Law: Income Tax Act, 1961

Section: 80,80J

Income tax------New industrial undertaking Relief Computation of capital Assessee purchasing plant and machinery from foreign company Consideration Allotment of equity shares at par Delay in allotment of shares Assessee not debtor to supplier Amount outstanding on account of purchase consideration To be included in computation of capital Indian Income Tax Act, 1961, S.80J. The assessee purchased plant and machinery from a foreign company and, under the agreement between the assessee and the foreign company, the purchase price of the plant and machinery was to be satisfied by, allotment of equity shares in the assessee company at par of an equivalent value. The question was whether the agreement had created any debt towards the supply of the plant and machinery, and, consequently, the amount outstanding towards the purchase consideration had to be excluded from the computation of capital for the relief under section 80J of the Income Tax Act, 1961. On a reference, the High Court held that the amount outstanding to the foreign company on account of the balance consideration towards plant and machinery ought to be included in the computation of capital for the grant of relief under section 80J [see (1985) 153 ITR 239]. On appeal to the Supreme Court: Held, arming the decision of the High Court, that the liability of the assessee to the foreign company was to issue equity shares of a value equal to the amount advanced by the foreign company for the plant and machinery. It was only if, for any reason, the shares could not be allotted that the question of compensating the foreign company might arise. In these circumstances, it could not be said that there was debt owed by the assessee to the foreign company for the purpose of computing the capital under section 80J. CIT v. Lucas TVS Ltd. (1985) 153 I TR 239 affirmed on this point. Kesoram Industries and Cotton Mills Lt (l. v. CWT (1966) 59 ITR 767 (SC) ref. ORDER The order of the Tribunal states that clause 4(ii) of the agreement, dated November 27, 1962, between Lucas, the English Company, and the respondent would show that the purchase price o f the plant and machinery, which had been advanced to the respondent by…

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