Patna High CourtTaurian Tubes vs Commissioner Of Income-Tax on 18 February, 1987Equivalent citations: [1987]166ITR629(PATNA)Author:B.N. AgrawalBench:B.N. AgrawalJUDGMENT1. This is a  reference under Section 256(1) of the income-tax Act, 1961 (hereinafter to be referred to as "the Act"). The questions called for our opinion are as follows :"(1) Whether, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax, Bihar No. II, Ranchi, had jurisdiction to revise the order of the Income-tax Officer, Ward C, Jamshedpur, underSection 263of the Income-tax Act on May 20, 1980, and to give a direction to the Income-tax Officer to compute the relief underSection 80Jof the Act in a particular manner ?(2) Whether in granting relief underSection 80J, borrowed capital is also to be included in the 'capital employed' ? "2. This reference relates to the assessment year 1977-78.3. The facts in brief are that the assessee was assessed by the Income-tax Officer by order dated May 31, 1978. The assessee was given relief in terms ofSection 80Jof the Act read with Rule 19A of the Income-tax Rules (hereinafter to be referred to as "the Rules"). After some time, the Commissioner, Income-tax Department, being of the view that the order of assessment was wrong and prejudicial to the Revenue, issued notice dated May 2, 1980, underSection 263(1)of the Act. In the view of the Commissioner, the assessee was not entitled to the relief that had been granted to it. After hearing tbe assessee, the Commissioner, by order dated May 20, 1980, rejected the stand of the assessee and held that the relief granted to the assessee in terms ofSection 80Jof the Act was erroneous.4. The assessee, being aggrieved by the order of the Commissioner, filed an appeal before the Tribunal. The Tribunal endorsed the view of the Commissioner holding that the assessee was not entitled to the relief in terms of Rule 19A of the Rules. The assessee, being aggrieved by the order of the Tribunal, prayed to the Tribunal for making reference to this court underSection 256(1)of the Act. The prayer was rejected. The assessee then moved this court and this court in exercise of the powers underSection 256(2)of the Act called for the questions quoted above for opinion.5. The whole issue depended upon the power of the assessing officer under Rule 19A of the Rules. It is obvious that Rule 19 A of the Rules empowered, in fact enjoined, the taxing officer to refuse the relief the assessee had claimed in respect of borrowed capital. While a reference was pending before this court, several writ petitions were filed before the Supreme Court challenging the vires of Rule 19A of the Rules. The Supreme Court by majority of 4 :1 held in paragraph 28 in the case ofLohia Machines Ltd. v. Union of India[1985] 152 ITR 308, that Rule 19A of the Rules in so far as it excluded

borrowed monies and debts in the computation of the ' capital employed ' and provided for computation of the ' capital employed ' as on the first day of the computation period was not ultra vires,Section 80Jof the Act and was a perfectly valid rule within the rule making authority conferred upon the Central Board of Revenue. The Supreme Court thus in clear terms overruled the contention that Rule 19A of the Rules was ultra vires the Constitution. Rule 19A having been found to be good law, it is obvious that the assessing officer had erred in law and that error, on the face of it, was prejudicial to the Revenue. In that view of the matter, it has to be held that the Commissioner of Income-tax, Bihar No. II, Ranchi, had the jurisdiction to revise the order of the Income-tax Officer. The first question, therefore, has to be answered in favour of the Revenue and against the assessee.6. The second question is allied to the first question in terms of the decision of the Supreme Court that the assessing officer had no jurisdiction to grant relief underSection 80Jof the Act on borrowed capital which could not be excluded from the expression ' capital employed '. Both the questions are, therefore, answered in favour of the Revenue and against the assessee.7. The reference is answered accordingly. The reference is thus disposed of with costs. Hearing fee Rs. 250 payable by the assessee.8. This reference had been heard along with CWJC No. 2010 of 1982 filed by this very assessee. The moot point in this writ application was the same as the questions referred to us in the reference. The substantial reason for filing the writ application was to make a prayer for stay of the operation of the assessment orders. That was granted at the time of admission. Since the questions agitated in the writ application have been answered against the petitioner in view of the Supreme Court decisionreferred to above, there is no merit in this application.9. Learned counsel for the petitioner submitted that even if Rule 19A of the Rules was a valid piece of legislation, its validity was upheld (only) in the year 1985 and, therefore, on the day the Commissioner passed the impugned order in annexure 2, he could not have acted in terms of Rule 19A of the Rules. This submission is entirely fallacious and is bound to be rejected. The result of the Supreme Court decision is that Rule 19A of the Rules was a valid piece of legislation at all times. The Commissioner and the Tribunal, therefore, were right in holding that the relief claimed by the assessee could not have been granted. In that view of the matter, there is no merit in this application. It is dismissed accordingly with costs. Hearing fee Rs. 250 payable by the petitioner.10. Let a copy of this order be	transmitted to the Assistant Registrar,
Income-tax Appellate Tribunal,	Patna, in  terms ofSection 260of the
Act.