COMMISSIONER OF INCOME TAX vs. CADILA CHEMICALS P LTD

ITR/259/1993HC GujaratGJHC24021286199311 July 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI5 pages
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What were the facts?

The assessee, Cadila Chemicals Pvt Ltd, claimed relief under Section 80J for Assessment Year 1982-83, based on a capital employed of Rs. 1,08,97,124/-. The Assessing Officer reduced this figure to Rs. 49,09,577/-, by deducting Rs. 59,85,542/- transferred from the Head Office (old unit), arguing that borrowings of the old unit should proportionally reduce the new unit's capital. The Commissioner (Appeals) allowed the assessee's appeal, following the Bombay High Court in Indian Oil Corporation Limited and CBDT Circular No. 380. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Revenue has now referred a question of law to the High Court.

What did the High Court hold?

The High Court held that the question regarding the computation of capital employed for granting relief under Section 80J was rightly decided by the Income-tax Appellate Tribunal. The Court reasoned that for computing capital employed in a new industrial undertaking, only liabilities pertaining to that specific undertaking should be deducted from the aggregate value of its assets. This principle was established in the case of Indian Oil Corporation Limited (supra) by the Bombay High Court and was accepted by the CBDT in Circular No. 380 dated 10th April, 1984. The Court found no infirmity in the concurrent findings of the CIT(Appeals) and the Tribunal. Therefore, the question referred was answered in the affirmative, in favour of the assessee and against the Revenue. The reference was disposed of accordingly.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the question regarding the computation of capital employed for granting relief under Section 80J of the Income-tax Act, 1961 was rightly decided by the Income-tax Appellate Tribunal? Assessee's Contention: The assessee contended that the aggregate of assets could not be reduced by Rs. 59,85,547/- for computing capital employed. The CIT(A) accepted this, relying on the Bombay High Court decision in Indian Oil Corporation Limited Vs. S. Rajagopalan, I.T.O. (1973) 92 ITR 241 and CBDT Circular No. 380 dated 10th April, 1984. Revenue's Contention: The Revenue's learned Standing Counsel fairly submitted that in light of the CBDT circular, the Revenue was not in a position to assail the order of the Tribunal.

Which sections of the Income-tax Act were involved?

Section 80J,Section 256(2)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 259 of 1993 For Approval and Signature: HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI ­ ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================================== COMMISSIONER OF INCOME TAX - Applicant(s) Versus CADILA CHEMICALS P LTD - Respondent(s) ============================================================== Appearance : MR TANVISH U.BHATT for Petitioner No(s).: 1. (MR MM PATEL) for Respondent No(s).: 1. ==============================================================

2 CORAM :HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI Date : 11/07/2005 ORAL JUDGMENT (Per : HON'BLE MR.JUSTICE D.A.MEHTA) 1 The following question has been

The order continues below.

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