LexC.I.T. GUJARAT versus ELECON ENGINEERING CO. LTD.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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C.l.T. GUJARAT
v.
ELECON ENGINEERING CO. LTD.
JULY 21, 1987
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[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.
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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
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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
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Appellate Tribunal.
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Dismissing the Appeal of the Revenue,
HELD: 1. Admissibility of exemption under s. 84 of the Income- J
tax Act, 1961 which has been repealed with effect from 1.4.1968 has 11
never been in dispute. What has been deputed is the manner of its " ·
computation. Rule 19 of the Income-tax Rules, 1962 prescribes the .•
method of computation and on a proper interpretation of sub-rule (1),
(3) and (5) of this Rule would depend the ultimate conclusion to be
reached. [590F-G I
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2. The High Court is right in saying that the dispute has to b~
resolved by referring to sub-rules (1), (3), (5) and (6) of Rule 19. The ·
High Court fonnd that the value of assets entitled to depreciation under
Rule 19(1)(a) worked out to Rs.40,10,947. To this figure was added a
sum of Rs.1,39,764 on account of depreciation as on 1.1.63 as also on
account of the average value of additions. The other assets were valued
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under Rule 19(1)(b) at Rs.44,38,126 as on 1.1.63. All put together the
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C.l.T. v. El.ECON ENGG. [MISRA, J.]
589
aggregate valuation came to Rs.85,38,837. From this aggregate, deduc·
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lion of sum or Rs.44,01,803 representing loans, other liabilities includ·
Ing provision for tax as authorised by Rule 19 was made leaving the
valuation of the capital at Rs.41,87,034. To this figure the sum
of Rs.3,52,503 being half of the profit from the New Project was
added to compute the value at Rs.45,39,537. Following the provision of
s. 84, entitlement to exemption was determined at Rs.2, 72,372 B
representing 6% of the capital employed in the new industrial under-
taking. [592C-E)
3. Re-assessment was made by deleting the addition of
Rs.3,52,503. which represented half the profit ofthe year. According to
the Revenue, profits earned during the year bad already been taken C
into account in the process of computation and there was no warren! for
its addition over again to the extent of a moiety. In fact, that is the only
dispute that fell to be resolved. The High Court took note of the fact
that profits had necessarily been reflected in the average valuation of
the assets but in its view the deeming provision of Rule 19(5) was the
special procedure laid down for computation for the purpose of calcula· D
lion and could not be over-looked for the reasons advanced by the
Revenue. There is sufficient force in the reasoning of the High Court
and the conclusion reached by it is accepted. [592E-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. l of
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From the Judgment and Order dated 11/12.9.1973 of the Gujarat
High Court in I. T. Reference No. 19 of 1971.
K.P. Bhatnagar and Ms. A. Subhashini for the Appellant.
The Judgment of the Court was delivered by
RANGANATH MISRA, J. This appeal by certificate has been
carried by the Revenue challenging the decision rendered by the
Gujarat High Court reported in 104 ITR 510 on a reference under the
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~ IncomeTaxAct, 1961.
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Assessee is a Public Limited Company and the relevant assess-
ment year is 1964-65. This was the second year of the assessee's new
project at Vidy;magar going into production. On 19 .3. 1965, the
Income Tax Officer computed the assessment under section 143{3) of
the Act after determining the rebate admissible under sections 84 and H
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SUPREME COURT REPORTS
[ 1987) 3 S.C.R.
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