Law:

Section:

Section 84 [now section 80J] of the income-tax Act, 1961 read with rule 19(4) of the income-tax rules, 1962-deductions-Profits and gains from newly established industrial undertakings-whether short-term fixed bank deposits made for meeting tax liabilities which was not immediate should be excluded in computation of capital employed-held, on facts, no Facts For the assessment year 1967-68, the assessee-company claimed that for purposes of relief under section 84, the short-term fixed bank deposits made by it for meeting tax liability which was not immediate, should not be excluded from capital computation. The ITO rejected the claim, but on appeal, the AAC allowed it. On revenue's appeal, the Tribunal by a majority decision, reversed the AAC's order and maintained that such deposits should be excluded in computation of capital. On reference: Held The material question in the instant case was whether rule 19(4) of the Income-tax Rules was applicable. Rule 19(4) had two main ingredients, namely, (i) whether the amounts could be considered as investments, and (ii) whether the amounts were not required for business purposes. In the absence of a definition of the expression "investment" in the Act, it had to be understood on the basis of the common sense point of view. Normally and in commercial world it was not treated as synonymous with either bank deposits or short-term deposits. Therefore, the first limb of rule 19(4) was not fulfilled as the amounts could not be taken to be investments. Further, even if these amounts were treated as investments, that by itself would not make them ineligible for capital computation unless it could be shown that income in respect thereof was not taken into consideration in computing the profits of the business. The assessee carried on only the business of the new industrial undertaking and no other enterprise. Therefore, although the interest income from the impugned deposits was assessed as income from other sources, it was nonetheless income from the assessee's business, so that the amounts of deposits would not be ineligible for being taken into account for capital computation. As regards the second limb of rule 19(4), the fact…

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