1995 (5) TMI 94 - AT - Income Tax

Backward Area, Deductions In Respect, Factory Building, New Industrial Undertaking, Plant And Machinery

Summary

Issues:
1. Entitlement to deduction under section 80HH of the Income-tax Act.

Comprehensive Analysis:
The judgment by the Appellate Tribunal ITAT Pune involved two appeals by the assessee against separate orders of the learned CIT(A) for the assessment years 1983-84 and 1985-86. The common issue raised in both appeals was whether the assessee was entitled to a deduction under section 80HH of the Income-tax Act. The assessee, a company engaged in processing cashew nuts, claimed the deduction, which was rejected by the Assessing Officer on the grounds that the machinery leased to the assessee was already in use in the firm's factory, thus not fulfilling the conditions of section 80HH(2)(iii). The CIT (Appeals) upheld the rejection, stating that there was a transfer of building, plant, and machinery to the assessee, making it ineligible for the deduction.

The main argument presented by the assessee was that the transaction was a leave and license agreement, not a lease, and therefore did not constitute a transfer as per section 80HH. The assessee also claimed that the factory was not exclusively possessed by them, as the partnership firm also operated there. The departmental representative argued that the entire undertaking was transferred to the assessee, making it ineligible for the deduction. Various court decisions were cited by both parties to support their arguments.

After careful consideration, the Tribunal concluded that there was no merit in the appeals of the assessee. It was noted that the factory had been previously operated by a partnership firm and then leased to the assessee, precluding it from being considered a newly established undertaking as required by section 80HH. The Tribunal analyzed the terms of the lease deed and found that it constituted a transfer of property, including the workforce, to the assessee. The Tribunal also highlighted that no evidence was provided to support the claim that the partnership firm continued to operate in the factory post-lease. Additionally, the assessee failed to prove that the value of new plant and machinery did not exceed 20% of the total value of the existing machinery, as required by the Explanation to section 80HH(2).

Ultimately, the Tribunal upheld the decision of the revenue authorities to reject the assessee's claim for deduction under section 80HH, stating that there was no merit in the appeals, which were consequently dismissed.