1984 (3) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to relief under Section 80J of the Income Tax Act.
2. Interpretation of the term "transfer" in the context of Section 80J(4)(ii).
3. Legislative intent and object of Section 80J.

Issue-wise Detailed Analysis:

1. Entitlement to relief under Section 80J of the Income Tax Act:
The primary issue was whether the assessee-company, which commenced the business of manufacturing electronic components by acquiring machinery and plant from Bhabha Atomic Research Centre (BARC), is entitled to relief under Section 80J of the Income Tax Act. The Income Tax Officer (ITO), Appellate Assistant Commissioner (AAC), and the Tribunal disallowed the claim on the ground that the machinery and plant were previously used, and thus, did not fulfill the conditions stipulated under Section 80J. The court, however, concluded that the essential condition of Section 80J, namely, investment of capital, was satisfied. Therefore, the assessee was entitled to the benefit under Section 80J.

2. Interpretation of the term "transfer" in the context of Section 80J(4)(ii):
The court examined whether the transfer of machinery and plant previously used by another entity (BARC) disqualified the assessee from claiming relief under Section 80J. The assessee contended that the prohibition in clause (ii) of sub-section (4) of Section 80J pertains to the transfer of plant and machinery previously used by the same assessee, not by a third party. The Revenue argued that the plant and machinery must be brand new to qualify for the relief. The court interpreted the term "transfer" to mean a transfer by the assessee of assets used by them previously for any purpose. The court emphasized that the words "by the assessee" must be read into the sub-section to align with the legislative intent, thereby allowing the assessee to claim relief even if the machinery was previously used by another entity.

3. Legislative intent and object of Section 80J:
The court analyzed the legislative intent behind Section 80J, which corresponds to Section 15C of the 1922 Act. The object of these provisions is to encourage the setting up of new industrial undertakings by offering tax incentives. The court cited several judicial pronouncements, including Chandulal Harjiwandas v. CIT, Textile Machinery Corporation Ltd. v. CIT, and CIT v. Satellite Engineering Ltd., to emphasize that the principal object is to promote new investments and industrial growth. The court noted that the legislative intent is to provide a "tax holiday" to newly established industrial undertakings, and any interpretation of Section 80J must align with this objective. The court also highlighted that substantial investment of new capital is imperative for claiming the benefit under Section 80J.

Conclusion:
The court concluded that the assessee-company, having made a substantial investment of Rs. 23.86 lakhs in acquiring plant and machinery from BARC, satisfied the essential condition of Section 80J. The acquisition of second-hand machinery from another entity did not disentitle the assessee from claiming the tax benefit. The court answered the question in the affirmative, in favor of the assessee, and granted relief under Section 80J.