1979 (4) TMI 25 - HC - Income Tax

Income Tax Act, New Industrial Undertaking, Raw Material, Reconstruction Of Business, Tax Concession

Summary

Issues:
- Interpretation of whether the industrial undertaking running a new re-rolling mill was formed by the reconstruction of an existing business.
- Application of Section 84 of the Income Tax Act, 1961 to determine eligibility for exemption.
- Consideration of relevant case law and principles in determining the nature of the new industrial undertaking.
- Assessment of the facts and circumstances to establish the entitlement to the benefit under Section 84 of the Act.

Analysis:
The case involved Income-tax References Nos. 78 to 82 of 1974, concerning the assessment years 1963-64 to 1967-68, where the main question was whether the new re-rolling mill constituted a reconstruction of the existing business. The assessee, M/s. Batala Engineering Co. Ltd., had replaced an old mill with a new one, leading to a dispute over the eligibility for exemption under Section 84 of the Income Tax Act, 1961. The Income Tax Officer initially disallowed the claim, considering the new mill as a reconstruction of the old business. However, the Appellate Assistant Commissioner (AAC) accepted the claim, emphasizing that the new mill was a separate industrial undertaking, not a mere reconstruction.

The Revenue challenged the AAC's decision before the Income-tax Appellate Tribunal, Chandigarh, arguing for a strict construction of Section 84 and citing relevant case law. The Tribunal, after considering the facts, observed that the new mill had distinct features from the old one, including different location, area, raw materials, process, and final product. It concluded that the new mill was not a reconstruction but a new undertaking, meeting the requirements under Section 84. The Tribunal's decision was supported by the Supreme Court's pronouncement that each case must be assessed based on its unique circumstances to determine eligibility for exemption.

The judgment highlighted the need to establish specific criteria for claiming benefits under Section 84, such as substantial fresh capital investment, employment of labor, production of articles, profits attributable to the new undertaking, and a separate identity for the industrial unit. The court agreed with the AAC and Tribunal's decision, emphasizing that the new mill had met these criteria and was entitled to the benefit under Section 84. It noted the absence of a statutory definition for "reconstruction," indicating the necessity to evaluate each case individually based on its merits.

In conclusion, the court affirmed that the assessee was eligible for the benefit under Section 84 of the Act, answering the referred question in favor of the assessee and directing the revenue to pay the costs of the references. Both judges, J. V. Gupta and Rajendra Nath Mittal, concurred with the decision, endorsing the application of Section 84 based on the specific circumstances of the case and relevant legal principles.