1987 (2) TMI 29 - HC - Income Tax

Summary

Issues:
- Interpretation of the term "reconstruction" under section 80J of the Income-tax Act, 1961.
- Determination of whether the industrial undertaking qualifies as a reconstructed one or a new one.
- Application of relevant case laws to ascertain the eligibility for relief under section 80J for the assessment years 1967-68 to 1969-70.

Analysis:
The judgment pertains to the interpretation of the term "reconstruction" under section 80J of the Income-tax Act, 1961, and whether the assessee is entitled to relief under section 80J for the assessment years 1967-68 to 1969-70. The assessee's factory was destroyed in a fire accident, following which new machinery was imported, and a new product, polyurethane foam, was manufactured. The Income-tax Officer initially granted rebate under section 80J but later withdrew it, claiming the industrial undertaking was reconstructed. The Appellate Assistant Commissioner and the Tribunal held that it was a new undertaking, not a reconstruction.

The primary issue revolves around determining whether the industrial undertaking qualifies as a reconstructed one under section 80J. The court analyzed the term "reconstruction" based on precedents and established principles. It referenced cases like CIT v. Gaekwar Foam and Rubber Co. Ltd. and Textile Machinery Corporation Ltd. v. CIT to define reconstruction as the preservation of an existing business in an altered form with substantially the same business and interested persons. The court emphasized that for an undertaking to be considered reconstructed, there must be a transfer of assets from the old business to the new one.

The court applied these principles to the facts of the case. It noted that the assessee's factory was rebuilt with new machinery and started producing a different product, polyurethane foam, distinct from the previous product. As there was no transfer of assets from the old business and substantial changes were made, the court concluded that the industrial undertaking was a new one, not a reconstruction. Therefore, the assessee was entitled to the rebate under section 80J(1) of the Act for a period of five years from the establishment of the new industrial undertaking.

In conclusion, the court ruled in favor of the assessee, holding that the industrial undertaking was not a reconstructed one but a new one, eligible for the benefit of section 80J(1) of the Act. The judgment provides a comprehensive analysis of the term "reconstruction" and its application in determining tax relief eligibility under section 80J.