At, High Court of Punjab and Haryana
By, THE HONOURABLE MR. JUSTICE GOKAL CHAND MITAL & THE HONOURABLE MR. JUSTICE S.S. SODHI
For the Appearing Parties: Ajay Mittal, Ashok Bhan, Hira Lal Sibal, S.C. Sibal, Advocates.
(1.) THE matter here concerns deduction under Section 80j of the Income-tax Act, 1961, with reference to the capital employed by the assessee in the branch industrial undertaking.
(2.) THE assessee, Messrs. Kansal Hosiery Works, is engaged in an industrial activity in its branch unit. The accounts at its head office showed a credit balance of Rs. 15,60,987, and there was also development rebate reserve of Rs. 75,750, the total of these amounts being Rs. 16,36,737. The claim of the assesses was for deduction under Section 80j of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), with reference to this amount as capital in the branch unit. The Income-tax Officer, taking into account the capital of the partners including reserve surplus at the head office and the debit balance in their current account, worked out the net capital of the partners including reserve at Rs. 13,87,875, He eventually allowed deduction under Section 80j of the Act at the rate of 6 per cent. on only Rs. 2,59,619 as against Rs. 16,36,737 as claimed by the assessee.
(3.) ON appeal, the Commissioner of Income-tax (Appeals) held that, the assessee was entitled to deduction under Section 80j of the Act with reference to the capital of Rs. 13,87,875. This order was later confirmed in appeal by the Tribunal. This is what constitutes the factual background leading to the following question being referred for the opinion of this court: "whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Commissioner of Income-tax (Appeals) that the assessee was entitled to deduction under Section 80j of the Act on the capital employed in the branch industrial undertaking as computed at Rs. 13,87,875 and not taking the partners' capital and borrowed capital at the head office proportionately ?"
(4.) THE answer to the question posed is provided by the judgment of the Supreme Court in Lohia
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Machines Ltd. v. Union of India  152 ITR 308 and in terms thereof, the reference is hereby answered in the negative, in favour of the Revenue and against the assessee. There will, however, be no order as to costs.