1. In this case, at the instance of the revenue, the following question has been referred to us for our opinion :
2. Whether, in computing the capital employed for the purpose of relief under s. 80(J)(3), an amount of Rs. 8,33,032 representing unistalled machinery should be taken into consideration ?'
3. The facts leading to this reference are that we are concerned with assessment year 1969-70. The assessee is a limited company and, in connection with what is referred to on the record as Expoxy plant, machinery worth Rs. 8,33,032 was purchased in the previous year relevant to the assessment year under consideration but the machinery was not yet installed though it had been purchased by the assessee. The capital employed was worked out so far as Expoxy Plant was concerned at Rs. 7,91,734. The ITO disallowed the claim for the relief under s. 80J of the I.T. Act, 1961, on the ground that the machinery was not yet installed and, therefore, was not in use. Therefore, according to the ITO, this particular amount of capital was not employed in the business. The AAC rejected the contention of the assessee when the matter was taken in appeal and the ground once again was that though the machinery was purchased, it was not installed and, therefore, was not in use. Against the decision of the AAC, the matter was taken in further appeal before the Appellate Tribunal and the Tribunal held that the capital employed cannot have the same meaning as capital used us regards the amount spent for the purchase of machinery in Expoxy plant to the extent of Rs. 8,33,032 and it could not be excluded from the capital computation for the purpose of relief under s. 80(J). Thereafter, at the instance of the revenue, the question set our hereinabove has been referred to us. Under s. 80J of the I.T. Act, 1961 deduction in respect of profits and gains of newly established industrial undertakings in certain cases is being given and for the purpose of giving this relief in accordance with rules, computation of the capital has to be carried out. R. 19A provides for computation of capital employed in an industrial undertaking for the purposes of s. 80J. Under r. 19A, sub- r.(4), the resultant sum as determined under sub-r. (3) shall be diminished by the value, as ascertained sum as determined under sub-r.(3) shall be diminsihed by the value, as ascertained unde sub-r.(2), of the investments the income from which is to be taken into account. That is how capital employed in the business has to be computed. Sub-r.(2) of r. 19A deals with assts and how the assets are to be computed and sub-r. (3) deals with liabilities and how the liabilities are to be computed. Under sub-r.(2) of 19A, the aggreate of the amounts representing the values of the assets as on the first day of the computation period, of the undertaking or of the business of the hotel to which the said s. 80J applies shall first be ascertained in the manner set out in the sub-rule and in sub-clause (ii), in the case of assets acquird by purchase not entitled to depreciation, their actual cost to the assessee is to be taken. Under s. 32 of the I.T. Act, before an assessee can become entitled to claim depreciation, it must be shown that the building, machinery, plant or furniture owned by the assessee has been used for the purpose of business or profession, and the reason behind this is sound because, to the extent to which the building, plant, machinery, etc., gets depreciated in the course of use or production, that much part of the value of the building, plant, machinery, etc., is embedded in the profits and for the purpose of depreciation the same is considered to be income of the plant in the year under consideration. Therefore, so long as the plant or machinery, though purchased, has not been installed, it would not be entitled to depreciation because it is not used and therefore, under r. 19A(2)(ii), though money has been invested by the assessee in the plant in question, since the plant was not insta lled, the plant would not be entitled to depreciation, but for the purpose of considering the aggregate of the amounts representing values of the assets as on the first day of the computation period, this plant would have to be included. The concept of use of the plant does not arise under r. 19A(2)(ii). It is only the question of assets acquired by purchase by the assessee and not entitled to depreciation. Both the requirements of clause (ii) of r. 19A(a) are satisfied in the instant case and on that ground alone the Tribunal was right in coming to the conclusion that the amount of Rs. 8,33,032 should be taken into consideration for the purpose of computation of capital employed for the purpose of granting relief under r. 80J. It may be pointed out that under r. 19A(2)(v), cash in hand or at bank is to be included in the assets and, therefore, when that cash is converted into assets, though in the shape of machinery which has not been installed, that should be included on the assets side in computing the capital employed for the purpose of relief under s. 80J.
4. We may point out that the conclusion that we have reached has also been reached by the Calcutta High Court in CIT v. Indian Oxygen Ltd. : 113ITR109(Cal) and by the Karnataka High Court in Ravi Machine Tools (P.) Ltd v. CIT  144 ITR 459. We may also point out that, asindicated by the Calcutta High Court in Indian Oxygen's case, the House of Lords in England in Birmingham Small Arms Co. Ltd. v. IRC  2 All ER 296, has by a majority interpreted the words 'capital employed' to mean the money invested in the purchase price of the assts as distingusihed from the actual user of the assets. Lord Tucker actually said that the words 'capital employed' Point to the conclusion that in their context they do not refer to the actual use made of a particular asset in the relevant accounting period once it is shown to have been a form of capital put into the business and still there. Similarly, Lord Radcliffe pointed out in that case in the House of Lords that the test in computing capital is not whether an asset belonging to the proprietor of a business is employed in his business or not, but whether there is capital employed in his business consisting of this or that asset. These tests have been applied both by the Calcutta High Court and by the Karnataka High Court in the two cases referred to above. In any event, so far as our statue and the rules before us are concerned, it is clear that in the light of r. 19A(2)(ii), there is no doubt that, in computing assets for the purpose of computing capital, uninstalled machinery which has been acquired by purchase must be taken into consideration while computing capital. The conclusion of the Tribunal was, therefore, right and the question referred to us must, therefore, be answered in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.