Law:

Section:

Section 80J of the Income-tax Act, 1961 read with Rule 19A of the Income-tax Rules, 1962 - Deductions-Profits and gains from newly established industrial undertakings-Whether rule 19A(3) is ultra vires section 80J insofar as it provides for deduction of borrowed moneys in computing capital employed-Held, no-Whether tribunal right in ignoring rule 19A(3)-Held, no Words and pharses-"Capital employed" in context of section 80J. Facts During the assessment year 1971-72 relevant to the accounting year ended 31-3-1971, the asses-see-firm, deriving income from barbed and GT wire, etc., claimed deduction of Rs. 67,548 under section 80J, but the ITO computed the said deduction at Rs. 39,975 after excluding the amount borrowed and invested in the industrial undertaking by the assessee. The AAC confirmed the same. On second appeal, the Tribunal held that the capital employed in an industrial undertaking was the entire investment of the assessee in the undertaking and that no distinction could be made between the assessee's own capital and borrowed capital. Thus, ignoring rule 19A, it allowed the assessee's claim in full. On reference, the assessee challenged the validity of rule 19A(3) on the ground that it was ultra vires section 80J insofar as it provided for the deduction of borrowed moneys in computing the capital employed. Held 1. An assessing authority functioning under a taxing Act has no jurisdiction to decide the validity of any of its provisions of rules or notifications made thereunder. Moreover, where contemporaneous and practical interpretation has stood unchallenged for a considerable length of time, it is regarded as of great importance in arriving at the proper construction of a statute. Further such an interpretation gains greater weight when the statute as interpretated is re-enacted and is regarded presumptively as the correct interpretation of the law. This is based upon the theory that the Legislature is acquainted with the contemporaneous interpretation of a statute; especially when made by an administrative body or executive officer charged with the duty of administrating or enforcing the law. 2. The precursor of the present section 80J was section…

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