1982 (1) TMI 35 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 15C(2)(i) of the Indian I.T. Act, 1922.
2. Determination of whether the industrial undertaking was formed by the transfer of machinery previously used in another business.

Detailed Analysis:
The judgment by the High Court of Bombay pertains to a reference under section 256(1) of the Income Tax Act, 1961, involving the interpretation of section 15C(2)(i) of the Indian I.T. Act, 1922. The primary issue was whether the industrial undertaking of the assessee was formed by the transfer of machinery previously used in another business within the meaning of the aforementioned section. The facts revealed that the assessee company was incorporated to manufacture aromatic chemicals and perfumery compounds, starting its operations in 1959 by installing machinery worth Rs. 7,28,000, with Rs. 75,000 machinery transferred by Tata Oil Mills Co. Ltd. The Income Tax Officer (ITO) reopened the assessment, contending that the relief granted under section 15C was incorrect as the machinery transferred was previously used. The Appellate Assistant Commissioner (AAC) and the Income Tax Tribunal upheld the ITO's decision, leading to the reference before the High Court.

The relevant statutory provision, section 15C of the Income Tax Act, deals with the exemption of newly established industrial undertakings. Subsection (2)(i) of the said section prohibits exemption for industrial undertakings formed by the transfer of machinery previously used in another business. The Tribunal found that the machinery transferred to the assessee was not of substantial importance, as evidenced by the return of a portion of it to Tata Oil Mills without affecting the manufacturing activity. The Tribunal concluded that the undertaking was not formed by the transfer of the used machinery, a decision challenged in the reference.

The High Court analyzed the facts and legal provisions, emphasizing that the old machinery transferred was not of vital importance in forming the industrial undertaking, as a significant portion was returned without impacting operations. Referring to a previous decision regarding machinery purchase, the Court reiterated that insignificant or unused machinery does not disqualify an undertaking from exemption under section 15C(2). Ultimately, the Court ruled in favor of the assessee, holding that the industrial undertaking was not formed by the transfer of previously used machinery. The Court directed the Commissioner to pay the costs of the reference to the assessee, concluding the judgment.