Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1974-75 - Whether amount of surtax payable in pursuance of Companies (Profits) Surtax Act, 1964 was not deductible as business expenditure while arriving at taxable income - Held, yes Section 80J of the Income-tax Act, 1961 - Deduction - Profits and gains from new industrial undertakings, ships or hotels - Assessment year 1974-75 - Whether for purpose of computing capital employed for deduction under section 80J, liabilities are to be deducted - Held, yes - Whether for purpose of relief under section 80J, computation of capital should not be based on average amounts of increase/decrease in assets and liabilities during relevant previous year - Held, yes FACTS For the relevant assessment year the assessee-company claimed surtax liabilities as business expenditure which was disallowed by the ITO and also by the AAC. On appeal, the Tribunal upheld the disallowance of surtax liability. During the course of those very assessment proceedings, the ITO did not agree to compute the relief under section 80J as per the claim of the assessee both in respect of the quantum of capital and the point of time. On second appeal the Tribunal ultimately held that the liabilities be not deducted while computing the capital employed for the purpose of section 80J and an average value of the assets be taken during the year instead of the value of the assets and liabilities as on the first day of the previous year. On reference: HELD In view of the decision of this court in Highway Cycle Industries v. CIT [1989] 178 ITR 601, it was to be held that the Tribunal was justified in holding that the assessee was not entitled to the deduction of surtax payable by it in pursuance of the Companies (Profits) Surtax Act, 1964, in arriving at the taxable income. Further, in view of decision of the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308, it was to be held that the Tribunal was not justified in holding that, for the purpose of computing capital employed for deduction under section 80J, liabilities were not to be deducted and that that, for the purpose of relief…

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