1971 (11) TMI 11 - HC - Income Tax

Rebate - industrial undertaking - new factory was set-up by splitting up of the business already in existence - interpretation of section 84 of the Income-tax Act 1961 which was deleted by the Finance (No. 2) Act 1967 with effect from the 1st April 1968 claim for exemption under section 84(1) of Income-tax Act 1961 is not accepted

Summary

Issues: Interpretation of section 84 of the Income-tax Act, 1961 regarding eligibility for relief under the Act.

The judgment delivered by the High Court of Kerala, addressed the interpretation of section 84 of the Income-tax Act, 1961, specifically focusing on the eligibility for relief under the Act. The case involved an assessee, a public limited company owning tea and coffee plantations, claiming rebate under section 84(1) for profits from a newly established factory. The Income-tax Officer disallowed the claim, stating that the new factory was formed by splitting up an existing business, hence not eligible for concession under section 84(1). The Appellate Assistant Commissioner concurred, viewing the new factory as an extension of the existing business without a new business coming into existence. The Tribunal also held that the new factory was formed by splitting up an existing business, falling under section 84(2)(i).

The court analyzed the relevant provisions of section 84, emphasizing that the concession was intended to encourage new industrial undertakings by providing relief to the assessee in computing total income. It was noted that the exemption under section 84 applied only to profits derived from an industrial undertaking, excluding profits from other business activities. The nature of an industrial undertaking, as defined in section 84(2), needed to be established by the assessee to claim the benefit, following a strict interpretation as seen in previous judgments.

The court deliberated on the term "newly established industrial undertakings," highlighting that the absence of the exact phrase in the section did not alter its interpretation. Referring to precedents, the court addressed the argument that a newly established industrial undertaking should serve a purpose distinct from the existing business. While not delving into extreme propositions, the court concluded that the new factory in question was formed by splitting up an existing business, rendering the assessee ineligible for the exemption under section 84(1) read with section 84(2)(i). Consequently, the court answered the reference question in the affirmative, favoring the department over the assessee. No costs were awarded, and a copy of the judgment was to be sent to the Income-tax Appellate Tribunal, Cochin Bench.

In essence, the judgment provided a detailed analysis of the eligibility criteria under section 84 of the Income-tax Act, 1961, emphasizing the importance of establishing a new industrial undertaking to claim the prescribed benefits and clarifying the interpretation of relevant provisions in light of the case at hand.