1984 (11) TMI 96 - AT - Income Tax

Summary

Issues:
Interpretation of provisions of section 37(3D) and its applicability to an industrial undertaking acquired as a going concern.

Analysis:
The appeal involved a dispute regarding the applicability of section 37(3D) of the Income-tax Act, 1961 to an industrial undertaking acquired as a going concern. The revenue challenged the order of the Commissioner (Appeals) which had deleted a disallowance made by the Income Tax Officer (ITO) under section 37(3A) for advertisement, publicity, and sales promotion expenses. The revenue contended that section 37(3D) applied only to a new industrial undertaking set up by the assessee and not to an existing undertaking acquired as a going concern.

The revenue's argument was based on the premise that the stress in section 37(3D) is on the assessee setting up an industrial undertaking for manufacturing or production of articles, implying that the industrial undertaking must be established by the assessee and not acquired from a previous owner. The revenue emphasized that the manufacturing activity in question was originally conducted by Pharmaceuticals and Allied (India) Company, which was acquired by the assessee as a going concern. Therefore, the revenue asserted that the provisions of section 37(3D did not apply in this case.

On the contrary, the assessee's counsel argued that the acquired concern had become a sick unit, ceased production, and required significant preparatory work before recommencing production. The counsel highlighted that production had not started at the time of acquisition, as confirmed in previous assessment orders. The counsel contended that the industrial undertaking commenced production during the relevant assessment year and was entitled to exemption from section 37(3A for that year and the subsequent two years.

The Tribunal analyzed the provisions of section 37(3D) and noted that it did not restrict the applicability to only newly established industrial undertakings. Drawing a parallel with section 80J, the Tribunal highlighted that section 37(3D did not impose limitations based on the previous use of the industrial undertaking. The Tribunal reasoned that regardless of the prior use or formation of the industrial undertaking, section 37(3D exempted the undertaking from section 37(3A) for the year of commencement of production and the following two years. Consequently, the Tribunal upheld the Commissioner (Appeals) decision to apply section 37(3D to the assessee's case, leading to the deletion of the disallowance under section 37(3A.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the Commissioner (Appeals) decision to delete the disallowance under section 37(3A based on the applicability of section 37(3D to the acquired industrial undertaking.