TMI Blog1991 (2) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer, by his order dated January 30, 1980, held that the assessee is not entitled to the deductions claimed under sections 80HH and 80J of the Act. The Commissioner of Income-tax (Appeals), by order dated September 30, 1983, affirmed the said disallowance ; but, in second appeal, the Tribunal held that the assessee is entitled to claim relief under sections 80HH and 80J of the Income-tax Act for the relevant assessment year. It is thereafter at the instance of the Revenue that the question of law, formulated hereinabove, has been referred by the Tribunal for the decision of this court. We heard counsel for the Revenue, Mr. P. K. R. Menon, and also counsel for the respondent-assessee, Mr. S. A. Nagendran and Mr. Premjit. The respondent-assessee started an industrial undertaking in 1974. The claim of deduction under section 80J of the Income-tax Act was allowed in respect of the undertaking for the assessment years 1975-76 and 1976-77. Subsequently, the Income-tax Officer initiated proceedings under section 147 of the Act and held that the assessee was not entitled to the deductions on the ground that the cost of old machinery used in the undertaking exceeded 20% of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year): Provided that in relation to the profits and gains derived by an assessee, being a company, from an industrial undertaking which begins to manufacture or produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976, or from a ship which is first brought into use after that date, or from the business of a hotel which starts functioning, after that date, the provisions of this sub-section shall have effect as if for the words 'six per cent.' the words 'seven and a half per cent.' had been substituted. (2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or to operate its cold storage plant or plants or the ship is first brought into u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t possible to interpret the conditions which have been laid down in section 15C and which were subsequently laid down by section 84, sub-section (4)." The plea of the Revenue, put forward before us, is that, if the assessee was not entitled to deduction under sections 80HH and 80J of the Act in the year in which the industrial undertaking was started, the assessee will not be eligible for the deduction in the subsequent years, even if the value of the old machinery in the subsequent years does not exceed 20% of the total value of the machinery. In other words, the test or qualification as to whether the assessee is entitled to deduction under sections 80HH or 80J of the Act should be fixed with reference to the initial year of the new industrial undertaking and, in the subsequent years, the quantifying base alone is changed. It was argued that section 80J(1) and sub-section (4), clause (ii) read with the Explanation refers to the "formation" of the business and if in the year of formation of the business that is in the year in which the industrial undertaking was started, the deduction is not avail' able, in the subsequent years, the above provisions will not apply. This plea was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not exceed 20% for the year under consideration. The assessee has been purchasing new machinery year after year. The assessee has also purchased a small quantity of old machinery in these years. The position as in 1977-78 assessment year was that the value of the old machinery and plant came to less than 20% of the total value of the machinery and plant purchased until that year. Counsel, therefore, contended that this position should be taken into account in granting relief under sections 80J and 80HH." The above plea was disposed of in paragraph 4 of the order dated July 25,1986, as follows : "There is nothing in the language of the relevant provisions of section 80J which impose a further limitation, namely, that if the conditions so laid down are not satisfied in the very year of commencement of production, manufacture, etc., the benefit of tax holiday will not be available, even if such conditions are satisfied in the course of any of the subsequent years, forming part of the tax holiday period. This view is supported by the decision of the Gujarat High Court in the case of CIT v. Suessin Textile Bearing Ltd. [1982] 135 ITR 443. Since it is an admitted fact that the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Counsel for the assessee submitted that, the decision of the Gujarat High Court in Satellite Engineering Ltd.'s case [1978] 113 ITR 2008, as also the later decision of the Gujarat High Court in Suessin Textile Bearing Ltd.'s case [1982] 135 ITR 443 may commend itself to us and the decision of the Tribunal is in accord with the Gujarat decisions aforesaid. We considered the above rival pleas urged before us. We should state that section 15C of the Indian Income-tax Act, 1922, and section 84, Explanation to sub-section (3) thereto, and section 80J of the Income-tax Act are substantially similar. In Satellite Engineering Ltd.'s case [1978] 113 ITR 208, 215 (Guj), the legislative intent behind the enactment of the said provisions is stated thus : ". . . the legislative intent behind the enactment of this provision was to provide what is conveniently and aptly called a 'tax holiday' to a newly established industrial undertaking. The section is an exemption section and it grants certain partial benefit so far as the profits of a new industrial undertaking are concerned for a limited period. The principal object of the provision, as observed in Textile Machinery Corporation's ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking, which claims the benefit of tax holiday, satisfies the conditions laid down in clause (ii) of sub-section (2). In other words, according to the legislative scheme, it is apparent that in each assessment year commencing from the assessment year relevant to the previous year in which such new industrial undertaking begins manufacture or production the taxing authority will have to consider whether the industrial undertaking was formed by the transfer to its new business of building, machinery or plant previously used for any purpose, and, if so, whether the total value of such transferred asset exceeded 20% of the total value of the building, machinery or plant used in the business of such undertaking during the relevant year. If the new industrial undertaking, which has not satisfied such test in any one of the earlier assessment years comprised in the five-year period, acquires new building, machinery or plant during any one of the succeeding assessment Years and as a result of such acquisition the condition prescribed in clause (ii) of sub-section (2) is fulfilled, then, as from the assessment year in which such condition is satisfied, the benefit of tax h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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