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Commissioner of Income Tax Vs. Ganga Iron Industries. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberM.C.C. No. 130 of 1981
Reported in(1986)53CTR(MP)448
AppellantCommissioner of Income Tax
RespondentGanga Iron Industries.
Cases ReferredLohia Machines Ltd. and Ors. v. Union of India and Ors.
Excerpt:
.....of 2004): [dipak misra, krishn kumar lahoti & rajendra menon, jj] preparation of town development scheme held, proviso uses the term shall be deemed to have lapsed. it does not convey that scheme gets automatically lapsed. - union of india [1985]152itr308(sc) upheld the view taken by this court and held the two decisions on which reliance was placed by the tribunal not laying down good law. counsel for the assessee that when the tribunal took the view, at that time it was apparent that the two decisions which have now been overruled were good law and in this view of the matter the tribunal was right in sending back the case to the aac for reconsidering the application for rectification. the tribunal, therefore, took the view that the two decisions which have been overruled were good..........in this view of the matter, it cannot be said that on the date on which the tribunal took this view, the tribunal was not justified in holding that there was a mistake of law apparent on the face of the record. in the circumstances, therefore, if the tribunal was justified, the matter will have to be reconsidered afresh by the aac. it is apparent that while decided the application for rectification, the aac will have to consider the two decisions of this court and the decision of the supreme court in lohia machines ltd. and ors. v. union of india and ors. : [1985]152itr308(sc) . in this view, it is not necessary to answer these questions and we leave it to be decided by the aac in the light of the decision of the supreme court.7. so far as the second question relating to the asst......
Judgment:
ORDER

Oza, C.J. - This is a reference made by the ITAT at the instance of the revenue for answering the following questions. For the year 1972-73 the question is :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that there was a mistake of law apparent from the order of the AAC of IT and thereby setting aside his order for decision in respect of the claim of the assessee for deduction under s. 80-J of the IT Act, 1961 ?'

and for the asst. yr. 1973-74 the question is :

'Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in law in directing the ITO to exclude the borrowed capital while computing the capital employed for allowing relief under s. 80J of the IT Act, 1961, thereby deciding the vires of r. 19A of the IT Rules, 1962 ?'

2. The facts stated by the Tribunal are :

For the asst. yr. 1972-73 :

The assessee is a registered firm earning income from running two industrial undertakings. In the return filed, the assessee claimed deduction under section 80J of the Act on the capital employed in the industrial undertakings. The ITO while allowing deduction under s. 80J excluded the debits as per sub-r. (4) of r. 19A of the IT Rules, 1962. Thus, he allowed a relief of Rs. 7,16,000 only. In appeal before the AAC the assessee took this ground with respect to relief under s. 80J as ground No. 2 of the memo of appeal but as per the order of the AAC this ground was not pressed by the assessee. Later on the assessee filed an application under s. 154 of the Act for rectification of the said order praying that his claim under s. 80J should be considered in the light of the subsequent decision declaring r. 19A of the IT Rules ultra vires s. 80J of the Act, but the AAC rejected this application of the assessee on the ground that as the assessee had not pressed the issue at the appeal stage, there was no mistake apparent in the order which needed rectification. The Tribunal set aside the order passed by the Appellate Commissioner with the following observations :

'The question is whether a statement of law clarifying a particular provision made subsequently, entitled the assessee to seek rectification of the order in accordance with the law as later on pronounced by courts. There is a direct decision of the Gujarat High Court in Parshuram Pottery Works Co. Ltd. v. D. R. Trivedi, WTO : [1975]100ITR651(Guj) which lays down that when there is an error of law apparent on the face of record, the same can be rectified under the WT Act. The principal can be applied to the IT Act was clear that Rule 19A was held to be ultra vires and, therefore, the assessee was entitled to seek rectification of the appellate order in view of the pronouncement of the Calcutta High Court in Century Enka Ltd. v. ITO : [1977]107ITR909(Cal) . The fact that the assessee did not press the ground at the time of appeal did not make any difference to his right to get the order rectified or to the jurisdiction of the AAC to rectify the error in the light of the Courts decisions about the validity of r. 19A.'

Holding thus the Tribunal allowed the appeal. The order of the ld. A.C.C. rejecting the application for rectification was set aside and the case was sent back to him for deciding the claim of the assessee under s. 80J of the IT Act in accordance with law. On these facts the Tribunal at the instance of the revenue has made this reference for answering the first question quoted above.

3. For the asst. yr. 1973-74 the facts stated by the Tribunal are that the assessee-firm claimed deduction under s. 80J of the Act in respect of the income from M/s. Satna Steel Re-rolling Mills. The ITO while considering this claim determine the capital of the assessee in this new undertaking after excluding its liability i.e. loans etc. from the total assets of the firm. The computation have been given by the ITO in a separate note on pages 4 & 5 of the order. The total liability, as worked out by the ITO amounted to Rs. 16,05,165. In appeal the CIT (Appeals) held that r. 19A (3) of the IT Rules was ultra vires s. 80J of the IT Act and the liability i.e. borrowed capital cannot be excluded for giving benefit provided under s. 80J of the Act. In arriving at the above conclusion the CIT (Appeals) sought support from the decisions reported in Century Enka Ltd. v. ITO : [1977]107ITR909(Cal) and Madras Industrial Lining Ltd. v. ITO (1977) ITR 256 . He also referred to a decision of Jabalpur Bench. On appeal by the department the Tribunal directed the ITO not to exclude borrowed capital to the extent of Rs. 5,75,000 for working the capital employed by the assessee. But the same was enhanced to Rs. 16,05,165 by the Tribunal in appeal filed by the assessee with the following observations :

'So far, the ld. Commissioner was quite right. However, it appears that he allowed inclusion of Rs. 5,75,000 only in the total capital which amount was rejected by the ITO on the ground that it was a liability of the assessee-firm and its partners. He did not refer to other liabilities which had been listed in the ITOs note for calculation of rebate under s. 80J appended to his assessment order. It appears to us that the ld. CIT was of the view that in the grounds of appeal assessee had questioned only the disallowance of Rs. 5,75,000. Copy of the ground of appeal has been filed before us and ground No. 11 is as follows :

'The relief be allowed under s. 80J as claimed.'

From the calculation note appended to the assessment order it appears that the assessee had claimed total liabilities at Rs. 16,05,165. In any case, even if not claimed expressly, the assessment order in clear terms referred to this claim and while the ld. CIT had held that the liability in respect of Rs. 5,75,000 could not be excluded while determining the total capital of the assessee, it was but proper that the same principle should have been extended to other liabilities listed in the calculation note of the ITO attached to the assessment order. Either the ld. CIT inadvertently missed these details of the claim or he laboured under a view that the assessee in its appeal did not press inclusion of other liabilities for seeking relief under s. 80J. Be that as it may, we are clear that these liabilities cannot be deducted or excluded while determining the capital employed in the industrial undertaking of the assessee. We, therefore, direct that while calculating the capital employed by the assessee for the purposes of s. 80J of the IT Act total liability amounting to Rs. 16,05,165 should be included in capital employed and the relief cannot be confined to Rs. 5,75,000, as has been done by the ld. Commissioner.'

On the above facts, the Tribunal referred the second question for our answer.

4. The two decisions Century Enka Ltd. v. ITO : [1977]107ITR909(Cal) and Madras Industrial Linings Ltd. v. ITO : [1977]110ITR256(Mad) took the view that r. 19A(3) of the IT Rules was ultra vires s. 80J of the IT Act. This question came up for consideration in this court in CIT v. Anand Bahri Steel and Wire Products : [1982]133ITR365(MP) and CIT v. K. N. Oil Industries (1982) 134 ITR 651 . In these two decisions of this Court, r. 19A was held to be intra vires and the view taken in the two decisions on which reliance was placed by the Tribunal was not followed. The matter ultimately reached the Supreme Court and their Lordships of the Supreme Court in Lohia Machines Ltd. v. Union of India : [1985]152ITR308(SC) upheld the view taken by this Court and held the two decisions on which reliance was placed by the Tribunal not laying down good law. Their Lordships of the Supreme Court in this decision held that Rule 19A is intra vires and the view taken by the Tribunal that this rule is ultra vires is held to be incorrect.

5. Learned counsel for the parties contended that this reference is concluded in view of the decision of the Supreme Court. So far as the first question in respect of the asst. yr. 1972-73 is concerned, counsel for the assessee contended that as the matter has been sent back to the AAC for consideration of the application for rectification in view of the two decisions in : [1977]107ITR909(Cal) (supra) and : [1977]110ITR256(Mad) (supra), the AAC will have to follow the decision of their Lordships of the Supreme Court in : [1985]152ITR308(SC) (supra) and, therefore, even if the question is not answered, it will make no difference. Learned counsel for the revenue, however, contended that the Tribunal took the view that there was an error apparent on the face of the record and therefore directed the AAC to consider the application for rectification in view of the two decisions, but these decisions now have been overruled by their Lordships of the Supreme Court and in this view of the matter the question has to be answered against the assessee by saying that the Tribunal was not justified in law in directing the AAC to reconsider the application for rectification.

6. So far the conclusion is concerned, ld. counsel for the parties frankly conceded that whether the question is answered against the assessee and the Tribunals direction for sending the matter back to the AAC is set aside, the result will remain the same because even if the AAC consider the matter, he is bound to follow the Supreme Court decision which now settles the law about r. 19A of the IT Rules. It was contended by ld. counsel for the assessee that when the Tribunal took the view, at that time it was apparent that the two decisions which have now been overruled were good law and in this view of the matter the Tribunal was right in sending back the case to the AAC for reconsidering the application for rectification. The assessee therefore, contended that in this view of the matter it could not be said that the Tribunal was not justified in law in sending the matter back to the AAC for consideration of the application for rectification although ld. counsel frankly conceded that the ultimate result will remain the same as the AAC will now follow the decision of the Supreme Court and in that view the application for rectification is bound to be rejected. It is apparent that on the day on which the Tribunal decided the matter, the decision of the Supreme Court in Lohia Machines Ltd. and Ors. Union of India and Ors. : [1985]152ITR308(SC) was not there. It is also clear that the two decisions of this Court, referred to above, which have been upheld by their Lordships of the Supreme Court also were not in existence. The Tribunal, therefore, took the view that the two decisions which have been overruled were good law and therefore felt that the AAC committed error on the face of the record in rejecting the application and in this view of the matter the Tribunal directed the AAC to reconsider the application for rectification. In this view of the matter, it cannot be said that on the date on which the Tribunal took this view, the Tribunal was not justified in holding that there was a mistake of law apparent on the face of the record. In the circumstances, therefore, if the Tribunal was justified, the matter will have to be reconsidered afresh by the AAC. It is apparent that while decided the application for rectification, the AAC will have to consider the two decisions of this Court and the decision of the Supreme Court in Lohia Machines Ltd. and Ors. v. Union of India and Ors. : [1985]152ITR308(SC) . In this view, it is not necessary to answer these questions and we leave it to be decided by the AAC in the light of the decision of the Supreme Court.

7. So far as the second question relating to the asst. yr. 1973-74 is concerned, it is clear that this question is concluded by the decision of their Lordships of the Supreme Court. Our answer to the question is that the Tribunal was not justified in law in directing the ITO to exclude the borrowed capital while computing the capital employed or allowing relief under s. 80J of the IT Act, 1961.

8. In the light of the above discussion, the reference is accordingly answered. In the circumstances of the case, parties are directed to bear their own costs.


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