JUDGMENT M. Katju, J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961. In the instant reference the following questions of law have been referred to us for our opinion :
"1. Whether, on the facts and in the circumstances of the case and on proper interpretation of Rule 19A(3) of the Income-tax Rules, 1962, the Tribunal was legally correct in holding that for the purposes of deduction under Section 80J the amount of borrowed moneys and debts owed by the assessee should be included in the capital employed ?
2. Whether, on the facts and in the circumstances of the case and in view of the provisions of Rule 19A of the Income-tax Rules, 1962, the Tribunal was legally correct in holding that while computing the capital employed, half of the profits earned by the unit should be added ?"
2. Sri Bharatji Agarwal has put in appearance for the Department but none has appeared for the assessee although an affidavit of service has been filed.
3. The relevant assessment years are 1975-76 and 1976-77. During these years the assessee claimed deduction under Section 80J of the Income-tax Act and the question is whether borrowed capital is to be included in the capital for the purposes of Section 80J.
4. In Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 it has been held by the Supreme Court that borrowed capital cannot be included.
5. Following the said decision, question No. 1 referred is answered in the negative, i.e., in favour of the Department and against the assessee.
6. Now coming to question No. 2, it appears that there is a typing mistake in the referring order as it mentions Rule 19A of the Income-tax Rules while it should be read as Rule 19(5) of the said Rules. The Tribunal in its order has made reference to Rule 19(5). It is relevant to state here that the Tribunal has placed reliance upon a judgment reported in CIT v. Modi Spinning and Manufacturing Mills Co. Ltd. [1980] 125 ITR 361 (All) and has held that while computing the capital employed, half of the profits earned by the unit should be added in view of Rule 19 of the Income-tax Rules. The aforesaid judgment has no relevance to the present case. The said judgment was delivered with respect of the assessment year 1965-66 when Section 84 of the Income-tax Act was operative. Section 84 of the Income-tax Act was operative up to the assessment year 1967-68. Section 80J was inserted thereafter and Rule 19A was framed. Rule 19 of the Income-tax Rules prescribed the mode of computation of capital employed in an industrial undertaking or a ship or the business of hotel for the purposes of the then Section 84, which was operative up to the assessment year 1967-68. Section 84 of the Act was not operative for the relevant assessment years in question ; hence Rule 19 of the Income-tax Rules will have no application. In view of the fact that Section 84 of the Income-tax Act was no longer on the statute book in the relevant assessment years 1975-76 and 1976-77, reference to Rule 19(5) is wholly misplaced and the aforesaid ruling has no application to the facts of the present case.
7. In view of the above, question No. 2 is answered in the negative, i.e., in favour of the Department and against the assessee.
8. The reference is decided accordingly.