , CIT v. Sarabhai Sons Ltd., 1983 143 ITR 473(Guj) , CIT v. Protein Products Ltd., 1987167 ITR 157, CIT v. Mysore Petro-Chemical Ltd., 1984 145 ITR 416(KAR) , CIT v. Sanghi Beverages (P.) Ltd., 1982 134 ITR 623(MP) , CIT v. Sanghi Bros. Ltd., 1988 169 ITR 220(MP) , CIT v. Simpson and Co., 1980 122 ITR 283(Mad) and Rockweld Electrodes (India) Ltd. v. CIT, 1986 158 ITR 819(Mad) . It may also be mentioned that a special leave petition against a decision of the Madras High Court following its earlier decision in Simpson and Co.s case , [1980]122ITR283(Mad) was rejected by the Supreme Court, which indicates that the Supreme Court has also approved this view. Mention of this fact is found at page 12 of the Statutes Section of [1985] 151 ITR. We may also add that Circular No. 378, dated March 3, 1984, reproduced at page 1 of the Statutes Section of [1984] 149 ITR expressly says, following the view taken in this Madras decision and by the Karnataka High Court, that the deduction under section 80J should not be reduced proportionately with reference to the period for which the business of the undertaking, etc., was not carried on during the relevant previous year. It is, therefore, clear that the Tribunals view on the above quoted question No. 2 being the same, it must be upheld. We shall now consider the argument of learned counsel for the assessee in respect of the above-quoted question No. 1. Admittedly, the Supreme Court in Lohia Machines Ltd. v. Union of India, 1985 152 ITR 308(SC) , upheld the validity of rule 19A of the Income-tax Rules, 1962, in its entirety in relation to section 80J of the Act and, therefore, the Tribunals view contrary to it cannot be upheld. The only question is whether the deduction has to be made in respect of the amount of Rs. 6,08,147 as claimed by learned counsel for the assessee. His argument is that, according to rule 19A(3)(b) as it applied during the assessment year 1971-72, the assessee is entitled to relief to the extent of Rs. 6,08,147 under section 80J of the Act, the same being borrowed from the National Small Scale Industries Ltd. The question is whether this contention can be accepted. There are two conditions which must be satisfied before the assessee can get the benefit of rule 19A(3)(b) as it then existed. These conditions are : (i) that the money should have been borrowed from an "approved source" for the creation of a capital asset in India, and (ii) the agreement should provide for repayment thereof during a period of not less than seven years. For the purpose of this sub-rule, "approved source" is to be understood as defined in the Explanation given thereunder. Even assuming that the "National Small Scale Industries Corporation Ltd." can fall within the meaning of "approved source" as contemplated by clause (b), the further condition to be satisfied in respect of this amount is that according to the agreement, repayment thereof should have been made during a period of not less than seven years. It has not been shown to us by learned counsel for the assessee that such an argument was considered by the Appellate Assistant Commissioner or the Tribunal so that the requisite foundation on facts is present for the same. However, it has been shown to us that in the assessment order of the Income-tax Officer dated October 20, 1975, annexure-A, this aspect was considered and a clear finding was recorded that this provision did not apply because the agreement provides the period of repayment as less than seven years. Apparently, this finding by the Income-tax Officer was not assailed before the Appellate Assistant Commissioner or the Tribunal. The facts which are necessary to provide a foundation for the arguments of learned counsel for the assessee are, therefore, not only non-existent but, on the contrary, the finding in that behalf is to the contrary. There is thus no basis to hold that the assessee is entitled to relief in respect of the sum of Rs. 6,08,147 even according to the Supreme Court decision in Lohia Machines Ltd. v. Union of India, 1985 152 ITR 308(SC) . It follows that the Tribunals view in respect of the entire above-quoted question No. 1 in the assessees favour cannot be upheld, being contrary to the aforesaid Supreme Court decision. Consequently, the reference is answered as follows : 1. Answer to question No. 1 is that the Tribunal was not justified in upholding the order of the Appellate Assistant Commissioner by taking the view in assessees favour and against the Revenue. 2. Answer to question No. 2 is that the Tribunals view in assessees favour is justified. No costs.;