1991 (7) TMI 127 - AT - Income Tax

A Firm, A Partner, Industrial Undertaking, Plant And Machinery, Profits And Gains, Tenancy Rights

Summary

Issues Involved:

1. Entitlement to relief under section 80-I of the Income-tax Act.
2. Whether the new unit was formed by the splitting up or reconstruction of an existing business.
3. Whether the new unit was formed by the transfer of old machinery or plant exceeding 20% of the total value of the new plant and machinery.

Issue-wise Detailed Analysis:

1. Entitlement to Relief under Section 80-I of the Income-tax Act:

The primary issue in this appeal was whether the assessee was entitled to relief under section 80-I of the Income-tax Act, which allows for a deduction of 25% of the profits of a new industrial undertaking. The assessee claimed that it had installed new plant and machinery, and the new unit commenced production from 15-4-1981, thus qualifying for the relief. However, the Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this claim, stating that the manufacturing activities remained the same as the existing unit.

2. Formation by Splitting Up or Reconstruction of an Existing Business:

The second issue was whether the new unit was formed by the splitting up or reconstruction of an existing business, which would disqualify it from relief under section 80-I. The CIT(A) and the tribunal noted that the original industrial license was in the name of a firm in which the assessee-company was a partner. The assessee did not construct any new building or set up a separate establishment but utilized the same building, license, tenancy rights, trade name, and existing setup with additional capacity. The tribunal concluded that the new unit was essentially a continuation of the old business, thus failing the condition under section 80-I(2)(i).

3. Transfer of Old Machinery or Plant Exceeding 20% of Total Value:

The third issue was whether the new unit was formed by the transfer of old machinery or plant previously used for any purpose, where such transferred machinery exceeded 20% of the total value of the new plant and machinery. The tribunal examined the detailed submissions and calculations provided by the assessee, which included the value of old and new machinery and reconciliations with the balance sheet. The tribunal found discrepancies and issues with the figures provided by the assessee, including the exclusion of certain items and unexplained values. Ultimately, the tribunal concluded that the value of old plant and machinery exceeded 20% of the total value, thereby failing the condition under section 80-I(2)(ii).

Conclusion:

The tribunal upheld the decisions of the ITO and CIT(A), concluding that the assessee did not satisfy the conditions for relief under section 80-I. The new unit was formed by the reconstruction of an existing business, and the value of old machinery transferred exceeded the statutory limit. Consequently, the assessee's appeal was dismissed.