TMI Blog1996 (7) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and machinery of the said industrial undertaking previously run by Arasan Splints and Veneers Factory and carried on manufacturing of splints and veneers. The assessee claimed continuation of relief under section 80J of the Act for the fourth year, which was rejected by the Income-tax Officer on the ground that the assessee could not be said to be the owner of the industrial undertaking and had not invested any capital, and, therefore, it is not entitled to the said relief. However, on appeal the Commissioner of Income-tax (Appeals) accepted the claim made by the assessee on the basis of a circular issued by the C. B. D. T (Circular Letter F. No. 15/5/63-IT(AI) dated December 12, 1963), wherein the benefit under section 84 of the Act, which corresponds to section 80J of the Act was granted even to a successor to the business for the unexpired period of five years. The Commissioner of Income-tax (Appeals) also relied upon a decision of the Madras High Court in Madras Machine Tools Manufacturers Ltd. v. CIT [1975] 98 ITR 119, wherein distinction between a company and an undertaking was made. Aggrieved by the order passed by the Commissioner of Income-tax (Appeals), the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. It was, therefore, pleaded that the Tribunal was not correct in denying the benefit under section 80J the Act for the balance period to the assessee. On the other hand, learned standing counsel appearing for the Department, submitted that the assessee is not the owner of the new industrial undertaking. The assessee has not employed the capital for establishing the new industrial undertaking. The assessee is not a successor. Therefore, the assessee cannot claim the benefit under section 80J of the Act for the balance period. According to learned standing counsel in view of the provisions contained in section 80J(4)(ii) of the Act, inasmuch as the assessee claimed benefit under section 80J of the Act on the transferred asset, the assessee is not entitled to the benefit under section 80J of the Act for the unexpired period. According to standing counsel that since the assessee is not the successor, it cannot claim the benefit of the circular issued by the C. B. D. T. It was further submitted that if the benefit under section 80J of the Act is granted to the assessee for the balance period, that would complicate the matter in adjusting deficiency or any part thereof, to be carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961? While answering this question, the Kerala High Court held that the fact that the assessee was a new company was irrelevant. The cashew factories which were taken over by the assessee existed as the undertakings of businesses already in existence. The change of hands of the industrial undertaking did not make it a newly established one for purposes of section 80J. It was further held that the benefit of section 80J is allowed only for the first five years after the industrial undertaking begins to manufacture or produce articles. What is important is the beginning of manufacture or production of articles in the industrial undertaking and not by a particular assessee. In the case of old units taken over by an assessee, as in this case where the cashew factories in question had been in existence for decades, the manufacture or production of articles by the industrial undertaking had begun long back and, therefore, the five year period mentioned in sub-section (2) had also expired long ago. Such an undertaking could not avail of the deduction under section 80J as the period of five years has to be reckoned from the date of commencement of manufacture or production and not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building in which the promoter company had carried on its business, but the part played by the lease was not dominant to the formation of the new undertaking, the appellant was entitled to the relief under section 15C in relation to the new undertaking." It was further held "that it is not correct to say that the transfer of a building to the new business to disentitle the new undertaking to relief should have been the transfer of a building of the assessee only. The words 'previously used in any other business' should not be construed so narrowly as to confine it to a building of the assessee only." It was further held "that 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". Even according to the facts arising in this case, the assessee claimed benefit under section 15C of the Act on a newly started industrial undertaking, which is not the case of the assessee before us. It is no doubt true that the provision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking will then qualify for the purpose of calculating the deduction. In the abovesaid case also the assessee claimed the benefit under section 80J on establishing a new industrial undertaking, which is not the case here. Reliance was also placed upon the decision of the Karnataka High Court in Khoday Industries P. Ltd. v. CIT [1987] 163 ITR 646. According to the facts arising in that case a partnership firm was carrying on business in the manufacture of Indian made foreign liquors, gem clips, and pins, carbon papers, typewriting ribbons, stamp pads, inks, etc., an engineering workshop and silk and twisting of silk yarn. Under an agreement between the firm and the assessee, the assessee acquired those business undertakings which were carried on by the firm except the business in silk and twisting of silk yarn. For the relevant assessment year, the assessee claimed relief under section 80J. On these facts, a question arose whether the Income-tax Appellate Tribunal was justified in law in denying the deduction under section 80J of the Act to the assessee-company? While answering this question, the Karnataka High Court held that the benefit of section 80J is allowable only to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture does not fulfil the requirements of section 84 of the Act and, as such, the assessee is not entitled to rebate thereunder. Thus, it is clear that in the abovesaid decision the assessee after having acquired the plant and machinery used by some other entity, had started a new industrial undertaking and claimed benefit under section 84 of the Act for the first time. Since the undertaking was not a newly established one, the benefit under section 84 of the Act was denied. But in the instant case the assessee is not claiming the benefit under section 80J of the Act for the first time. What the assessee claimed was the benefit under section 80J of the Act for the unexpired period. Therefore, the abovesaid decision of the Bombay High Court is also distinguishable on facts. Lastly, the decision of the Bombay High Court in CIT v. Tyresoles Concessionaries Pvt. Ltd. [1995] 213 ITR 660, was brought to our notice. According to the facts arising in that case, the assessee was a limited company, engaged in the business of retreading tyres. Pursuant to a scheme of an amalgamation, an associate concern of the assessee, BB, carrying on business in cargo in barges, merged with the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee submitted that the benefit available to the successor may be extended to the lessee also. But it is not possible to do so, because successor and the lessee are not one and the same, because in the case of a lease the ownership still vests with the lessor. Learned counsel appearing for the assessee contended that a plain reading of section 80J of the Act would go to show that the assessee is not liable to prove that it is the owner of the new industrial undertaking and the capital should be employed as a condition precedent for obtaining benefit under section 80J of the Act. It remains to be seen that benefit under section 80J of the Act is conferred with regard to a new industrial undertaking established for the first time. In the present case, the assessee has not claimed benefit under section 80J of the Act for the initial period. Therefore, the abovesaid contention put forward by the assessee would become untenable. Unless the assessee who claims benefit under section 80J of the Act for the unexpired period establishes that it is the successor of its lessor, and it fulfils all necessary conditions in each year, it cannot claim the benefit under section 80J of the Act for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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