TMI Blog1972 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... 59 and 1959-60, corresponding to the accounting years ending 30th September of 1957 and 1958, respectively. The assessee-company was incorporated in October, 1952, with the object of carrying on the business of sale and manufacture of gelatine capsules, etc. It took on monthly lease a huge compound pertaining to and used for its business by Messrs. Pure Products Madhu Canning Ltd. on a monthly rent of Rs. 1,500. The factory of the assessee-company was located in the godown which was belonging to Messrs. Pure Products Madhu Canning Ltd. and it was used by the latter company as its godown for business purposes. Production was commenced by the assessee-company some time after August 1, 1954. For both the assessment years, the assessee-company claimed relief under section 15C of the Act. The relief asked for by the assessee-company was not granted by the Income-tax Officer. He took the view that the assessee-company was carrying on this business in a building which was transferred to it by Messrs. Pure Products Madhu Canning Ltd. and which was previously used by the latter company as a godown for its business purposes. In the appeal preferred by the assessee-company, the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Transfer of Property Act. Secondly, he contended that even if the word "transfer" is capable of being construed to mean a transfer by one person to another, it would apply only when there is a transfer of ownership of a building and not when rights other than those of ownership in a building are transferred. In any event, he submitted that in no event a creation of a monthly tenancy can be regarded as transfer within the meaning of the Act. Thirdly, his submission was that the creation of a monthly tenancy is not a lease and, even if lease is regarded as a transfer, creation of monthly tenancy cannot be regarded as transfer. Lastly, his submission was that the provisions of section 15C(2)(i) will only apply when the transfer of building therein referred to is essential for the formation of an industrial undertaking ; that the undertaking by the nature of its business must need a specific and particular type of a building and if the building is of such type, then alone can it be regarded as being essential for the formation of the industrial undertaking. Mr. Hajarnavis, on the other hand, on behalf of the revenue, contended that there was no warrant for restricting the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection is to encourage establishment of new industrial undertakings. The profits of the industrial undertaking to which the section applies are exempt from tax to the extent of 6 per cent. per annum on the capital employed in the undertaking. Rules have been framed for computing the capital employed. The scheme of the section is to encourage new industrial undertakings provided they fulfil the conditions mentioned in the various clauses of the sub-section. In order to be entitled to exemption an assessee must strictly come within the terms of the provisions under which such exemption is being claimed, but in construing the provisions of this section, one must construe the said section reasonably in the context of the purpose for which the section has been introduced. It is a well-settled canon of construction that the provision relating to exemption must as far as possible be, liberally construed and in favour of the assessee provided in doing so no violence was being done to the language used. See Commissioner of Income-tax v. Gaekzwar Foam and Rubber Co. at page 673. Question that arises for consideration depends upon the proper construction of the provisions of clause (i) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent statutes depending on the context. In a broad sense, it will certainly include an acquisition of an asset by one person from whatever source. But the scheme of the section indicates that what is being aimed at is to prevent exemption to those industrial undertakings which are formed by the splitting up or by reconstruction or by transfer to a new business of plant or machinery of the old business. The transfer, in our opinion, in this context, must mean a transfer of plant which is essential for the formation of new industrial undertaking and that must again mean a transfer to the new business of the transferee of any machinery used by the said transferee in his old business. " Undoubtedly, these observations go to support the contention urged by Mr. Dastur. The whole basis of his argument is that in clause (i) of sub-section (2) reference has been made to the formation of an industrial undertaking in three different manners : (1) by splitting up; (2) by the reconstruction of the business already in existence ; and (3) by the transfer to a new business of building, machinery or plant previously used in any other business. The argument on behalf of the assessee was that each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as referred to therein to the act of the transferor alone to his own new business. The expression is used in its ordinary meaning and covers the case of such a person as also another person purchasing building, machinery or plant for setting up his own new business in the shape of an industrial undertaking. Clause (i) of sub-section (2) of section 15C first refers to splitting up of an industrial undertaking which can be : (i) by its owner for the time being under his own control, (ii) by its owner by the disposal of a part of his industrial undertaking to another person. Similar result can follow also in the reconstruction of an already existing business. The position is not different so far as the third part referring to 'the transfer to a new business of building, machinery or plant previously used in any other business' is concerned. There is no justification for confining this part to the owner as transferring to a new business any building, plant or machinery previously used by him in his any other business. He may do that. The same result may come about by another person making a purchase of the previously used building, machinery or plant in the business of the vendor, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le dealing with this contention this court tried to analyse what reconstruction of a business or an industrial undertaking means. As observed at page 669 the reconstruction of a business or an industrial undertaking must necessarily involve the concept that the original business or undertaking is not to cease functioning and its identity is not to be lost or abandoned. The concept essentially rests on changes but the changes must be constructive and not destructive. There must be something positive about the whole matter as opposed to negative. The underlying idea of a reconstruction evidently must be--and this is brought out by the section itself--of a business already in existence. There must be a continuation of the activities and business of the same industrial undertaking. The undertaking must continue to carry on the same business though in some altered or varied form. If the alterations and changes are substantial, there would be little scope for describing what emerges as a re-construction of the business. Thus, for instance, if the ownership of a business or an undertaking changes hands not ostensibly, but in reality and effectively, that would not be reconstruction or if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Transfer of Property Act are sale, mortgage, lease, gift and exchange. In the case of sale, gift and exchange there may be complete transfer of ownership. But in the other two cases di transfers, namely, mortgage or lease, the entire bundle of rights that go to constitute ownership are not transferred but some limited rights or interest in or to the property are transferred. Even in the case of mortgage or lease of immovable property, it is well-settled that it isa transfer of property. The words "transfer to a new business of building" cannot, therefore, be restricted to a case "where full rights of ownership are transferred", but they will be wide enough to include within their scope cases where even rights or interest to or in such building is created. A lease of an immovable property as defined under the Transfer of Property Act is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money. The consideration under this definition may also take the shape of a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding taken on rent or lease and that intention was made clear by way of abundant caution when provisions were made under section 80J(4)(ii). If regard be had to the history of legislation in relation to the relief in respect of profits and gains of industrial undertakings or ships or hotel business, the contention does not appear to be well-founded. In the provisions of clause (i) of sub-section (2) of section 15C, as applicable to the relevent assessment years, after the word "building", the words "not being a building taken on rent or lease" are not to be found. When the Income-tax Act, 1961, was initially enacted provision for reliefs in respect of newly established industrial undertakings or hotel was introduced in section 84. Sub-section (1) of this section provided for relief to be granted to the extent of six per cent. per annum on the capital employed in the undertaking or hotel, computed in the prescribed manner. Sub-section (2) thereof provided for the industrial undertakings to which the provisions of sub-section (1) were applicable. One of the conditions to be fulfilled by the industrial undertaking was that it is not formed by the transfer to a new business of a buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng (not being a building taken on rent or lease), machinery or plant previously used for any purpose. By using the words "not being a building taken on rent or lease", a modification was intended to be made by the legislature in respect of cases covered by clause (i) of sub-section (2) of section 15C of the Indian Income-tax Act, 1922. Undoubtedly, as the section stood, it worked hardship. If the building was taken on licence, then there was no transfer of building and in such a case an industrial undertaking, though it may be liable to pay compensation, will not be deprived of the relief granted by sub-section (1) of section 15C. However, if a right or interest therein in the nature of a tenancy right was created, the relief granted by sub-section (1) was taken away. In section 80J when conditions are prescribed by sub-section (6)(c) in respect of business of a hotel for application of the provisions of sub-section (1) it is, inter alia, provided that the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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