1993 (4) TMI 38 - HC - Income Tax

Deduction For New Industrial Undertaking, New Industrial Undertaking, Transfer Or Reconstruction

Summary

Issues Involved:
1. Entitlement to deduction u/s 80J(4) of the Income-tax Act, 1961.
2. Interpretation of "transfer" in the context of leased assets.
3. Applicability of the Explanation to section 80J.
4. Reconstruction of existing business vs. newly established industrial undertaking.
5. Calculation of the five-year period for deduction eligibility.

Summary:

1. Entitlement to Deduction u/s 80J(4):
The Income-tax Appellate Tribunal, Cochin Bench, referred the question of whether the assessee is entitled to the benefit u/s 80J(4) of the Income-tax Act, 1961. The assessment years concerned are 1972-73, 1973-74, 1974-75, and 1975-76. The Tribunal and lower authorities held that the assessee, Kerala State Cashew Development Corporation Limited, did not fulfill the conditions specified in sub-clauses (i) and (ii) of sub-section (4) of section 80J, and thus, was not eligible for the deduction.

2. Interpretation of "Transfer":
The Tribunal did not accept the assessee's contention that "transfer" for purposes of section 80J meant only an outright sale and not a lease. The Tribunal, supported by precedents from various High Courts, concluded that the term "transfer" includes leases. This interpretation aligns with the inclusive definition of "transfer" in section 2(47) of the Act.

3. Applicability of the Explanation to Section 80J:
The assessee argued for the applicability of the Explanation to section 80J in the year 1975-76, contending that the total value of the building, machinery, and plant taken on lease should be excluded in computing the value of assets transferred. The Tribunal rejected this contention, stating that the value of leased buildings and machinery must be included for the purposes of the Explanation. The Tribunal's decision was based on the interpretation that the Explanation does not exclude the value of leased assets.

4. Reconstruction of Existing Business vs. Newly Established Industrial Undertaking:
The Tribunal concluded that the assessee's business was formed by the reconstruction of an existing business, as it took over existing cashew factories with their staff, buildings, machinery, and plant. The Tribunal emphasized that the industrial undertaking must be newly established and not merely new to the person acquiring it. The reconstruction of an existing business disqualifies the assessee from the deduction u/s 80J.

5. Calculation of the Five-Year Period for Deduction Eligibility:
The Tribunal noted that the deduction u/s 80J is allowed only for the first five years after the industrial undertaking begins to manufacture or produce articles. Since the cashew factories in question had been in existence for decades, the five-year period had expired long before the assessee took over the factories. Therefore, the assessee was not entitled to the deduction for the relevant assessment years.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the assessee is not entitled to the deduction u/s 80J. The question referred to the court was answered in the affirmative, against the assessee and in favor of the Revenue. There was no order as to costs.