TMI Blog2004 (8) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction was claimed in the subsequent assessment years also and up to assessment year 1995-96, the same stands allowed. In assessment year 1996-97, the Assessing Officer observed that assessee had purchased some old machinery which was added to the existing machinery and the total value of the old machinery with the addition of purchases in the previous year relevant to assessment year 1996-97 exceeded 20% of the total value of the machinery. The Assessing Officer was of the view that one of conditions for grant of deduction under section 80-I is that the value of the old machinery should not exceed 20 per cent of the total value of the machinery. Since that condition is not satisfied in assessment year 1996-97, deduction under section 80-I was denied to the assessee. In assessment year 1997-98 also, the Assessing Officer followed his decision for the assessment year 1996-97 and disallowed the claim of the assessee. 3. The CIT(A) decided the issue in favour of the revenue vide order dated 25-3-1999 relying upon the decisions of Delhi High Court Safdarjung Enclave Educational Society v. Municipal Corpn. of Delhi[1990] 181 ITR 154 and Kerala High Court CIT v. Seeyan Plwoods [199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be entitled to deduction in respect of the profits and gains of that year in which such conditions are satisfied. However, according to the ld. Counsel, the reverse is not true. It was further contended that in any case, it is an admitted fact that assessee had set up a new industrial undertaking and it had not been formed by transfer of old machinery the value of which exceeded 20% of the total value of the machinery. It was accordingly pleaded that the decision of the CIT(A) for the assessment year 1997-98 may be upheld and for the assessment year1996-97 the decision of the CIT(A) may be reversed and deduction allowed to the assessee. 7. The ld. D.R., on the other hand, contended that the Karnataka High Court in the case in 159 ITR 563 (sic) has laid down that the condition for grant of deduction under section 80 are to be satisfied for all the assessment years and in case the condition is not satisfied in any of the years, deduction under section 80-I will not be permissible in that year. In regard to the contentions advanced on behalf of the assessee that industrial undertaking was not formed by transfer of old machinery, the ld. D.R. contended that formation of indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n complied with. 9. The dispute, as already pointed out, is relating to the condition under sub-section (2)(ii) of section 80-I. A plain reading of the aforesaid provisions of the Act reveals that one of the conditions to be satisfied for grant of deduction under section 80-Iis that industrial undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose. However, as per Explanation 2, when the old machinery does not exceed20 per cent of the total value of the machinery or plant used in business, the condition specified above is deemed to have been complied with. In other words, if the industrial undertaking is formed by the transfer to a new business of machinery or plant previously used for any purpose, the value of which does not exceed20 per cent of the total value of the machinery, the condition specified under subsection (2)(ii) of section 80-I would stand satisfied. As already pointed out, for the assessment years 1991-92to 1995-96, the aforementioned condition was satisfied insofar as the assessee was held to be entitled to deduction and it is not even disputed that all the conditions laid down under section 80-I were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y transfer of building or material but one which can be held to have resulted in the formation of the new undertaking that results in the denial of the relief under section15C(1). Therefore, even if the new undertaking is established by transfer of building, plant or machinery but it is not formed as a result of such transfer, the assessee cannot be denied the benefit. The transfer, to take the new undertaking out of the purview of section 15C(1), must be such that, but for the transfer, the new undertaking would not have come into being. A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it. As per the above decision of the Supreme Court, the initial exercises should be to find out whether the undertaking was new. Once this test is satisfied, then clause should be applied reasonably and liberally keeping in view the spirit of 15C(i) of 1922 Act(corresponding to section 80-I of 1961 Act). In this case, assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof : (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :- (iii) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (iv) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (v) ** (vi) ** Explanation (2) - Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that new unit existed for five years without the old machinery establishes the fact that the new undertaking was not formed by the transfer of old machinery. The contention advanced on behalf of the revenue that formation in every case is a continuous process is not well founded. 10. In the final analysis, we, on the facts and in the circumstances of this case are of the view that the company had not been formed by the transfer of old machinery, the value of which exceeded 20% of the total value of the machinery and accordingly, the assessee was not disqualified from deduction under section 80-I merely because in assessment years 1996-97 and 1997-98 with the purchase of more machinery the value of the old machinery had exceeded the 20% limit. We reiterate for the sake of cleanly that the condition under section 80-I(2)(i) applies to the formation of the industrial undertaking and the mere transfer of old machinery not having effected the formation of the industrial undertaking is satisfied in this case. As held by their Lordships of the Supreme Court, mere transfer of old machinery is not enough for disqualification from deduction under section 15C of the 1922 Act (corresp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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