1996 (10) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction u/s 80J of the Income-tax Act, 1961.
2. Determination of whether the new unit constitutes a new industrial undertaking or merely an expansion of the existing one.

Summary:

1. Entitlement to Deduction u/s 80J:
The primary issue was whether the assessee was entitled to deduction u/s 80J of the Income-tax Act, 1961, for the new unit set up during the year ended June 30, 1976. Section 80J pertains to deductions in respect of profits and gains from newly established industrial undertakings. The statutory provision requires that the industrial undertaking must begin to manufacture or produce articles after March 31, 1976. The assessee, a public limited company, claimed the deduction for its new unit, which was argued to be a separate and severable unit with its own machinery and substantial increase in production capacity.

2. Determination of New Industrial Undertaking:
The Income-tax Officer (ITO) rejected the claim, stating that the new unit was merely an expansion of the existing unit and did not satisfy the statutory conditions for being considered a new industrial undertaking. The ITO noted that the new unit was housed in a building adjoining the old plant and used the same manufacturing process. The first appellate authority, Commissioner of Income-tax (Appeals), Ernakulam, allowed the deduction, emphasizing the substantial investment and the new unit's operational independence.

The Income-tax Appellate Tribunal (ITAT), Cochin Bench, upon appeal by the Revenue, called for a remand report. The remand report revealed several factual peculiarities indicating commonality between the old and new units, such as a common pipeline for carbon monoxide, a shared boiler house, common purchases of raw materials, and a single factory license. The ITAT concluded that the new unit was not a separate industrial undertaking but an extension of the existing one, thus disallowing the deduction u/s 80J.

Conclusion:
The High Court affirmed the ITAT's decision, agreeing that the new unit did not qualify as a separate industrial undertaking eligible for deduction u/s 80J. The court emphasized the inseparable nature of the new unit from the existing one, supported by the detailed remand report. The question was answered in the affirmative, in favor of the Revenue and against the assessee.