JUDGMENT
Jagdish Sharan Verma, C.J.
1. This reference under Section 256(1) of the Income Tax Act, 1961 at the instance of the revenue is to answer the following questions of law, namely:
(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the order of the Appellate Assistant Commissioner, that capital employed in the assessee’s industrial under-taking should be computed, without deducting the amount of liabilities?
(2) Whether on the facts and in the circumstances, the Tribunal is justified in upholding the order of the Appellate Assistant Commissioner that the relief under Section 80J should be allowed for the full +year although the factory ran for three months only?
2. The relevant assessment year is 1971-72. For this period the assessee claimed deduction at rate of 6% or Rs. 17,65,121/- under Section 80J of the Income-tax Act, 1951. The ITO however, allowed rebate only on the amount of Rs. 3.04,780/-. The ITO took the view that relief under Section 80J of the Income Tax Act, 1961 should be allowed without deducting the liabilities or the amount of subsidy from the capital employed in the business of the new industrial under taking. Aggrieved by the ITo’s view the assessee preferred an appeal to the AAC. The AAC accepted the assessee’s contention and held that full relief should be given under Section 80J of the Act of Rs. 17,65, 121/-. The Tribunal has affirmed this view. It has also been held that even though the factory ran for 3 months only during that period the deduction to be allowed under Section 80J must be for the full year.
3. Learned counsel for the revenue contended that the. above quoted first question is concluded in favour of the revenue by the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India Learned counsel stated in respect of the second question that the reported decisions are all in assessee’s favour and the Central Board of Direct Taxes has also issued a circular dated March 3, 1984 accepting this view. In reply the learned Counsel for the assessee contended that the first question is only partly covered by the Supreme Court decision in Lohia Machines Ltd. v. UOI (supra), but in respect of a sum of Rs. 6,08,147/- out of the total of Rs. 17,65,121/-, the point is not concluded in favour of the revenue by that decision.
4. We shall first take up the above quoted second question which can be disposed of at the fresh-hold since it does not require any detailed consideration. The High Courts of Bombay, Calcutta, Gujarat, Kerala, Karnataka, Madhya Pradesh and Madras in several decisions have taken the consistent view that relief Under Section 80J should be allowed for the full year, even though new Industrial under-taking ran only for a portion thereof. These decisions are CIT v. Godrej Soap Ltd. ; CIT v. Oyster Packager Ltd. ; CIT v. Sarabhai Sons Ltd. ; CIT v. Protein Products Ltd. (1987) 167 ITR 157 (Ker.); CIT v. Mysore Petro Chemical Ltd ; CIT v. Sanghi Beverages Pvt. Ltd. ; CIT v. Sanghi Bros Ltd. ; CIT v. Simpson & Company ; and Rockweld Electrodes India Ltd. v. CIT It may also be mentioned that a special leave petition against a decision of the Madras High Court following its earlier decision in (1980) 122 ITR 282 was rejected by the Supreme Court, which indicates that the Supreme Court has also approved this view. Mention of this fact is found at page 12 of the statutes part of (1985) 151 ITR. We may also add that Circular No. 378 dated March 3, 1984 reproduced at page 1 of the statutes part of (1984) 149 ITR expressly says following the view taken in this Madras decision and by the Karnataka High Court that the deduction under Section 80J should not be reduced proportionately with reference to the period for which the business of the under-taking etc. was not carried on during relevant previous year. It is, therefore, clear that the Tribunal’s view on the above quoted question No. 2 being the same, it must be upheld.
5. We shall now consider the argument of learned Counsel for the assessee in respect of the above quoted question No. 1. Admittedly, the Supreme Court in Lohia Machines Ltd. v. U.O.I, (supra) upheld the validity of Rule 19A of Income-tax Rules, 1962 in its entirety in relation to Section 80J of the Act and, therefore, the Tribunal’s view contrary to it cannot be upheld. The only question is whether deduction has to be made in respect of the amount of Rs. 6,08,147/- as claimed by the learned Counsel for the assessee. His argument is that according to Rule 19A(3)(b) as it applied during the assessment year 1971-72 the assessee is entitled to relief to the extent of Rs. 6,08,147/- under Section 80J of the Act, the same being borrowed from the National Small Scale Industries Ltd. The question is whether this contention can be accepted? There are two conditions which must be satisfied before the assessee can get benefit of Rule 19A(3)(b) as it then existed. These conditions are: (i) that the money should have bean borrowed from an “approved source” for the creation of a capital asset in India and, (ii) the agreement should provide for repayment thereof during a period of not less than seven years. For the purpose of this sub-rule “approved source” is to be understood as defined in the Explanation given there-under. Even assuming that the National Small Scale Industries Corporation Ltd. can fall within the meaning of “approved source” as contemplated by Clause (b) the further condition to be satisfied in respect of this amount is that according to the agreement, repayment thereof should have been during a period of not less than seven years. It has not been shown to us by the learned Counsel for the assessee that such an argument was considered by the AAC or the Tribunal, so that the requisite foundation on facts is present for the same. How ever, it has been shown to us that in the assessment order of the ITO dated 20-10-1975, Annexure-A. This aspect was considered and a clear finding was recorded that this provision did not apply because the agreement provides the period of repayment as less than seven years. Apparently this finding by the ITO was not assailed before the AAC or the Tribunal. The facts which are necessary to provide foundation for arguments of the learned Counsel for the assessee are, therefore, not only non-existent but on the contrary the finding in that behalf is to the contrary. There is thus no basis to hold that the assessee is entitled to relief in respect of the sum of Rs. 6,08,147/- even according to the Supreme Court decision in Lohia Machines Ltd. v. UOI (supra). It follows that the Tribunal’s view in respect of the entire above quoted question No. 1 in the assessee’s favour cannot be upheld, being contrary to the aforesaid Supreme Court decision.
6. Consequently, the reference is answered as follows:
(1) Answer to question No. 1 is that the Tribunal was not justified in upholding the order of the AAC by taking the view in assessee’s favour and against the revenue;
(2) Answer to question No. 2 is that the Tribunal’s view in assessee’s favour is justified. No costs.