579. Decision of Bombay High Court in Indian Oil Corporation’s case – Whether equally applicable to sub-section (1A) inserted by Finance Act, 1980

1. Section 80J provides that in computing the taxable income of an assessee from a newly established industrial undertaking, ship or business of a hotel, a deduction shall be allowed at the rate of 6 per cent (with effect from 1-4-1976 at the rate of 7.5 per cent in the case of a company) of the capital employed in the industrial undertaking, ship or business of the hotel. Rule 19A of the Income-tax Rules, 1962 prescribed the manner of computation of the capital employed for this purpose. Sub-rule (2) of rule 19A provided that the aggregate of the amounts representing the value of the assets of the undertaking shall first be ascertained in the manner specified therein. Sub-rule (3) of rule 19A provided that from the amount ascertained under sub-rule (2), the aggregate of the borrowed moneys and debts due by the assessee shall be deducted. The Bombay High Court in the case of Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO [1973] 92 ITR 241, while interpreting rule 19A held that in respect of each undertaking the liabilities of the assessee in respect of that industrial undertaking only were to be deducted from the aggregate value of the assets of the same industrial undertaking. The Board considered this judgment and accepted the interpretation given by the High Court for harmonious working of rule 19A.

2. Section 80J(1A) was inserted by the Finance Act, 1980 adopting the provisions made in rule 19A. The language of section 80J(1A) is the same as in rule 19A. Hence, the Board is of the view that the judgment of the Bombay High Court is equally applicable to the provisions made in sub-section (1A) of section 80J.

Circular : No. 380 [F. No. 279/186/82-ITJ], dated 10-4-1984.

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