Circular No. 380

What it does

Applies to section 80J(1A) the reading the Bombay High Court gave to rule 19A. Section 80J allows a deduction of 6 per cent, and from 1-4-1976 7.5 per cent for a company, of the capital employed in a newly established industrial undertaking, ship or hotel business, with rule 19A prescribing the computation: sub-rule (2) ascertains the aggregate value of the undertaking's assets and sub-rule (3) deducts borrowed moneys and debts due by the assessee. In Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO the Bombay High Court held that for each undertaking only the liabilities relating to that undertaking are deducted from that undertaking's assets, and the Board accepted that reading for the harmonious working of the rule. Because section 80J(1A), inserted by the Finance Act, 1980, adopts the language of rule 19A, the Board takes the view that the same judgment applies to that sub-section.

Why it was issued

The question was whether the Board's acceptance of the Bombay High Court's construction of rule 19A carried over to section 80J(1A), which was cast in the same terms.

Who it reaches

Assessees with more than one industrial undertaking claiming section 80J
Companies computing capital employed for a new unit
Assessing Officers deducting entity-level borrowings from a unit's assets

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.80J	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

579. Decision of Bombay High Court in Indian Oil Corporation’s case - Whether equally applicable to sub-section (1A) inserted by Finance Act, 1980
1. Section 80J provides that in computing the taxable income of an assessee from a newly established industrial undertaking, ship or business of a hotel, a deduction shall be allowed at the rate of 6 per cent (with effect from 1-4-1976 at the rate of 7.5 per cent in the case of a company) of the capital employed in the industrial undertaking, ship or business of the hotel. Rule 19A of the Income-tax Rules, 1962 prescribed the manner of computation of the capital employed for this purpose. Sub-rule (2) of rule 19A provided that the aggregate of the amounts representing the value of the assets of the undertaking shall first be ascertained in the manner specified therein. Sub-rule (3) of rule 19A provided that from the amount ascertained under sub-rule (2), the aggregate of the borrowed moneys and debts due by the assessee shall be deducted. The Bombay High Court in the case of Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO [1973] 92 ITR 241, while interpreting rule 19A held that in respect of each undertaking the liabilities of the assessee in respect of that industrial undertaking only were to be deducted from the aggregate value of the assets of the same industrial undertaking. The Board considered this judgment and accepted the interpretation given by the High Court for harmonious working of rule 19A.
2. Section 80J(1A) was inserted by the Finance Act, 1980 adopting the provisions made in rule 19A. The language of section 80J(1A) is the same as in rule 19A. Hence, the Board is of the view that the judgment of the Bombay High Court is equally applicable to the provisions made in sub-section (1A) of section 80J.
Circular : No. 380 [F. No. 279/186/82-ITJ], dated 10-4-1984.

What to watch

The point matters most to a multi-unit assessee: general borrowings of the enterprise are not to be set against a single new undertaking's assets.
The deduction rate differs for companies, 7.5 per cent from 1-4-1976 against 6 per cent otherwise.
Section 80J has since been withdrawn from the Act, so this arises only on old records.

Where you meet it

On a section 80J computation dispute where the Assessing Officer deducts the whole of the assessee's borrowings from the new unit's capital.

What it names

Rules it names. Rule 19A of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 383 — 250. Approval of Central Government required claiming initial depreciation on new buildings by a hotel 22 June 1984
Circular No. 378 — 576. Whether deduction is to be reduced proportionately with reference to period for which business was not carried on d 3 March 1984
Circular No. 329 — Section 80J l Profits and Gains from Newlyestablished Undertakings 22 February 1982
Circular No. 79 — Section 80K l Dividends Attributable to Profits and Gains from NEW Industrial Undertakings 25 February 1972

← Circular No. 379 · Circular No. 378 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.

What this is