1984 (9) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction u/s 80J for second-hand machinery.
2. Whether the addition of a polishing machine constitutes setting up a new industrial undertaking.
3. Entitlement to deduction u/s 80J of the Income-tax Act, 1961.

Summary:

Issue 1: Eligibility for deduction u/s 80J for second-hand machinery
The court examined whether the purchase and installation of second-hand machinery disentitles the firm from claiming deduction u/s 80J of the Income-tax Act. The Tribunal had held that the assessee's purchase of old and used machinery in 1966 did not qualify for deduction u/s 80J as it was not a newly established industrial undertaking. The court agreed, stating that section 80J does not apply if the undertaking is formed by the transfer of machinery previously used for any purpose, regardless of who used it. The court emphasized that the words "previously used for any purpose" are broad and cover all old and used machinery. The court supported its view with a ruling from the Punjab and Haryana High Court in Phagoo Mal Sant Ram v. CIT [1969] 74 ITR 734 and disagreed with the Gujarat High Court's interpretation in CIT v. Suessin Textile Bearing Ltd. [1982] 135 ITR 443. Thus, the court answered the first question in the affirmative, favoring the Revenue.

Issue 2: Whether the addition of a polishing machine constitutes setting up a new industrial undertaking
The court considered whether the purchase of a polishing machine in 1967 constituted the setting up of a new industrial undertaking. The Tribunal had found that mere acquisition of the machine did not constitute setting up a new industrial undertaking. The court noted that the assessee failed to prove that the polishing process was a separate, distinct, and integrated unit fulfilling all conditions laid down in section 84(4) of the Act. The court emphasized that it could not consider new evidence presented after the reference was made. Consequently, the court answered the second question in the affirmative, favoring the Revenue.

Issue 3: Entitlement to deduction u/s 80J of the Income-tax Act, 1961
Given the answers to the first two questions, the court held that the assessee is not entitled to deduction u/s 80J of the Act. The court answered the third question in the affirmative, thus against the assessee.

Conclusion:
The reference was answered in favor of the Revenue and against the assessee, with each party bearing its own costs.