TMI Blog1983 (9) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... % was of the machinery taken on lease from Messrs. Rubber Products Company, Coimbatore, which had used these machineries previously in its own business. According to the ITO, the assessee was not entitled to any relief at all under that section in respect of the profits in respect of the Rubber Reclamation Division. For the same reason, he disallowed the relief claimed by the assessee in the original assessment dated September 2, 1969, for the year 1967-68. The assessee appealed to the AAC who found that the Rubber Reclamation Division was formed along with the Chain Division during 1960, that the land was purchased on November 9, 1959, that the construction of the building was started in 1961, and completed stage by stage, that the application for electricity was made on September 1, 1960, that the transformer was energised on February 21, 1962, that the letter from the assessee to the Superintending Engineer also indicated that the factory had commenced production with effect from August 1, 1962, that some of the machineries had been purchased on June 25, 1962, September 26, 1962 December 12, 1962, and December 30, 1962, and that the formal inauguration had also been done on F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed manner. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely: (i) it is not formed by the splitting up, or the reconstruction, of business already in existence; (ii) it is not formed by the transfer to a new business of a building, machinery or plant previously used for any purpose..." Sub-s. (1) of s. 84 gives certain benefits to newly established industrial undertakings, and sub-s. (2) says that that benefit will be applied only to an industrial undertaking which fulfils the conditions set out therein. Clause (i) of sub-s. (2) says that for claiming the benefit of sub-s. (1), the new industrial undertaking should not have been formed by the splitting up or reconstruction of a business already in existence, and clause (ii) says that the new industrial undertaking should not have been formed by the transfer to new business of a building, machinery or plant previously used for any purpose. The main question that was canvassed before the Tribunal by the Revenue was that the Rubber Reclamation Division was formed by the transfer of machinery which has been previously used for extraction of rubber by another as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, are merely initial stages towards the setting up, however necessary and essential they may be, to further the achievement of the end, that the actual functioning of the factory or its going into production cannot alone be taken as setting up of the factory, and that the setting up is a stage anterior to the commencement of the factory, and that, therefore, the proper meaning of the expression " setting up " would be " ready to commence business ". The above decision was the subject matter of appeal before the Supreme Court in CWT v. Ramaraju Surgical Cotton Mills Ltd. [1 967] 63 ITR 478 and the Supreme Court had held in that case that the unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up, that it is only when the unit has been put into such a shape that it can start functioning as a business or a manufacturing Organisation that it can be said that the unit has been set up and that the operations for the establishment of a unit, from the very nature of that expression used in the proviso to s. 5(1)(xxi) of the W.T. Act, can only signify steps that have to be taken to establish the unit. Therefore, the applicability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... took the view that the mere fact that the new company has been inaugurated will not show that it is ready to commence production and that even the supply of electrical energy by the Madras State Electricity Board cannot be taken to be a conclusive proof to show as to when the company was formed. But the Tribunal, however, took the view that the necessary machinery could have been installed subsequent to April 1, 1963, and that it is impossible to state that the new undertaking was formed before April 1, 1963. The assessee is aggrieved against the said finding of the Tribunal. In this case, the facts as found by the Tribunal are these: The unit is a Rubber Reclamation Unit. The vital machine is the rubber reclaiming machine. Unless that machine is set up, it is impossible to say that the unit is ready to commence the production of rubber, that the invoice issued by the foreign firm for the supply of the said machinery is dated December 12, 1962. But there is no evidence as to when the machinery landed in India and when the same was installed in the assessee's Rubber Reclamation Unit. The Tribunal, on these facts, held that the rubber reclaiming machine would have been installed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company was only after April 1, 1963, and in this case, as there was a transfer of the machinery to the new unit by Rubber Products Company of Coimbatore on April 1, 1963, it should be taken to be in the process of formation of the company and not after its formation. As already stated, if the transfer of the machinery has been in the process of the formation of the company, then the relief under s. 84(1) will not be available to the assessee in view of clause (ii) of sub-s. (2). In this case, the assessee having been held to have acquired the machinery on lease while forming the undertaking, it cannot claim the benefit, because of clause (ii) of sub-s. (2) of s. 84. Then we come to the question as to the scope of the expression " transfer " occurring in sub-s. (2)(ii) extracted above. According to the learned counsel for the assessee, the expression " transfer " occurring in the said clause will not include a lease, that the expression " transfer " in the context can only mean an absolute transfer such as a conveyance by sale, etc., and that the said expression should be understood in a restricted sense. It has been held in Capsulation Services Pvt. Ltd. v. CIT [1973] 91 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (47). That court has referred to an earlier decision of the Supreme Court in Alapati Venkataramiah v. CIT [1965] 57 ITR 185, wherein the court has observed as follows (p. 192): " Before section 12B can be attracted, title must pass to the company by any of the modes mentioned in section 12B, i.e., sale, exchange or transfer. It is true that the word 'transfer' is used in addition to the word 'sale', but even so, in the context, transfer must mean effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property. " On the basis of the above decisions, we are not in a position to restrict the meaning of the word "transfer" occurring in clause (ii) of sub-s. (2 ) of s. 84. The object of enacting sub-s. (2) of s. 84 will be frustrated if lease or mortgages are excluded from the definition of " transfer ". The new undertaking by taking over the used machinery under a mortgage or under a lease for a long period while forming the new company, will escape the bar contained in s. 84(2), while the new undertaking which is being formed by purchase of the machinery whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for computing the capital employed in cases to which the Explanation to section 84 applies. (2) Where the price of any asset has been satisfied otherwise than in cash, then the value of the consideration actually given for the asset shall be treated as the price at which the asset was acquired. (3) Any borrowed money and debt due by the person carrying on the business shall be deducted and in particular there shall be deducted any debts incurred in respect of the business for tax (including advance tax) due under any provision of the Act." It is no doubt true that sub-rule (1) of rule 19 refers to an acquisition by purchase. But the Explanation to that sub-rule refers to the transfer of any building, machinery or plant to the new undertaking. It is no doubt true that this makes a distinction between an acquisition by purchase and other transfers. According to the learned counsel for the Revenue, since the acquisition by purchase has been specifically referred to as one mode of transfer, the expression " transfer " occurring subsequently has to be understood restrictively taking note of the context in which it is used. But such a construction is not possible while constr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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