1989 (9) TMI 90 - HC - Income Tax

Summary

Issues Involved:
The judgment deals with the eligibility criteria for claiming relief under section 80J of the Income-tax Act, 1961, specifically focusing on whether an industrial undertaking that did not meet the prescribed conditions in the initial year of manufacture can claim the relief if the conditions are fulfilled in subsequent years.

Details of the Judgment:

Issue 1: Eligibility Criteria for Relief under Section 80J
The judgment addresses the contention raised by the Revenue that the benefit of tax concession under section 80J is subject to conditions outlined in sub-sections (2) and (4) of the Act. Sub-section (4)(ii) specifies that the new industrial undertaking must not be formed by the transfer of machinery or plant exceeding 20% of the total value of assets used in the business. The Tribunal, following a decision of the Gujarat High Court, held that the relief can be available for five consecutive years, even if the conditions are not met in the initial year, provided they are fulfilled in subsequent years. However, the Court disagreed with this interpretation, emphasizing that eligibility is determined in the initial assessment year, and if the conditions are not met then, the exemption cannot be granted in subsequent years.

Issue 2: Interpretation of "Formed" in Section 80J(4)(ii)
The judgment delves into the interpretation of the term "formed" in section 80J(4)(ii) and Explanation 2, which provides an arithmetical formula to ascertain compliance with the condition regarding the transfer of old assets to the new business. It clarifies that if the value of transferred assets exceeds 20%, the relief would not be available, but if it is within or less than 20%, the relief can be claimed. The Court emphasizes that the eligibility for exemption must be assessed in the initial assessment year, and subsequent investments to reduce the proportion of old assets below 20% do not impact the initial determination of eligibility.

Conclusion:
The Court, disagreeing with the Gujarat High Court's decision, ruled that once an industrial undertaking is found ineligible in the initial year, the exemption cannot be availed of in subsequent years. Therefore, the judgment answers the question in the negative and in favor of the Revenue.