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Issues involved: Interpretation of section 80J of the Income-tax Act, 1961 regarding relief on capital employed in a new industrial undertaking.
Summary: The High Court of Delhi considered four references u/s 256(1) of the Income-tax Act, 1961 pertaining to the assessment years 1968-69 to 1971-72. The main issue was whether the assessee was entitled to relief u/s 80J for the capital employed in a new factory at Faridabad. The assessee, a private limited company, had set up a new factory to manufacture hand tools, separate from the original factory. The company claimed exemption under s. 80J for the new undertaking, despite facing a loss in the initial year. The Income Tax Officer (ITO) rejected the claim, alleging that it was a case of business expansion, not entitled to the exemption. On appeal, the Appellate Authority directed the ITO to allow the benefit under s. 80J, emphasizing the need to encourage new undertakings. The Income-tax Appellate Tribunal upheld this decision, noting the adequacy of internal resources and systematic accounting for the new unit. The Tribunal found the new factory to be a distinct viable unit, separate from the old one, and endorsed the assessee's eligibility for relief u/s 80J. The Court analyzed the conditions under s. 80J, emphasizing that the new unit must not be a result of splitting up or reconstruction of the existing business. Referring to a Supreme Court decision, the Court clarified that the new unit should be an integrated entity with new assets, not a mere extension of the old business. It was deemed essential for the new unit to invest substantial funds in new plant and machinery to qualify for the exemption. The Court concluded that the assessee, by utilizing surplus reserves for the new undertaking, had indeed employed capital as required by s. 80J. The purpose of the section was seen as promoting industrial growth and employment, and the Court ensured that the assessee's actions did not amount to disguising the old business as new. Consequently, the Court ruled in favor of the assessee, allowing the claim for relief u/s 80J based on the capital employed in the new industrial undertaking at Faridabad. In conclusion, the Court answered the question in favor of the assessee, granting costs and counsel's fee.
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