Law: Income Tax Act, 1922

Section: 15B

  Income-tax Act (XI of 1922) S. 15-B (3) read with Income- tax (Computation of Capital of Industrial Undertakings) Rules, 1948, rr. 4, 5, 6 & 7-Borrowed money invested in industrial undertaking Entitled to exemption from income-tax. The decision of the Income-tax Tribunal that the assessee was entitled to include his borrowed money in the computation of capital employed in the undertaking for the purpose of section 15-B (3) of the Income-tax Act, 1922 was challenged on the ground that exemption is not allowable with respect to borrowed capital because such capital has been expressly excluded by rule 7 framed under section 15-B (3). It was argued that only rule 7 was applicable to the case and not the rule 4, 5 or 6 which precedes that rule inasmuch as rule 4 speaks of "assets being the property of the assessee and ranking for depreciation", rule 6 speaks of "land or any fixed assets not ranking for depreciation" and rule 6 relates to "trading stock and stock of raw materials". None of these three categories of property could be treated to be "capital" and hence no exemption is permissible except with respect to "capital" in terms of subsection (1) of section 15-B. either "assets ranking for depreciation" nor land and fixed assets not ranking for depreciation" nor "trading stock and stock of raw materials" fall within the category of "capital" and as such the only provision on the basis of which exemption could be claimed was rule 7 which alone speaks of capital outlay and expressly excludes "borrowed money" from the benefit of exemption. Held : It is plain from the language of rule 7 itself that it contains provisions relating to "capital outlay other than that provided for" in rules 4, 5 and 6. This means that rules 4, 5 and 6 also deal with capital outlay, but of different kind and nature from the capital outlay with which rule 7 deals. Therefore, the distinction which has been pressed is not supported by the language of the section and that of the rules. Subsection (1) of section 15-B of the Income-tax Act, 1922 does not speak of "capital…