1993 (2) TMI 73 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to relief under section 84 of the Income-tax Act, 1961.
2. Interpretation of the term "transfer" in the context of section 84(2)(ii).
3. Applicability of the conditions under section 84(2) for newly established industrial undertakings.

Detailed Analysis:

1. Entitlement to Relief under Section 84 of the Income-tax Act, 1961:
The primary issue was whether the assessee, a private limited company engaged in manufacturing carbide-tipped tools, was entitled to relief under section 84 of the Income-tax Act, 1961, for the assessment year 1965-66. The assessee claimed eligibility for relief as a newly established industrial undertaking. Initially, the Income-tax Officer granted the relief for the assessment years 1963-64 and 1964-65 but later withdrew it, leading to the rejection of the claim for the year 1965-66.

2. Interpretation of the Term "Transfer" in the Context of Section 84(2)(ii):
The crux of the dispute revolved around the interpretation of the term "transfer" under section 84(2)(ii). The Income-tax Officer held that there was a transfer of machinery to the new business, which disqualified the assessee from claiming relief. The Appellate Assistant Commissioner and the Tribunal, however, opined that "transfer" should be understood as involving the concept of conveyance, and a lease or hire could not be termed as a transfer. The Tribunal's interpretation was that the assessee merely used the machinery under a leave and license agreement, which did not constitute a transfer.

3. Applicability of the Conditions under Section 84(2) for Newly Established Industrial Undertakings:
Section 84(2) stipulates conditions for availing relief, including that the undertaking should not be formed by splitting up or reconstruction of an existing business, and should not involve the transfer of previously used building, machinery, or plant. The court examined whether the assessee's use of rented premises and hired machinery from an existing firm constituted a violation of these conditions. The Revenue argued that the term "transfer" should include leases, referencing the Transfer of Property Act and various judicial precedents, which supported a broader interpretation of "transfer" to include leases.

Court's Conclusion:
The court concluded that the Tribunal's narrow interpretation of "transfer" was incorrect. It emphasized that the term "transfer" should be interpreted broadly to include leases, aligning with judicial precedents and the legislative intent to ensure that only genuinely new industrial undertakings benefit from the relief. The court noted that the assessee's business was set up using rented premises and hired machinery, which had been previously used by another firm, thereby violating the conditions of section 84(2).

Final Judgment:
The court held that the Tribunal was not justified in concluding that there was no transfer of machinery, plant, and electrical installations to the new business of the assessee. Consequently, the assessee was not entitled to relief under section 84(1) for the assessment year 1965-66. The question referred was answered in the negative, in favor of the Revenue and against the assessee, with no order as to costs.