JUDGMENT
Syed Shah Mohammed Quadri, J.
1. On the application of the Revenue, filed under s. 256(1) of the IT Act, 1961 (for short “the Act”), the Tribunal referred the following questions of law to this Court, viz. :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that credit balance of Rs. 23,32,377 appearing on the liabilities side of the balance sheet of the distillery unit of the assessee should not be deducted in computing capital for purposes of allowing deduction under s. 80J in the case of the assessee for the asst. yr. 1981-82 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the capital employed in the distillery unit of the assessee should be computed after ascertaining the amount of borrowed funds diverted by the head office to the distillery unit of the assessee and deducting such borrowed funds under s. 80J(1A) for arriving at the capital employed in the distillery unit ?”
2. The facts giving rise to the above questions may briefly be noted here : The respondent assessee-company (for short “the company”), is engaged in the business of manufacture and sale of yarn and also running a distillery. In respect of the distillery unit, the assessee-company claimed deduction of Rs. 1,51,034 under s. 80J of the Act. On the liabilities side of the unit, a sum of Rs. 23,32,377 was shown. The ITO expressed the view that as to how much of the amount the company would have given to the unit, would be known if the balance sheet of the company is available and asked the unit to file the balance sheet. The ITO withheld the deduction observing that after obtaining the relevant particulars from the company the claim could be made. On appeal by the company, the CIT(A) allowed the relief to be carried forward subject to the time limit prescribed under s. 80J(3). On further appeal, the Tribunal held that the amount given by the company or any other unit could be shown as liability in the balance sheet of the unit as there was no other way of displaying it in the balance sheet and on that ground alone the amount could not be treated as borrowed amount. On these facts, the above two questions arose for our consideration.
3. Mr. S. R. Ashok, learned standing counsel for the IT Department, submits that if the said amount, Rs. 23,32,377, could be treated as the amount of the company, then the unit cannot claim any benefit as that would not be an independent unit at all. He further submits that if the head office itself had borrowed the money and given it to the unit, the amount could not have been claimed by the unit as not being a debt, and it is only to ascertain that it comes from the borrowed money or not that the ITO referred the question of grant of relief under s. 80J.
Sri A. Satyanarayana, learned counsel for the assessee-company, submits that admittedly the money belonged to the company and that could not be treated as “debt” for, the unit being that of the company it would not amount to taking loan from the company, and that amount cannot be treated as loan, so as to reduce the capital.
4. In so far as the claim for the relief under s. 80J is concerned, if a company has established different units of its own which are independent in themselves, the relief under s. 80J will have to be worked out separately for each unit and the same cannot be clubbed with the main company. In Indian Oil Corporation Ltd. vs. S. Rajagopalan, ITO , the question that arose before the Division Bench of the Bombay High Court was, whether the total liability of all the undertakings has to be deducted from the assets of each undertaking. The petitioner company therein was a Government of India undertaking which owned four industrial undertakings. It was held that s. 80J provided that the assessee was to be allowed a deduction of 6% per annum on the capital employed in the industrial undertaking, this was a to be deducted from the total income of the assessee. For that purpose and to compute the capital employed by the industrial undertaking the aggregate of the amount ascertained under sub-r. (2) had to be deducted. On an interpretation of r. 19A, it was laid down that in respect of each undertaking the liabilities of the assessee in respect of that industrial undertaking only have to be deducted from the aggregate value of the assets of the same industrial undertaking. What follows from this judgment is that each unit or undertaking has to be treated independently for the purposes of arriving at the capital of that unit under s. 80J of the Act.
Accepting the above judgment of the Bombay High Court, the CBDT issued Circular No. 380, dt. 10th April, 1984 [printed at (1984) 149 ITR (St) 1]. It was incorporated in that circular that inasmuch as the provisions of r. 19A are incorporated in s. 80J(1A), which was inserted by the Finance (No. 2) Act, 1980, the same principle will apply to the provisions of sub-s. (1A) of s. 80J of the Act.
In CIT vs. Karnataka Cement Pipe Factory , the question before the Karnataka High Court was, where the head office established a new industrial undertaking, how the relief under s. 80J of the Act could be computed. In that case, the ITO disallowed the claim on the ground that the borrowed money, owed by the assessee, exceeded the value of the assets of the undertaking on the first day of computation period. On appeal, the CIT(A) held that the amount invested by the head office in the branch unit should not be treated as borrowed capital since the head office had enough capital of its own. On appeal by the Revenue, the Tribunal affirmed the order of the CIT. It was pointed out that there was no material to show that what was sent to the unit was the money borrowed by the head office. Referring to the circular, mentioned above and the judgment of the Bombay High Court in Indian Oil Corporation Ltd. vs. V. S. Rajagopalan, ITO (supra), the Karnataka High Court held that in respect of each undertaking, the liabilities of the assessee were to be deducted from the aggregate value of the assets of the of the same unit or industrial undertaking.
In CIT vs. South India Viscose Ltd. (1983) 140 ITR 58 (Mad), the money of the head office was used in its unit. The ITO reduced the capital of the unit for the purposes of computation under s. 80J of the Act by the amount which was used by the unit. The Tribunal held that the amount by which the capital was reduced was not a “debt” owed by the unit to the third parties but it was only a surplus fund of the head office which was invested in the unit, hence, there was no borrowed money. In view of that finding, the Tribunal held that the capital cannot be reduced. The Madras High Court took the view that no question of law arose from that finding. Placing reliance on that judgment, it was contended that for the purposes of showing the borrowing, it must be shown that the amount was borrowed from the third parties, taking money from the head office would not lead to the conclusion that the amount was the borrowed amount.
In Mohan Lal Bhagwati Prasad vs. CIT deduction was claimed under s. 80J by the distillery unit of the company. It was found as a fact that a loan was obtained by the head office and out of that loan, a certain sum was transferred to the distillery unit. The Tribunal recorded a finding of fact that the transferred amount came out of the loan obtained by the head office and held that it could not be deducted. In view of the express finding of the Tribunal, the Allahabad High Court held that the assessee was not entitled to the relief under s. 80J in respect of the borrowed money.
5. In the present case, as there is no material to show that the money transferred by the head office to its unit (branch office) is not from out of the borrowed money and the necessary material to find out that fact was withheld by not producing the balance sheet of the head office, there was no material before the Tribunal to come to the conclusion that the money transferred was not from out of the borrowed money and, therefore, the Tribunal ought not to have allowed the deduction. In this view of the matter, the Tribunal ought to have allowed the ITO to satisfy himself as to the nature of the money which was transferred by the head office to the unit and should not have allowed the deduction in the absence of any material. We, therefore, answer question No. 1 in the negative, i.e., in favour of the Revenue and against the assessee.
6. In so far as question No. 2 is concerned, in our view, it is a mere contention but not a question of law. In view of the above discussion, we hold that the second question is not a question of law, hence, we decline to answer the question. In any event, the answer to question No. 1 covers the aspect raised in question No. 2.
7. In the circumstances of the case, there shall be no order as to costs.