1990 (10) TMI 36 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 80J of the Income-tax Act, 1961 regarding the formation of a new business.
2. Determination of whether the manufacturing process of catechu qualifies as a chemical process for depreciation purposes.
3. Legality of the order passed under section 263 of the Income-tax Act, 1961 by the Commissioner of Income-tax.

Analysis:
1. The case involved the interpretation of Section 80J of the Income-tax Act, 1961, regarding the formation of a new business. The Income-tax Officer allowed deductions under section 80J and depreciation at a higher rate for the machinery. However, the Commissioner of Income-tax revised the order under section 263, stating that the business was a reconstruction and not entitled to the benefits. The Tribunal found that the new factory established by the assessee was not a reconstruction of an existing business but a new industrial undertaking with new machinery and processes. The High Court upheld the Tribunal's decision, stating that the industrial undertaking was new, and the assessee was entitled to the benefits under section 80J.

2. The second issue revolved around whether the manufacturing process of catechu qualified as a chemical process for depreciation purposes. The Tribunal determined that the process involved in manufacturing catechu was a chemical process, justifying a higher depreciation rate. However, the High Court disagreed with the Tribunal's reasoning, stating that mere involvement of a chemical process does not make it a chemical works. The Court highlighted that the dictionary definitions provided did not conclusively establish catechu as a chemical. As a result, the High Court remitted question No. 2 back to the Tribunal for fresh determination based on the correct principles.

3. The legality of the order passed under section 263 of the Income-tax Act, 1961 by the Commissioner of Income-tax was also questioned. However, since the High Court had already dealt with questions 1 and 2 on merits, it found question 3 unnecessary to address. The High Court answered question 1 in favor of the assessee, remitted question 2 for reconsideration, and declined to answer question 3. No costs were awarded in this matter.