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Sree Vadivambigai Textiles (P.) Vs. Third Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1985)11ITD125(Mad.)
AppellantSree Vadivambigai Textiles (P.)
RespondentThird Income-tax Officer
Excerpt:
.....110 itr 256 (mad.). on the other hand, the departmental representative contends that the hon'ble madras high court's decision is not applicable to the facts of the case, as the amended section was not there before their lordships of the madras high court in deciding the aforesaid case. furthermore, the decision of the hon'ble high courts in the cases of cit v. toshiba anand lamps ltd. [1984] 145 itr 563 (ker.), traco cable co. ltd. v. cit [1982] 138 itr 385 (ker.) and cit v. k.n.oil industries [1982] 134 itr 651 (mp) are there in favour of the revenue. he further contends that the tribunal has no jurisdiction not to follow the amended provisions of section 80j with retrospective effect made vide the finance (no. 2) act, 1980, as the tribunal has to decide the matters before it in.....
Judgment:
1. The assessee has preferred this appeal against the order dated 27-6-1983 of Dr. N.R. Sivaswamy, Commissioner (Appeals), who partly allowed the appeal against the order dated 22-5-1981 of Shri E.Hariharan, Third ITO.2. The relevant facts in brief are that the assessee is a private limited company. The previous year relevant for the assessment year 1978-79 ended on 30-6-1977. The assessee's business is manufacture of yarn. The assessee filed the return of income for the assessment year 1978-79 and thereby made claims, inter alia, that under Section 80J of the Income-tax Act, 1961 ('the Act'), relief be given to the assessee on computing the capital employed, including the borrowed capital. The ITO did not accept it as he determined Section 80J relief on excluding the borrowed capital on following the amended provisions of Section 80J vide the Finance (No. 2) Act, 1980. In appeal, it was confirmed by the Commissioner (Appeals) in view of the retrospective amendment carried out in Section 80J by the Finance (No. 2) Act, 1980.

3. The assessee, being aggrieved and dissatisfied with the impugned order on the issue, has preferred this appeal. Shri N. Devanathan, the counsel for the assessee, relying upon the grounds of appeal, contends that Section 80J relief is to be given to the assessee as claimed. He further contends that Section 80J relief is to be computed on the capital employed, including the borrowing. Reliance is placed on the decision in the case of Madras Industrial Linings Ltd. v. ITO [1977] 110 ITR 256 (Mad.). On the other hand, the departmental representative contends that the Hon'ble Madras High Court's decision is not applicable to the facts of the case, as the amended section was not there before their Lordships of the Madras High Court in deciding the aforesaid case. Furthermore, the decision of the Hon'ble High Courts in the cases of CIT v. Toshiba Anand Lamps Ltd. [1984] 145 ITR 563 (Ker.), Traco Cable Co. Ltd. v. CIT [1982] 138 ITR 385 (Ker.) and CIT v. K.N.Oil Industries [1982] 134 ITR 651 (MP) are there in favour of the revenue. He further contends that the Tribunal has no jurisdiction not to follow the amended provisions of Section 80J with retrospective effect made vide the Finance (No. 2) Act, 1980, as the Tribunal has to decide the matters before it in accordance with the law on the statute book. The amended Section 80J is there on the statute book till the same is not held by the Hon'ble Supreme Court as unconstitutional and if the disposal of the writs on the constitutionality of amended Section 80J is pending disposal in the Hon'ble Supreme Court, then it cannot be said that the amended Section 80J is not there on the statute book. However, the Tribunal is taking the view in Madras (sic) and the Judicial Member is party in these decisions and others where the Tribunal has held that the amended section is to be followed in computing the relief under Section 80J and, therefore, following the aforesaid decisions of the High Courts and the Tribunal, the impugned order is to be confirmed.

4. We have heard the rival contentions and gone through the records before us. At the very outset, we want to state that the decision of the Hon'ble Madras High Court in the case of Madras Industrial Linings Ltd. (supra) is not at all relevant in view of the fact that it was not decided in accordance with the amended provisions of Section 80J, rather it was not at all there in dispute. Accordingly, we hold that this decision is of no help to the assessee; hence, we reject the ground of Appeal No. 5. The ground No. 6 is also to be rejected in view of the fact that, according to it, the amended section is not to be followed as the writs, challenging the amendment of it filed by other assessees, are pending disposal in the Supreme Court since the Tribunal has no jurisdiction to determine the constitutionality of the amended Section 80J, rather its jurisdiction is to follow the provisions of law which are there on the statute book and the provisions of amended Section 80J are there on the statute book because no High Court or Supreme Court has so far declared it as unconstitutional. Accordingly, we reject ground No. 6 of the appeal. Further, it is to be rejected in view of the decision of the cases relied upon by the departmental representative of the High Courts supra and that of the decisions of the Tribunal. In nutshell, we have no hesitation in holding that the majority view of the High Courts and the Benches of the Tribunal are that the relief under Section 80J is to be determined in accordance with the provisions of the amended Section 80J. In the case of Toshiba Anand Lamps Ltd. (supra), their Lordships of the Kerala High Court held, on following its own decision in Traco Cable Co. Ltd.'s case (supra), that in view of the amendment of Section 80J by the Finance (No. 2) Act, 1980, with retrospective effect from April 1, 1972, amounts borrowed for capital will have to be deducted in determining the capital employed for the purpose of Section 80J for the assessment years 1972-73 and 1973-74.

5. In the case of K.N. Oil Industries (supra), the Madhya Pradesh High Court held as under: After the amendment of Section 80J by the Finance (No. 2) Act, 1980, with retrospective effect from 1 -4-72, borrowed monies and debts owed by an assessee are to be excluded in computing the capital employed in an industrial undertaking for granting relief under the provision. Therefore, for the assessment year 1973-74, an assessee is not entitled to relief under Section 80J on the basis of the gross capital without deducting the value of the borrowed capital employed in the undertaking.

The view taken by the Benches of the Tribunal on the issue is that the provisions of amended section for the computation of relief under Section 80J are to be followed. Hence, the Tribunal followed these decisions wherever the Judicial Member is the party in the Benches of Madras and thereby rejected the contention that the constitutionality of the amended Section 80J is pending disposal and, therefore, the issue of relief sought for is to be kept pending and to be computed after the decision of the Hon'ble Supreme Court. Thus, following the aforesaid decisions, we hold that the contentions of the departmental representative are well-founded and must prevail; hence, we further hold that no interference is called for in the impugned order as the relief provided by the authorities below to the assessee under Section 80J is in accordance with law, the amended Section 80J, and the same is there till it is held by the Hon'ble Supreme Court as unconstitutional.

Since it has not been held as such by either the High Courts within the country and the Supreme Court, therefore, we hold that it is the law of the land, in such situation being itself (amended Section 80J) on the statute book (Income-tax Act, 1961) and, therefore, the Tribunal has no jurisdiction to hold that it is not there till the writs pending in the Supreme Court are disposed of and the relief under Section 80J is to be computed after the decision of the Hon'ble Supreme Court in the pending writs before it, wherein the constitutionality of the amended Section 80J is challenged by other assessees, as pointed out by the assessee, before us anywhere in the Supreme Court or the High Court. If we do so, then we are acting without jurisdiction and taking it as if the amended section is unconstitutional and is not there on the statute book, which we are debarred to do by the settled law. Therefore, in view of these facts, we hold that the impugned order is justified and calls for no interference; hence, we confirm it.

1 have perused the order of my brother, the learned Judicial Member.

With great respect, I am unable to agree. The same issue was considered in the decision of the Tribunal in the case of Sundaram Fasteners Ltd. [IT Appeal Nos. 1608 and 1609 (Mad.) of 1982, dated 27-5-1983] and the Tribunal deemed it fit to remit the matter back to the ITO for recomputation of the profit under Section 80J after the decision of the Supreme Court or the Madras High Court is available, whichever is earlier. In coming to the above conclusion, the Tribunal relied on the order of the Gujarat High Court in the case of CIT v. Surat District Co-operative Milk Producers Union Ltd. [IT Application No. 81 of 1982], in which the same procedure adopted by the concerned Bench of the Tribunal, to remit the matter back to the Commissioner (Appeals) with a direction to recompute the profit after the pronouncement of the decision of the Supreme Court on the vires of the retrospective amendment, was approved by the Gujarat High Court, as being only with a view to save public time and cost. The Tribunal in its order also referred to K.N. Oil Industries' case (supra) and Traco Cable Co.

Ltd.'s case (supra), relied on by the department, cited (supra) in the Judicial Member's order and stressed that in these cases, the specific question, as posed before the Gujarat High Court, was not raised.

2. It may also be stressed here that the issue before us relates only to a question of procedure and not of law. The Madras Benches of the Tribunal have generally been following the practice of restoring the matter regarding Section 80J to the ITO to await the decision of the Supreme Court. This procedure is in full accordance with the order of the Gujarat High Court to the effect that it is in the interests of the public and the revenue, being only with a view to save public time and cost. I am of the view that the Gujarat High Court decision being the only one covering this aspect of the matter, it would be proper to follow it, also bearing in mind the Bombay High Court decision in CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589. Having regard to the above position and on balance of convenience, I would set aside the ITO's computation of the deduction under Section 80J as also the Commissioner (Appeals)'s findings thereon and restore the matter to the ITO for decision afresh after the decision of the Supreme Court or the Madras High Court is available.

Order under Section 255(4) of the income-tax act, 1961 - Whereas we are unable to agree on the point set out below for the assessment year 1978-79, we refer the following point of difference of opinion to the President for reference to Third Member under Section 255(4) of the Act: Whether, on the facts and in the circumstances of the case and relying on the ratio of the earlier decision of the Tribunal in the case of Sundaram Fasteners Ltd., Madras, etc., the Tribunal would be justified in vacating the findings of the Commissioner (Appeals) and the Income-tax Officer regarding the computation of the deduction under Section 80J of the Income-tax Act, 1961, and restoring the matter to the Income-tax Officer for recomputation of the profit after the decision of the Supreme Court or the Madras High Court, regarding the retrospectivity of the amended Section 80J [as amended by Section 17 of the Finance (No. 2) Act, 1980], becomes available? 1.- There being difference of opinion between the learned Judicial Member and the learned Accountant Member, the following question has been referred to me for decision, as Third Member: Whether, on the facts and in the circumstances of the case and relying on the ratio of the earlier decision of the Tribunal in the case of Sundaram Fasteners Ltd., Madras, etc., the Tribunal would be justified in vacating the findings of the Commissioner (Appeals) and the Income-tax Officer regarding the computation of the deduction under Section 80J of the Income-tax Act, 1961, and Section 80J of the Income-tax Act, 1961, and restoring the matter to the Income-tax "Officer for recomputation of the profit after the decision of the Supreme Court or the Madras High Court, regarding the retrospectivity of the amended Section 80J [as amended by Section 17 of the Finance (No. 2) Act, 1980] becomes available 2. In the course of the assessment proceedings for the assessment year 1978-79, the contention of the assessee-company before the ITO was that its liabilities should not be deducted from the value of the assets employed by it in the new industrial undertaking for the purpose of computing its capital under Section 80J. In view of the provisions of Section 80J, as retrospectively amended by the Finance (No. 2) Act, 1980, the ITO rejected the contention of the assessee. On appeal, the Commissioner (Appeals) confirmed the order of the ITO. Aggrieved by this order of the Commissioner (Appeals), the assessee came up in appeal before the Tribunal.

3. After hearing the parties, the learned Judicial Member was of the view that the order of the Commissioner (Appeals) was in consonance with the provisions of Section 80J, as retrospectively amended by the Finance (No. 2) Act, 1980, and so the appeal of the assessee deserved to be dismissed. He rejected the prayer of the assessee to the effect that since the validity of the retrospective amendment of Section 80J had been challenged in the Supreme Court, the case should be restored to the file of the ITO for redeciding the same after the decision of the Supreme Court. In his opinion, the law, as it stood at present, applied to the case and there was no justification to restore the case to the file of the ITO for awaiting the decision of the Supreme Court.

In support of his view, he referred to the cases of Traco Cable Co.

Ltd. (supra) and Toshiba Anand Lamps Ltd. (supra).

4. The learned Accountant Member was, however, of the view that, in similar circumstances, the Tribunal, Madras, had remitted the matter back to the ITO in the case of Sundaram Fasteners Ltd. (supra) for recomputing the profit under Section 80J after the availability of decision of the Supreme Court or the Madras High Court, whichever was earlier. He observed that the view taken by the Tribunal in the case of Sundaram Fasteners Ltd. (supra) was supported by the decision of the Gujarat High Court in the case of Surat District Co-operative Milk Producers Union Ltd. (supra). The learned Accountant Member also observed that in view of the decision of the Bombay High Court in the case of Smt. Godavaridevi Saraf (supra), the Tribunal should follow the aforesaid decision of the Gujarat High Court. He, therefore, concluded that the impugned order of the Commissioner (Appeals) should be set aside and the matter should be restored to the file of the ITO for disposal after the decision of the Supreme Court or the Madras High Court.

5. It is in these circumstances that the aforesaid question has been referred to me for decision.

6. After going through the record and hearing the learned representatives of the parties, I am inclined to agree with the learned Accountant Member. The very point at issue came up for consideration before the Tribunal in exactly identical circumstances in the cases of Secals Ltd. v. Third ITO [1984] 8 ITD 917 (Mad.) (TM) and Simco Meters Ltd. v. IAC [1984] 8 ITD 922 (Mad.) (TM). In those cases, the learned Members of the Tribunal disagreed and so an identical issue was referred to the Third Member. The latter agreed with the view of the learned Accountant Member to the effect that the case should be restored to the ITO for deciding the same afresh, after awaiting the final outcome of the decision of the Supreme Court or the Madras High Court, as the case may be, on the constitutional validity of the amendment of Section 80J. While arriving at his conclusion, the Third Member relied upon the decision of the Gujarat High Court in the case of Surat District Co-operative Milk Producers Union Ltd. (supra). In the last mentioned case, the procedure adopted by the Tribunal in remitting the matter back to the Commissioner (Appeals), with a direction to re-decide the case after the decision of the Supreme Court on the vires of the retrospective amendment, was approved by the High Court.

7. There is no good reason to depart from the majority view of the Tribunal in the aforesaid cases of Secals Ltd. (supra) and Simco Meters Ltd. (supra). It has been held by the Madras High Court in CIT v. L.G.Ramamurthi [1977] 110 ITR 453 and CIT v. S. Devaraj [1969] 73 ITR 1 that when the Tribunal takes a particular view on a particular issue, it should not subsequently contradict itself by taking a diametrically opposite view on the same issue. In view of these authorities of the Madras High Court, I would, for the sake of consistency, follow the majority decision of the Tribunal in the cases of Secals Ltd. (supra) and Simco Meters Ltd. (supra), which involved the same issue.

8. It may not also be out of place to mention here that the authorities referred to by the learned Judicial Member in the present case, viz., in Traco Cable Co. Ltd.'s case (supra) and in Toshiba Anand Lamps Ltd.'s case (supra), dealt with the question of admissibility of relief on merits under Section 80J, as retrospectively amended by the Finance (No. 2) Act, 1980. The point which is in issue in the present case, i.e., whether the case should be restored to the authorities below to await the decision of the Supreme Court on the validity of the retrospective amendment, was not the subject-matter of controversy before the High Courts in the cases of Traco Cable Co. Ltd.'s case (supra) and Toshiba Anand Lamps Ltd.'s case (supra). As against this, the Gujarat High Court, in the case of Surat District Co-operative Milk Producers Union Ltd. (supra), has dealt with the very point at issue before us. In such a situation, we have no alternative but to follow the decision of the Gujarat High Court in the light of the observations of the Bombay High Court in the case of Smt. Godavaridevi Saraf (supra). That being so, I am in agreement with the view taken by the learned Accountant Member.

9. The case will now go before the regular Bench for disposal in accordance with the opinion of the majority.


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