M/S LOHIA MACHINES LIMITED AND ANR. versus UNION OF INDIA AND ORS.

Citation: [1985] 2 S.C.R. 686 · Decided: 25-01-1985 · Supreme Court of India · Bench: Y.V. CHANDRACHUD · Disposal: Dismissed

Cited by 5 judgment(s) · cites 6 · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
c 
D 
E 
F 
G 
H 
686 
M/S LOHIA MACHINES LIMITED AND ANR. 
v. 
UNION OF INDIA AND ORS. 
January 25, 1985 
(Y.V. CHANDRACHUD, C.J., P.N. BHAGWATI, AMARENDRA NATH 
SEN, D.P. MADON AND M.P. THAKKAR, JJ.] 
Constitution of India, Articles 14 and 19 (1) (g). 
Income Tax Act, 1968, ss.80J(l) and(lAl, s. 296-lncome Tax Rules, 
1962-Rule 19A-Validity of. 
"Capital employed" in industrial undertaking-Meaning of-Whether 
includes long term borroWiflgs-Computed in the prescribed manner-Central 
Board of Reyenue-fflhether competent to prescribe the manner of computation 
by Rules-Providing for computation of "capital employed" as on "the first day 
of the computation period"-Whether ultra vfres s. 801 (1)-Whether suffers 
from excessive delegation of legislative power-Whether violative of Art. 14. 
''Capital employed'' in industrial undertaking-Profits and gains derived 
from-Tax relief to new industries-s.801-retrospective amendment of b1 
Fi,,ance (No. 2) Act, 1980-lncorporalion of Rule 19A-Validity of-Whether 
violative of Articles 14 and 19 (1) (g) of the Constitution. 
Interpretation of statute-Interpretation of a provision-Historical 
Evolution-Whether could be ignornd. 
Words used-Plain an unambiguous-Reasonably susceptible to one 
meaning only-Whether could be given effect to by the Court-Whether Court 
concerned with the policy invlvoed or with the result which may follow. 
Legislative intent-Whether to be gathered from consistent practice 
followed- Whether cognate statutes to be lookd into. 
Validating Act-Re~rospective Operation of-When becomes arbitrary 
and unreasonable. 
LOHIA MACHINHS V. UNION 
687 
Administrait~e Law- Legislative power in a taxing statute-Delegation 
of- Rule-making Authority-Scope nf- Where relief of exemptiQn is granted by 
the st:Jtute- Whether Rule-111aking Authority competent to work out derails of 
relief and exemption a its discretion- Legislature's srict vigilance and control 
over the Rule-making Authority-Whether excessive delegation of legislative 
power fiJ the Executive. 
Acquiescence in an earlier exercise of ultra vires rule-making power-
A 
Wheiher such exercise of rule-making power valid at a subsequent date. 
B 
Words and Phrases-Meaning of "Capital en1ployed" - 'Computed in 
the prescribed manner'-'Computed'-Meaning of-''Capital employed during 
the prei'iiJllS year" and ''Capital en1p!oyed in respect of the previous year"-
Distinction betwt•en. 
The Taxation Laws (Amendment) Ordinance 1949 introduced s.t5C in 
the Indian Income Tax Act 1922 with effect from 31st March 1949. This provision 
was similar to s. 80J of the Income Tax Act 1961. Sub-s. (!)of s.15C exempted 
a part of the profits and gains of a new industrial undertaking from tax. The 
Central Board of Revenue made the Indian Income Tax (Computation of Capital 
of Industrial Undertakings) Rules, 1949 for computation of capital employed in 
the industrial undertaking as envisaged in s.15C(l). According to Rule 3 of 
these .Rules the process of computation of "capital employed in the undertaking" 
consisted of two steps : one of addition of the value of assets of the industrial 
undertak;ng arrived at on the basis of differnt formulae according to the nature 
and the date of the purchase of the assets and the other, of deduction of "any 
borrowed money and debt due by thf' person carrying on the business". Borrowed 
monies and debts due from the assessee were excluded in co1nputation of "capital 
employed in the undertaking" by sub-rule (3) of this Rule. 
The Taxation Laws :(Amendment) Ordinance 1949 was replaced by the 
Taxation Laws (Extension to Merged States and Amendment) Act 1949 on 31st 
c 
D 
E 
December 1949 and s.13 thereof retained s.15C with some minor modifications. 
F 
Sub-s.(I) which granted the exemption remained unchanged. While reenacting 
s.15C, the Legislature did not change this position but continued the same Rules 
and thus approved the exclusio.1 of borrowed 1nonies and debts in computation 
of capital employed in the undertaking and also made it clear that the word 
'computed' has been used by it in this context in the sense of involving inclu-
sion as well as exclusion of items which might be regarded as part of the capital 
employed in the undertaking. 
Thereafter from time to time changes were made in s.t SC by verious 
Finance Acts but these changes were not substantial and they merely extended the 
period of production for eligibility from the initial 3 years to 18 years. Business 
o

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