2008 (2) TMI 283 - HC - Income Tax

Industrial undertaking tribunals uphold the order of CIT by recording that it cannot be said that the new industrial undertaking has been brought into existence by reconstruction or by splitting up the old business or transferring the old plant & machineries revenue contention that assessee had only installed two assembly lines, is not acceptable - hence Tribunal was justified in holding that there was negligible use of existing machinery so assessee was entitled for the deduction u/s 80I

Summary

Issues:
Interpretation of Section 80-I of the Income Tax Act, 1961 for deduction eligibility based on the formation of new industrial undertaking and the usage of existing facilities.

Analysis:
The High Court of Gujarat addressed a reference from the Income Tax Appellate Tribunal regarding the eligibility of an assessee for deduction under Section 80-I of the Income Tax Act, 1961. The case involved Assessment Years 1982-83 and 1983-84, where the assessee, a public limited company, claimed a deduction which was initially disallowed by the Assessing Officer based on a report by an Inspector. The report highlighted that the new assembly lines installed by the assessee were dependent on existing facilities for manufacturing dry cell batteries. The Tribunal, however, upheld the claim by emphasizing that the new industrial undertaking was not formed by reconstruction or splitting up the old business. The Revenue challenged this decision, arguing that the new assembly lines were not independent and could not function without assistance from existing facilities. They cited legal precedents to support their argument.

In response, the respondent-company contended that the Tribunal's decision was based on factual findings and application of legal principles. They referred to legal precedents to support their position. The Court examined Section 80-I of the Act, which allows a deduction for profits from industrial undertakings meeting specific conditions. It noted that conditions regarding the formation of the industrial undertaking were not violated. The clause prohibiting the transfer of machinery from a previous business to a new one was also deemed inapplicable as no new business was established by the assessee. The Court highlighted that none of the conditions specified under Section 80-I(2) were breached.

Furthermore, the Court discussed Explanation 2, which allows for the transfer of machinery to a new business if its value does not exceed twenty percent of the total machinery value. Although no specific findings were recorded on this aspect, the Tribunal mentioned the minimal value of existing facilities used by the new sections. The Court concluded that the Revenue failed to demonstrate any legal flaw in the Tribunal's decision. It affirmed that the conditions of Section 80-I were not violated, and the assessee was entitled to the deduction. The Court ruled in favor of the assessee, disposing of the reference without costs.