C.I.T. GUJARAT vs. ELECON ENGINEERING CO. LTD.

CIVIL APPEAL No. 1/1975Supreme Court[1987] 3 S.C.R. 58821 July 1987Bench: 2 JudgesAuthor: R.S. PATHAK, RANGANATH MISRA5 pages
AI SummaryDismissed

What were the facts?

The assessee, Elecon Engineering Co. Ltd., a public limited company, was in the second year of its new project's production for the assessment year 1964-65. The Income-tax Officer initially computed the rebate under sections 84 and 101 at Rs. 2,72,372. Subsequently, the assessment was reopened under section 147(b), and the rebate was recomputed at Rs. 2,51,222. The assessee's appeal to the Appellate Assistant Commissioner was dismissed. The Appellate Tribunal accepted the assessee's contention that the average profit, as worked out under sub-rule (5) of Rule 19, should be added to the capital figure computed under Rule 19(1). This resulted in an average capital of Rs. 45,39,557, as opposed to the Revenue's figure of Rs. 41,87,034. The Gujarat High Court agreed with the Tribunal's conclusion. The Revenue has appealed this decision.

What did the Supreme Court hold?

The Tribunal held that the admissibility of exemption under Section 84 of the Income-tax Act, 1961, was not in dispute, but the manner of its computation was. The dispute was to be resolved by referring to sub-rules (1), (3), (5), and (6) of Rule 19. The High Court found that the value of assets entitled to depreciation under Rule 19(1)(a) was Rs. 40,10,947, with additions for depreciation and average value of additions amounting to Rs. 1,39,764. Other assets under Rule 19(1)(b) were valued at Rs. 44,38,126. After deducting liabilities of Rs. 44,01,803, the capital was valued at Rs. 41,87,034. The Tribunal and High Court held that Rs. 3,52,503, representing half the profit from the New Project, should be added to this figure, resulting in Rs. 45,39,537. The reasoning was that Rule 19(5) provides a special deeming provision for computation of average capital, which cannot be overlooked, even if profits are reflected in the average valuation of assets. The ratio is that the specific deeming provision in Rule 19(5) for computing average capital must be applied, requiring the addition of average profits to the capital base for exemption calculation under Section 84. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the figure arrived at by computation under Rule 19(5) was to be added to the figure arrived at by computation under Rule 19(1) for determining the average capital employed in the assessee's undertaking, concerning the admissibility and manner of computation of exemption under Section 84 of the Income-tax Act, 1961. Assessee's contention: The assessee argued that to the figure of capital computed under Rule 19(1), the average profit as worked out under sub-rule (5) of Rule 19 must be added. They relied on the phraseology used in the rules and the specific provisions of Rule 19(5) which deems profits to have accrued at even rates and resulted in a corresponding increase in capital employed. Revenue's contention: The Revenue argued that profits earned during the year had already been accounted for in the computation process and there was no justification for adding half of the profit again to the capital. They contended that the addition of Rs. 3,52,503, representing half the profit of the year, was unwarranted.

Which sections of the Income-tax Act were involved?

Section 84,Section 101,Section 143(3),Section 147(b),Section 211,Section 212,Section 213,Section 140-A,Section 220

AI-generated summary — verify with the full judgment below

A C.l.T. GUJARAT v. ELECON ENGINEERING CO. LTD. JULY 21, 1987 B [R.S. PATHAK, CJ AND RANGANATH MISRA, J.)

Income Tax Act, l96J/Income Tax Rules, 1962-Section 84 (Section 801)/Rule 19-New Industrial Undertaking-Admissibility of' exemption-Manner of computation. C The assessee, a public limited company, in the assessment year 1964-65 was in the second year of its new project going into production.

The Income-tax Officer computed the assessment under s. · 143(3) of , the Income-tax Act, 1961 after determining the rebate admissible under ss. 84 and 101 at Rs.2, 72,372. He re-opened the assessment under s. 147(b) and re-computed the rebate at Rs.2,51,222. The appeal by the D assessee to the Appellate Assistant Commissioner was dismissed. The Appellate Tribunal accepted the plea of the assessee that to the figure of ~ capital as worked out under Rule 19(1) is to be added the average profit as worked out under sub-rule (5) of Rule 19 and held that the average capital has to be taken at Rs.45,39,557 and not at Rs.41,87,034. In the Reference, the High Court agreed with the conclusion reached by the E Appellate Tribunal. F Dismissing the Appeal of the Revenue, HELD

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 211

All 30 judgments and leading authorities on Section 211 →

Recent GST High Court judgments

Search GST case law →