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Issues Involved:
1. Whether there was a transfer within the meaning of section 84(2)(ii) of machinery by Rubber Products Company, Coimbatore, to the new industrial undertaking of the assessee under the agreement dated April 1, 1963, for the assessment years 1965-66, 1966-67, and 1967-68? 2. Whether the assessee was not entitled to relief u/s 84 merely because some machinery whose value was not below 20% of the total machinery had been used by Rubber Products Company of Coimbatore prior to the agreement dated April 1, 1963, for the assessment years 1965-66, 1966-67, and 1967-68? Summary: Issue 1: Transfer of Machinery The original assessments of the assessee-company for the years 1965-66 and 1966-67 were reopened by the ITO u/s 147(b) of the I.T. Act, 1961, and reassessments were completed on May 8, 1969. The ITO disallowed the relief u/s 84 on the grounds that the profits of the Rubber Reclamation Division arose from machinery not exclusively owned by the assessee, with at least 20% of the machinery taken on lease from Rubber Products Company, Coimbatore. The AAC, however, found that the Rubber Reclamation Division commenced on February 12, 1963, and held that the second-hand machinery was not transferred at the time of its formation, thus entitling the assessee to relief u/s 84. The Tribunal reversed the AAC's decision, holding that the unit was formed by the transfer of previously used machinery, thus not satisfying the condition in s. 84(2)(ii). The High Court agreed with the Tribunal, stating that the formation of the company was only after April 1, 1963, and the transfer of machinery was in the process of formation, not after its formation. Issue 2: Entitlement to Relief u/s 84 The High Court examined the scope and object of s. 84, which provides benefits to newly established industrial undertakings. The court noted that the benefit applies only if the undertaking is not formed by the transfer of previously used machinery. The assessee argued that leasing machinery does not constitute a transfer. However, the court referred to precedents indicating that "transfer" includes leases and mortgages, not just absolute transfers. The court concluded that the expression "transfer" in s. 84(2)(ii) is comprehensive enough to include a lease, and thus, the assessee was not entitled to relief u/s 84 due to the lease of machinery from Rubber Products Company during the formation of the new undertaking. Conclusion: The High Court answered both questions in the affirmative, ruling against the assessee. The court held that the transfer of machinery by lease during the formation of the new industrial undertaking disqualified the assessee from claiming relief u/s 84. The assessee was ordered to pay the costs of the Revenue, with counsel's fee set at Rs. 500.
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