TMI Blog1971 (3) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,10,00,000 under section 15C of the Indian Income-tax Act, 1922 ? " Reference No. 1 relates to assessment year 1959-60 whereas Reference No. 17 pertains to assessment years 1960-61, 1961-62 and 1957-58. The assessee in these references is Ganga Sugar Corporation Ltd. and the learned counsel for the parties are agreed that the decision in reference No. 1 of 1967 would also cover the question which is the subject-matter of the other reference. In the circumstances, we may deal with the facts as given in Reference No. 1. The assessee-company carries on the business of manufacturing sugar. At the time of its incorporation in 1934, it installed a complete plant for manufacturing sugar, having a daily crushing capacity of 400 tons of sugarcane. The said plant was operated by steam engine. During the coarse of the years the assessee-company made additions and alterations in the said plant, as a result of which the crushing capacity was increased to 1,050 tons of sugarcane per day by 1955. In the assessment year 1957-58, the assessee-company installed a new plant for manufacturing sugar with a daily crushing capacity of 4,000 tons of sugarcane. The new plant is operated by electricit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total value of Rs. 3,62,853, which were stated to have been used for the benefit of the new unit also. The Tribunal held that the common use of certain articles by two distinct industrial undertakings did not deprive them of their distinct identity. As regards the contention of the revenue that parts worth Rs. 1,56,352 of the old factory had been used in the construction of the new unit, the Tribunal held that the use of some parts of the old unit in the construction of the new unit would not bring the case within the ambit of clause (i) of sub-section (2) of section 15C of the Act. The assessee-company was held entitled by the Tribunal to the benefit of the exemption under section 15C of the Act. At the instance of the revenue, the question reproduced above was thereafter referred to this court. Before dealing with the contention advanced in this case, it may be pertinent to reproduce sub-sections (1) and (2) of section 15C of the Act : " (1) Save as otherwise hereinafter provided, the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking or hotel to which this section applies as do not exceed six per cent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply and the exemption cannot be claimed by an assesssee if the industrial undertaking is formed : (a) by the splitting up of the business already in existence ; or (b) by reconstruction of business already in existence ; or (c) by the transfer to a new business of building, machinery or plant previously used in any other business. As stated above, it is nobody's case that there has been any splitting up of the business already in existence so as to attract clause (a). The important question which arises for determination is whether the industrial undertaking in question was formed by the reconstruction of business already in existence, as contended by the revenue. The word " reconstruction " is a commercial term used in company law and has been distinguished from " amalgamation ". By a reconstruction a company transfers its assets to a new company in consideration of the issue of the new company's shares to the first company's members, and if the first company's debentures are not paid off, in further consideration of the new company issuing debentures to the first company's debenture holders. The result of the transaction is that the new company has the same assets, members an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be taken over. You have to see whether substantially the same persons carry on the same business ; and if they do, that, I conceive, is a reconstruction. " The above observations, as already pointed out, were in the context of a reconstruction of a company while the words used in clause (i) of sub-section (2) of section 15C of the Act relate to reconstruction of business. A Division Bench (S. T. Desai and K. T. Desai JJ.) of the Bombay High Court held in the case of Commissioner of Income-tax v. Gaekwar Foam and Rubber Co. Ltd. that though the above observations of Buckley J. were in the context of reconstruction of a company, they were equally illuminating for determining the scope of reconstruction of a business already in existence. The learned judges further observed : " 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 underl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies who had not already set up such undertakings in the past but would not be extended to parties who have past experience of running similar undertakings. Coming to the facts of the present case, we find that the total cost of the installation of the new unit by the assessee-company was of the order of Rs. 1,10,00,000. The old unit of the assessee-company had a crushing capacity of 1,050 tons of sugarcane per day and it was operated by a steam engine. The new unit had a daily crushing capacity of 4,000 tons of sugarcane and it was operated by electricity. In the assessment year 1957-58 both the old as well as the new unit were running simultaneously. In the circumstances the new unit should, in our opinion, be held to be distinct and separate from the old unit and not a continuation of the old unit. The fact that scrap and material out of the old unit was used in the construction of the new factory, in our opinion, would not make any material difference because the value of such scrap and material was only about 1% of the cost of the new unit. It cannot, on the facts of the present case, be said that the industrial undertaking represented by the new unit of the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w industrial undertaking in the present case cannot be said to have been formed by the transfer to a new business of building, machinery or plant previously used in any other business. Reference has been made on behalf of the revenue to a decision of this court in Commissioner of Income-tax v. Naya Sahitya, I.T.R. No. 5 of 1967, decided on March 15, 1971. The assessee in that case was carrying on business of publishing books. Prior to 1961-62, the assessee got its books printed in some other printing press. During the assessment year 1961-62, the assessee started printing books in its own printing press. The question referred to the court was whether, on the facts and in the circumstances of the case, the assessee's business of printing and publishing books was a newly established industrial undertaking entitled to exemption under section 15C of the Act. A Division Bench of this court (Hardy and Ansari JJ.) took note of the fact that the only change that took place in the assessment year in question was that instead of getting its books printed in some other printing press, the assessee got the books printed in its own printing press. The court held that it was not altogether a n ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
