TMI Blog1993 (4) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... he year 1971-72, of which two were purchased outright and the rest taken on lease from the owners for periods ranging from two to five years. The balance-sheet of the assessee showed as its assets only the buildings, sheds and machinery in the two concerns purchased besides additions made by way of new machinery. The substantial part of the assets by way of buildings and machinery taken on lease was not reflected in the balance-sheet. In the assessment for the year 1972-73, the assessee claimed deduction under section 80J as if it were a newly established industrial under taking. The Income-tax Officer declined the deduction on two grounds : firstly, on the ground that it was not an industrial undertaking manufacturing or producing articles, but one merely processing cashew nuts by roasting, shelling and peeling ; secondly, on the ground that the assessee was using only buildings, machinery and plant which had previously been used by others. No new machinery or plant had been set up, nor were any new buildings put up, attracting the application of section 80J. For the year 1973-74, the claim was negatived stating that the assessee had not earned any positive income during the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was followed and applied in the years 1973-74 and 1974-75. When the appeal for 1975-76 came up before the Tribunal, the assessee placed considerable reliance on the Explanation to section 80J (the non-applicability of which had been conceded in 1972-73 (as recorded by the Tribunal) and followed in the next two years), contending that the total value of the building, machinery and plant had to be computed ignoring the value of the buildings taken on lease, and if so computed, the value of the machinery and plant transferred to the new business will not exceed 20 per cent. of the value of the building, machinery and plant used for the business of the industrial undertaking. The Tribunal did not find its way to accept this new contention raised by the assessee in the view that they took that the value of the buildings taken on lease also came into the reckoning for purposes of the Explanation. In all other respects, the Tribunal followed its decision for the year 1972-73. It is on these findings that the question mentioned earlier has been referred to this court under section 256(2). Section 80J, which had a predecessor in section 84 of the Act, provides for a deduction of six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted is to encourage the establishment of new industries in the country. The heading of the section refers to "newly established industrial undertakings", and the conditions laid down by sub-section (4) for the applicability of the section emphasise the newly established nature of the undertaking. It is true that the term "newly established" does not occur in the body of the section, but it is implicit in its very object and purpose. A necessary corollary of this is that the undertaking itself must be a newly established one, and not that it is a new undertaking to the person acquiring the same from another. The emphasis is on the establishment of the undertaking and not on the person who acquires it afterwards. Otherwise, an undertaking having enjoyed the special deduction can continue to claim the deduction virtually for all time to come by mere change of hands, which is not the object or purpose of the provision. (See in this connection Khoday Industries P. Ltd. v. CIT [1987] 163 ITR 646 (Kar)). We have referred to this aspect even at the threshold because of the assessee's contention that what is contemplated by the section is only a venture employing fresh capital by new entre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, or by the transfer to a new business of building (not being a building taken on rent or lease) machinery or plant previously used for any purpose, it will not be eligible for the deduction. The non-fulfilment of either of these two conditions (among others) is sufficient to deprive the assessee of the benefit of the section. There is no dispute in this case that existing cashew factories were taken over by the assessee with all their staff, building, machinery and plant. One of the conditions to be fulfilled for purposes of section 80J is that prescribed in clause (ii) of subsection (4), namely, that the industrial undertaking is not one formed by the transfer to a new business of building, machinery or plant previously used for any purpose. Counsel for the petitioner urges that the taking over of a unit on lease is not hit by this condition as, according to him, a lease is not "transfer" for purposes of the section. He relies on the decision of the Andhra Pradesh High Court in Ghanshyamdas Kishan Chander v. CIT[1980] 121 ITR 121, where, in relation to an assessment to capital gains, the Bench held that, unless the entire interest in the property was transferred or assigne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion of the cases on the point, the learned judges held that "transfer" in the section cannot be restricted to cases where the full rights of ownership were transferred and that it will include transfer of limited rights or interests as well. Thus a transfer effected by creation of lease of a building in favour of a new business or the person carrying on a new business was one within the purview of section 84(2)(ii). It was further held that it was not necessary that the building transferred must have been used previously by the assessee himself in any other business of his ; a building earlier used for business by a stranger would also come within the ambit of the section. Thus where the assessee set up a new industrial undertaking in a building taken on lease from another company which had been using it for its business, the transfer fell within the purview of section 84(2)(ii). We need not multiply authorities except to refer to the recent decision of the Supreme Court in Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188, where the court proceeded on the premise that an assessee taking lease of a building in which the promoter had carried on business was not covered by section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over on transfer will be less than 20 per cent. of the building, machinery and plant used in the business.This point had not been urged for the years 1972-73, 1973-74 and 1974-75 and, therefore, does not arise for consideration for those years. In fact, it was conceded before the Tribunal when the appeal for 1972-73 was heard that the Explanation was not applicable. It was so recorded by the Tribunal. This decision was followed without any further claim for the years 1973-74 and 1974-75. Though counsel for the assessee attempts to argue that the record made by the Tribunal as to what happened before it is not correct, he cannot be allowed to do so in the light of the decisions of the Supreme Court in State of Maharashtra v. Ramdas Shrinivas Nayak, AIR 1982 SC 1249 and of this court in Nagarajan and Co. v. State of Kerala [1986] KLT 1231. The only contention urged during these years related to the main part of the section as to whether the industrial undertaking was one formed by transfer or not, and whether it was one formed by the reconstruction of an existing business or otherwise. The factual foundation for invoking the Explanation has not been laid by the assessee during these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation. The aforesaid findings of ours are sufficient to negative the assessee's claims for deduction under section 80J, as the four conditions specified in sub-section (4) are cumulative and each one of them has to be fulfilled for the assessee to get the benefit of the section. However, we shall briefly advert to the question of reconstruction arising under sub-clause (i) of subsection (4) though it is really unnecessary to render a decision on the point in view of our finding that the industrial undertaking does not satisfy clause (ii) of sub-section (4). Reconstruction is the rejuvenation or rehabilitation of an existing undertaking. The original business or undertaking continues to exist without its identity being lost. The existing business does not become extinct. On the other hand, if the new business has a new identity or independent existence, distinct and different from the existing business, it qualifies for the relief under the section without being hit by clause (i) of sub-section (4). (See CIT v. Travancore Rayons Ltd. [1987] 164 ITR 134 (Ker) and Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC)). In the latter case, the Supreme Court sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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