TMI Blog1978 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of s. 84 of the Act and the development of the industry of the assessee over several years, it should claim relief that it was entitled to in law by putting forward before the income-tax authorities the real state of affairs. Accordingly, in the assessment year 1967-68, the assessee claimed relief under s. 84 of the Act in respect of the following seven units which commenced operation subsequent to the year 1961: --------------------------------------------------------------------------------------------------------------------------------------------------- Name of the unit Year of Nature of work commencement --------------------------------------------------------------------------------------------------------------------------------------------------- 1. Press shop 1962 Manufactures metal cases to mount the instrument technically known as ' pressed components'. 2. Machine shop 1963 In this section, iron, brass and aluminium rods are fed into machine to make gears, axles, special type bolts, screws and other tiny articles technically called ' turned components '. 3. Dial printing shop 1964 Prints dials on metal sheets to be used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertakings eligible to any relief thereunder. In respect of the development rebate, he held that the assets of the value of Rs. 1,658 were not eligible for development rebate in the year 1967-68 and assets of the value of Rs. 4,720 were not eligible for development rebate in the year 1968-69. He, however, denied development rebate even in regard to the rest of the items on the ground that the required reserve had not been created by the assessee. On the basis of the above findings, he concluded the assessments. Aggrieved by the orders of assessment, the assessee filed appeals before the AAC. The AAC upheld the decision of the ITO in so far as the claim of the assessee for relief under s. 84 and deduction under s. 80J were concerned. But in view of the submission made on behalf of the assessee before him that the CBDT had issued instructions in regard to the assessee to grant development rebate under s. 33 of the Act in respect of the assets in question during the assessment years 1967-68 and 1968-69, he directed the ITO to consider the said question afresh and grant the permissible relief. Against the orders of the AAC, the assessee as well as the department filed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 962 6. Others 1961 7. Die casting shop 1966 --------------------------------------------------------------------------------------------------------------------------------------------------- The Income-tax Officer held that the entire plant and machinery constituted a single industrial undertaking which commenced operation even as early as assessment year 1962-63 when they started production of dashboard instruments by mainly assembling imported parts. For this purpose, he relied on a finding in the assessment order for 1962-63. According to the assessee, however, each of the above so-called shops should be taken as separate and independent industrial undertaking and the profits of the same should be given the relief under section 80J up to the limits prescribed in sub-section (2) of that section. 7. It was as a result of a collaboration agreement entered into by the assessee on 30-9-1959 with a German concern, viz., VDO Tachometer Werke, that the assessee undertook the manufacture of dashboard instruments under licence from the German company. The agreement shows that it is a composite and indivisible agreement and it does not make any distinction between the so-cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting showed that there were no independent units at all because no separate accounts had been kept for each unit ; (iii) that there were no inter-departmental sales noted and the cost of production in each stage had not been separately ascertained ; and (iv) that, in similar circumstances, the High Court of Calcutta had denied relief in CIT v. Textile Machinery Corporation [1971] 80 ITR 428. The Tribunal, however, did not hold that each of the seven units referred to above had not been established in the respective years as claimed by the assessee and that some articles were being manufactured there. It also did not disbelieve the case of the assessee that formerly it was securing from abroad the articles which were later on manufactured in the several units, for the purpose of using them in the manufacture of dashboard instruments. In the circumstances, it is reasonable to hold that it was possible for the assessee to manufacture dashboard instruments even without the several units which came into existence subsequently. It follows that each one of the units has to be treated as a new industrial undertaking in which new articles came to be manufactured as and when it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved. This has not happened here in the case of the two undertakings which are separate and distinct. It is clear that the principal business of the assessee is heavy engineering in the course of which it manufactures boilers, wagons, etc. If an industrial undertaking produces certain machines or parts which are, by themselves, identifiable units being marketable commodities and the undertaking can exist even after the cessation of the principal business of the assessee, it cannot be anything but a new and separate industrial undertaking to qualify for appropriate exemption under section 15C. The principal business of the assesses can be carried on even if the said two additional undertakings cease to function. Again, the converse is also true. The fact that the articles produced by the two undertakings are used by the boiler division of the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Supreme Court that the grounds on which the Tribunal denied relief to the assessee are irrelevant. Merely because pursuant to a single collaboration agreement the units in question came into existence it cannot be said that they are not new industrial undertakings or separate units. The fact that the assessee was getting articles produced from the new undertakings from abroad for manufacturing dashboard instruments earlier, shows that they were marketable commodities and they answered one of the tests adopted by the Supreme Court in determining whether an undertaking is a new industrial undertaking or not. The fact that there was common management or the fact that separate accounts had not been maintained, would not also lead to the conclusion that they were not separate undertakings. Even if separate account is not maintained the investment on each of the units can be, reasonably determined with the material which the assessee may make available to the department. We are, therefore, of the view that the finding of the Tribunal that the assessee was not entitled to relief under s. 84. and deduction under s. 80J of the Act during the assessment years in question, is err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the department in favour of the assessee. It is on the basis of such instructions that the AAC issued directions to the ITO to grant the allowance prayed for under s. 33 of the Act. The Tribunal did not act upon the instructions of the Board thinking that the said instructions had been withdrawn as could be seen from the relevant portion of its order : " In so far as the Board's instructions are concerned it appears from the paper book furnished by the counsel that although previously the Board had given instructions for allowance of the assessee's claim, these instructions were subsequently withdrawn by the Board's circular letter dated 27th October, 1972, based on the judgment of the Supreme Court in Indian Overseas Bank Ltd.'s case [1970] 77 ITR 512 and of the Gujarat High Court in the case of Surat Textile Mills Ltd. [1970] 80 ITR 1. Therefore, the assessee's claim that the development rebate should be allowed on the additional items on the basis of the Board's instructions is untenable as the Board's earlier instructions were later withdrawn." (vide para 11 of the order of the Tribunal in I.T.A. Nos. 816, 817, 841 and 842/Bang/72-73 dated 9-5-1974). The conclusion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment rebate reserve, it was not entitled to claim the allowance in question. The Supreme Court also observed that the entries in the account books were not idle formalities. Thus, the instructions of the Board set out above in so far as part (a) is concerned became inoperable. However, the position explained in parts (b) and (c) above were not specifically considered by the Supreme Court in that decision. Taking note of the decision of the Supreme Court in Indian Overseas Bank Ltd. [1970] 77 ITR 512, as well as a subsequent pronouncement of the Gujarat High Court in the case of Surat Textile Mills Ltd. [1971] 80 ITR 1, the Board had withdrawn in 1972 the aforesaid circular dated 14th October, 1965, to the extent it was superseded by the aforesaid Supreme Court decision and the judgment of the Gujarat High Court in Surat Textile Mills Ltd. [1971] 80 ITR 1 (Guj). 3. It was also directed that past assessments be reviewed and suitable action taken to retrieve loss of revenue including securing of necessary disallowances by way of enhancement, etc., in appeals relying on the aforesaid judicial pronouncements. It would appear that this has been interpreted by the field officers as h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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