Thanikkachalam, J.Under s. 256(1) of the IT Act, 1961 (hereinafter referred to as " the"), the Tribunal referred the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the orders of the CIT purportedly passed under s. 263 of the IT Act, 1961, for the asst. yrs. 1972-73 and 1974-75 were valid in law "

2. The assessee is a company which had claimed relief under s. 80J of the in respect of an industrial undertaking for the asst. yrs. 1972-73 and 1974-75. The relief claimed under s. 80J of the was initially refused by theO, but it was allowed in appeal by the Tribunal for the asst. yr. 1972-73 and by the AAC for the asst. yrs. 1970-71 and 1974-75. While giving effect to these appellate orders, theO followed the decision of the Madras High Court in Madras Industrial Linings Ltd. Vs. Income Tax Officer and Others, and treated the borrowed capital as part of the capital base in arriving at the extent of the relief.

3. In a matter like this, it was pointed out, that it is the usual practice to make a protective assessment. When the decision of the Madras High Court was taken up to the Supreme Court by way of special leave petition, if the protective assessment was made, the demand would have been stayed and the final order on appeal would have been consistent with the Supreme Court decision. In other words, the issue would be kept alive till the Supreme Court rendered its decision on a particular point. This procedure was not followed in the present case. The CIT exercised his jurisdiction under s. 263 of the in order to keep the matter alive. After giving a show-cause notice and after hearing learned counsel appearing for the assessee, the CIT held that the relief granted by theO under s. 80J of the in the assessment years under consideration is erroneous and prejudicial to the interests of the Revenue. Accordingly, the order passed by theO in granting relief under s. 80J of the was set aside. As against this order, the assessee went in appeal before the Tribunal. The Tribunal held that the order passed by the CIT under s. 263 of the is unsustainable both on the question of jurisdiction as well as on the merits.

4. Learned standing counsel appearing for the Department, submitted before this Court as under :

All that the Department wanted was to keep the matter alive so that the final order passed by the Department would be in accordance with the judgment of the Supreme Court since special leave has been granted against the judgment of the Madras High Court in Madras Industrial Linings Ltd. vs. ITO (supra). According to learned standing counsel, had theO made a protective assessment as per the practice prevalent then, the present contingency would not have arisen, because, after the judgment of the Supreme Court is known, the order would have been passed in accordance with the order passed by the Supreme Court. It was further pointed out that, in the present case, the decision of the Madras High Court in Madras Industrial Linings Ltd. vs. ITO (supra), followed by theO was reversed by the Supreme Court in Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, .

5. According to learned standing counsel, even on the merits, the assessee is not entitled to any relief which was already granted by theO. In support of the contention that the matter should be kept alive when as against a decision of this Court, the Supreme Court granted special leave and if this practice was not followed, that would cause prejudice to the interests of the Revenue, learned standing counsel relied upon the decision of the Madras High Court in Commissioner of Income Tax Vs. Lakshmi Narayanan, . According to the facts arising in that case, the assessees claim that she was liable to tax only in relation to 1/7th of the share income from a firm and not on the entire income for the asst. yrs. 1970-71 and 1971-72 was not accepted by theO, but upheld by the Tribunal. Based on the said decision of the Tribunal, theO, for the year 1973-74, assessed only 1/7th of the income in the assessees hands. The CIT however, revised this order of theO for 1973-74 on the ground that it was prejudicial to the Revenue. The Tribunal held that since the notice proposing to revise the order of theO was issued at a stage when the order of the Tribunal for the earlier period held the field, the revision proceedings could not be sustained and accordingly set aside the order of the CIT.

On a reference, this Court held that, "in view of the order of the Tribunal for the earlier years 1970-71 and 1971-72 having been subsequently set aside by the High Court in Commissioner of Income Tax Vs. Smt. Lakshmi Narayan, , the notice proposing to revise the order of theO issued by the CIT was valid. Though the said decision of the High Court was in fact subsequent to the order of the Tribunal setting aside the order of the CIT, the said decision should be taken to be declaratory and should be taken to be the law on the date when the notice to revise the assessment was issued by the CIT. The revision of the assessment by the CIT was, therefore, in order". It was, therefore, submitted that the order passed by the CIT under s. 263 of the in the present case is in order and the Tribunal has no basis to set aside the said order relying upon the decision of the Madras High Court in Madras Industrial Linings Ltd. vs. ITO (supra) as against which, special leave was granted.

6. On the other hand, learned counsel appearing for the assessee contended that when theO while passing a consequential order in pursuance of the order passed by the AAC, followed a decision of the Madras High Court on a particular point, it cannot be said that the said order is erroneous and prejudicial to the interests of the Revenue. In support of this contention, reliance was placed on the decision of the Supreme Court in Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, and another decision of the Allahabad High Court in K. N. Agrawal vs. CIT (1991) 189 ITR 769 . In both the abovesaid decisions, the present point, as mooted out in the instant case, was not the subject-matter for decision. Therefore, we are unable to follow those decisions cited by learned counsel appearing for the assessee. Inasmuch as there is a direct decision of this Court on this point, viz., that the judgment rendered by the High Court would be declaratory and should be taken to be the law on the date when the notice under s. 263 of the was issued, we are unable to subscribe to the submissions made by learned counsel appearing for the assessee. As already pointed out, in Lohia Machines Ltd. vs. Union of India (supra), the decision rendered by this Court in Madras Industrial Linings Ltd. vs. ITO (supra), was overruled. Hence, the assessee is not entitled to get the relief asked for, viz., while calculating the capital base under s. 80J of the, the borrowed capital should also be taken into consideration. Therefore, the order passed by the CIT under s. 263 of the is valid both in respect of the jurisdictional aspect as well as on the merits. Under such circumstances, we answer the question referred to us in the affirmative and in favour of the Department. However, there will be no order as to costs.