Case: Commissioner Of Income Tax,Bombay Vs. M/S. Alcock Ashdown &amp; Co. Ltd. and M/S. Filtrone India Ltd

section 84 read with rule 19(1) of the Rules only envisages that the particular asset should have been a form of capital put into the business during the relevant accounting period and does not refer to the actual use made of any particular asset during that period. The emphasis placed by counsel for the Revenue on rule 19(6) of the Rules has no relevance since reference to rule 19(6) is called for only in cases where the average cost in relation to an asset arises for considerationOn examining the rival pleas, we are of the view that the reasoning and conclusion of the High Court does not call for any interference. Section 84(1) of the Income-tax Act is very clear. It affords relief to an assessee as provided therein the moment the capital is employed in the under taking. The section does not state or specify that the asset should be actually used or utilised. After adverting to the interpretation placed by the House of Lords on similar or kindred words that occurred in the Finance Act (England) and also the decision of the Madras High Court in Jayaram Mills Ltd. v. CEPT wherein similar words were construed with reference to the Excess Profits Tax Act, a Division Bench of the Calcutta High Court in CIT v. Indian Oxygen Ltd. at pages 119 and 120, laid down the law, with reference to section 84 and rule 19 of the Income-tax Rules, thus Only in the computation of the value of the assets, acquired at or after the commencing date of the computation period, it is necessary to determine their average cost during the entire accounting period and for that purpose only the actual user of the assets in the business becomes relevant. It is quite clear from the rule that if an asset is acquired prior to the commencement of the accounting period the question of its user or non-user is entirely immaterial. Whether such an asset is used or not, it will still be included in the capital employed in the business Looking at the position from another point of view it appears to us that the moment capital is utilised for the purposes of acquiring any asset for a business, such capital becomes employed in the business. Whether the asset itself is actually used in the business or not, so far as the capital is concerned, it continues to be employed in the businessOur view as aforesaid finds support from the observations of the majority of the law Lords in the case of Birmingham Small Arms Co. Ltd. (HL). The Madras High Court has taken the same view in the case of Jayaram Mills Ltd. 8. In the decision under appeal (Alcocks case), the Bombay High Court has followed the above Calcutta decision. 9. Construing the words capital employed in the undertaking, a Bench of the Karnataka High Court in Ravi Machine Tools (P.) Ltd. v. CIT stated the law thus: Section 80J refers to capital employed in an industrial undertaking and not the user of any asset as such. The company acquires an asset for its undertaking and the capital employed in the undertaking is the amount paid to acquire that asset. The user or non-user of the assets so acquired is immaterial for the computation of the benefit under section 80J. This is the view that was taken by the High Court of Calcutta in CIT v. Indian Oxygen Ltd. and also of the High Court of Madras in Jayaram Mills Ltd. v. CEPT. In Indian Oxygens case, after referring to the observations of the House or Lords in the case of Birmingham Small Arms Co. Ltd. it was held, 120 (Cal) .... it appears to us that the moment capital is utilised for the purposes of acquiring any asset for a business, such capital becomes employed in the business. Whether the asset itself is actually used in the business or not, so far as the capital is concerned, it continues to be employed in the business. We entirely agree with this enunciation... * 10. We find that the Bombay High Court has consistently followed the decision in CIT v. Alcock Ashdown and Co. Ltd., the decision under appeal in the subsequent cases - see CIT v. Boehringer Knoll Ltd. (Bom); CIT v. Hindustan Polymers Ltd. (Bom); CIT v. Advani Oerlikon Pvt. Ltd. (Bom); CIT v. Indian Smelting and Refining Co. Ltd. (Bom); CIT v. Elpro International Ltd. (Bom) and CIT v. Century Spinning and Manufacturing Co. Ltd. (Bom). The other High Courts have also followed either one or more or all of the decisions reported in CIT v. Indian Oxygen Ltd. (Cal); Ravi Machine Tools (P.) Ltd. v. CIT (Kar) and the decision under appeal, CIT v. Alcock Ashdown and Co. Ltd. (Bom) - see CIT v. Cibatul Ltd. (Guj); CIT v. Mohan Meakin Breweries Ltd. (HP); Periyar Chemicals Ltd. v. CIT (Ker); CIT v. Sundaram Industries Ltd. (Mad); CIT v. Southern Agrifurane Industries Ltd. 1988 (179) ITR 371 (P & H). Our attention was not invited to any decision taking a contrary viewIn our opinion, the law laid down in Indian Oxygen Ltd.s case (Cal) and followed in the decision under appeal, Alcock Ashdown and Co.s case (Bom) and other cases referred to above represents the correct law on the subject. We are of the opinion that the moment an asset is acquired or purchased for the purpose of the business, it is capital employed, though the asset as such is not actually utilised or used during the accounting year. In the chain of events, the earliest act or event is the purchase or acquisition of the asset. That by itself entitles the assessee to get the relief. The employment of the capital is done or over. The subsequent or later events, including the actual user of the asset, have nothing to do in the matter. In this view, the judgment under appeal merits on interference. The appeal is accordingly dismissed with costs 11.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The emphasis placed by counsel for the Revenue on rule 19(6) of the Rules has no relevance since reference to rule 19(6) is called for only in cases where the average cost in relation to an asset arises for considerationOn examining the rival pleas, we are of the view that the reasoning and conclusion of the High Court does not call for any interference. Section 84(1) of the Income-tax Act is very clear. It affords relief to an assessee as provided therein the moment the capital is employed in the under taking. The section does not state or specify that the asset should be actually used or utilised. After adverting to the interpretation placed by the House of Lords on similar or kindred words that occurred in the Finance Act (England) and also the decision of the Madras High Court in Jayaram Mills Ltd. v. CEPT wherein similar words were construed with reference to the Excess Profits Tax Act, a Division Bench of the Calcutta High Court in CIT v. Indian Oxygen Ltd. at pages 119 and 120, laid down the law, with reference to section 84 and rule 19 of the Income-tax Rules, thusIn our opinion, the law laid down in Indian Oxygen Ltd.s case (Cal) and followed in the decision under appeal, Alcock Ashdown and Co.s case (Bom) and other cases referred to above represents the correct law on the subject. We are of the opinion that the moment an asset is acquired or purchased for the purpose of the business, it is capital employed, though the asset as such is not actually utilised or used during the accounting year. In the chain of events, the earliest act or event is the purchase or acquisition of the asset. That by itself entitles the assessee to get the relief. The employment of the capital is done or over. The subsequent or later events, including the actual user of the asset, have nothing to do in the matter. In this view, the judgment under appeal merits on interference.