SETHURAMAN J.


The Commissioner of Income-tax, Madras, has asked for a reference of the following question as arising out of the Tribunal's order

"Whether, on the facts and in the circumstances of the case, and having regard to rule 19A of the Income-tax Rules, 1962, the Appellate Tribunal was justified in holding that borrowed capital should not be deducted as a liability while computing the capital employed for purpose of relief under section 80J of the Income-tax Act, 1961 ?" *


There is some misconception in the question as will be evident from what follows : The assessee is a manufacturer of rayon yarn. The assessment for the year 1970-71 was completed originally granting relief in sum of Rs. 22, 66, 744 under s. 80J of the I.T. Act, 1961. Subsequently, the ITO, in the reassessment proceedings, came to the conclusion that in the original capital computation, a sum of Rs. 3, 77, 79, 065 had been taken as the capital employed and that with reference to a sum of Rs. 1, 53, 37, 796, there should have been a reduction, because to that extent it was a liability though to the rayon and staple fibre units. The ITO accordingly reduced the relief due to the assessee under s. 80J to a sum of Rs. 13, 477. The appeal of the assessee to the AAC was unsuccessful. The matter was thereafter taken on appeal to the Tribunal. The Tribunal accepted the assessee's case on the ground that there was no liability with reference to the said sum of Rs. 1, 53, 37, 794 as it was not either borrowed money or debt owed to a third party. In the course of the Tribunal's order, in para. 6, it is stated as follows



"It is also common ground that no amount was borrowed by the assessee-company from any outsider for the above new unit. There is also no dispute that the surplus funds of the rayon and staple fibre unit were invested in the new pulp unit. On the above facts it is clear that the assessee-company did not borrow any funds and, therefore, the question of deduction of any alleged borrowal for computing capital employed would not ariseSection 80J, as it Was then in force, applied to new industrial undertakings and contemplates a deduction at the rate of six per cent. on the capital employed from the income earned by the new industrial undertaking. In other words, to the extent of six per cent. on the capital employed, the assessee enjoyed a tax concession. Rule 19A is the relevant rule for computation of capital employed in an industrial undertaking. That provides that the aggregate of the amounts representing the values of the assets as on the first day of the accounting period of the undertaking should first be ascertained in a specified manner as pointed out therein. Clause (3) of rule 19A provides" *


From the aggregate of the amounts as ascertained under sub-rule (2) shall be deducted, the aggregate of the amounts, as on the first day of the computation period, of borrowed monies and debts owed by the assessee (including any amount due towards and liability in respect of tax)


In the present case, the contention of the Department was that this sum of Rs. 1, 58 crores was liable to be deducted under cl. (3). The Tribunal found that to that extent, there was no borrowed money as only the surplus funds of the rayon and staple fibre unit had been utilised and there was also no debt owed by the assessee as there was no amount payable to third party so as to be allowed as a deduction in the computation of capital


The order of the Tribunal does not suffer from any error which can be the subject of a reference to this court. In view of the fact that the amount was admittedly drawn only from the rayon and staple fibre unit, it was clearly neither a borrowal nor debt owed by the assessee. The expressions "borrowed monies" and "debts owed" by the assessee postulate the existence of third parties from whom the monies are borrowed or the debts were incurred. In the absence of any such third party in the present case, when the facts that the amount was drawn from the assessee itself is admitted, there is no scope for deduction of the said amount under cl. (3) of the relevant ruleThe learned counsel pointed out that this amount is shown as "liability" in the balance-sheet drawn for the new units. That is merely an internal accounting. In accountancy, when a branch balance-sheet is prepared, the amount owed to the head office would be displayed as a liability, as there is no other way of accounting for it. Merely because it is thus shown

as a liability in the said balance-sheet of the new undertaking which is required to be prepared under the law for working out its profits separately, for granting the relief, it cannot be taken as borrowed monies or as debts owed by the assessee. The liability in this particular case is only for another unit of the same company. This finding would be one of fact. Therefore, there is no question of law which can be said to arise out of the Tribunal's order. The petition is accordingly dismissed with costs.