TMI Blog2008 (2) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture or produce the articles or things in its own right and consequently derives the profits or gains therefrom. In our view, a unit qualifies to be called an 'undertaking' when it undertakes the production or manufacture of articles or things in its own right and produces such articles or things by itself as a separate and independent unit. It should not only be a separate and independent unit but a well integrated unit capable of undertaking the manufacturing or production of articles or things. As held in Textile Machinery Corporation Ltd.'s case [ 1977 (1) TMI 3 - SUPREME COURT] , an undertaking claiming deduction must be a new integrated unit by itself where articles or things are manufactured or produced. The findings recorded by the learned CIT(A) that the unit in question is separately and independently engaged in the production of capsules on its own have not been shown to be incorrect or based on no material. It is also not in dispute that each undertaking has not only produced the capsules but also derived the profits and gains from them. The Department has also not rebutted the assessee's submission that it has treated each undertaking as separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) Without prejudice to the above and on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that it is legally permissible and factually possible for the same company to have a number of undertaking and the fact of having a common licence for the company/factory cannot detract the independent and separate existence of the undertakings functioning under one and the same company. (v) Without prejudice to the above and on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that even though the electricity bill have been discharged together and there are some common brief manufacturing and post-manufacturing activities the same is not germane to the issue of granting deduction under section 80-I/80-IA of the Act." 4. Briefly stated, the facts of the case are that the assessee has been engaged in the business of production of empty hard gelatine capsules and their sale to the pharmaceutical companies since 1960. The manufacturing activities are carried out by the assessee with the help of capsule manufacturing machines. Commensurate with the growth of the business, the assessee kept on adding new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief that Undertaking Nos. IT and ill could not be regarded as separate and independent undertakings for the purpose of relief under sections 80-I and 80-IA and accordingly, denied the relief claimed by the assessee. The Assessing Officer has given, in brief, the following reasons to support his conclusion:- (i) The machines involved in the manufacturing of capsules in all the undertakings/departments are located in the same building. (ii) The source of power for all the units is one in as there is one electricity bill for the factory. (iii) There is one licence for all units. (iv) Air-conditioning plant for all the units is common. (v) Annual Report is silent on the establishment of new units. (vi) Certain ancillary activities, pre-and post-manufacturing, are common. 6. The assessee carried the matter in appeal before the learned CIT(A). Learned CIT(A) considered the materials brought on record by the Assessing Officer, his findings in the assessment order and the submissions made by both the parties before him. The learned CIT(A) also visited the factory of the assessee-company at Kandivali to verify as to whether all the undertakings were separate and independent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples laid down in Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 (SC) the learned CIT(A) held that the profits and gains derived from each undertaking was eligible for deduction under section 80-I/80-IA of the Income-tax Act. 8. Aggrieved by the order of the CIT(A), the Department is now in appeal before this Tribunal. In support of appeal, the learned DR relied upon the findings recorded in the assessment order. His main submission was that each of the unit might be separate but it was not an undertaking within the meaning of section 80-I/80-IA of the Income-tax Act. His submissions in brief are as under:- (i) All the machines involved in the manufacturing of capsules are located in the same premises. (ii) There was only one power connection for the entire factory. (iii) Air-conditioning unit for all the machines was common. Though the assessee claimed that he had set up units 2, 3 4 in August, 1997, March 1993 and October 1994, there was no mention about the establishment of the aforesaid units in the annual report placed before the shareholders. (iv) The basis on which the assessee had clubbed the machines and identified them with a particular undertaking wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and independent and accordingly, allowed relief in the past under section 80-I. 11. We have heard the parties and considered their submissions including the authorities referred to by them. Relief under section 80-I/80-IA is admissible in respect of the profits and gains derived from, inter alia, an industrial undertaking. Sub-section (2) of section 80-I enumerates the conditions which an industrial undertaking claiming the benefit of section 80-I must satisfy. They are: one, the industrial undertaking should not have been formed by the splitting up, or the reconstruction of the business already in existence; two, it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; three, it manufactures or produces any article or thing, not being any article or thing specified in the 11th Schedule; and, four, it employs 10 or more workers in the manufacturing processes carried on with the aid of power, or employs 20 or more workers in a manufacturing process carried on without the aid of power. 12. It is quite apparent on bare perusal of section 80-I/80-IA that the notion of 'undertaking' is a core jurisdictional element for the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mean, inter alia, 'to take on an obligation or task'. The Income-tax Act does not define the or 'undertaking' though the term 'industrial undertaking' is defined in section 33B of the Income-tax Act as 'any undertaking which is mainly engaged in the business of ... or in the manufacture or processing of goods...'. In the absence of a precise statutory definition of the term 'undertaking', the crucial question of whether a unit is to be considered as an undertaking within the meaning of the section 80-I/80-IA is left to be answered by the Courts and Tribunals. In our view, the term 'undertaking' has to be approached teleologically focusing on the subject-matter the unit in question is concerned with. In order to constitute an 'undertaking', the unit must undertake the specified task. In the context of section 80-I or section 80-IA, the obligation or task to be undertaken by a unit is the manufacture or production of articles or things specified in that section. The 'undertaking' envisaged by the aforesaid provisions is the one which undertakes to manufacture or produce the articles or things in its own right and consequently derives the profits or gains therefrom. In our view, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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