1972 (3) TMI 9 - HC - Income Tax

Exemption under s. 15C of 1922 - Whether, on the facts found by the Tribunal or on record and in the circumstances of the case, the Tribunal was justified in holding that section 15C of the Indian Income-tax Act, 1922, was applicable to the new production units added to the existing production units of the assessee at Belur, Alupuram and Muri in respect of buildings, plants and machineries and directing exemption to be granted under the aforesaid section accordingly - When there is substantial expansion of business at considerable cost, the undertaking can said to have been formed by reconstruction of existing business and it is entitled to exemption - question raised must be answered in the affirmative in favour of the assessee

Issues Involved:
1. Applicability of Section 15C of the Indian Income-tax Act, 1922, to new production units.
2. Determination of whether new units are formed by the "reconstruction" of existing business.
3. Interpretation of "reconstruction" and its implications on tax exemption.

Detailed Analysis:

1. Applicability of Section 15C of the Indian Income-tax Act, 1922, to New Production Units:

The main issue was whether Section 15C of the Indian Income-tax Act, 1922, applied to the new production units added to the existing units of the assessee at Belur, Alupuram, and Muri. The Tribunal had held that Section 15C was applicable, thereby granting tax exemption for the new units. The relevant assessment year was 1960-61, with the previous year ending on December 31, 1959. The assessee, a manufacturer of aluminium ingots, claimed relief under Section 15C for new capital outlay and additional investments in existing units. The Income-tax Officer initially denied this relief, and the Appellate Assistant Commissioner upheld this decision. However, the Tribunal reversed this decision, stating that the new units were independent undertakings and not merely expansions of the existing business.

2. Determination of Whether New Units are Formed by the "Reconstruction" of Existing Business:

The critical question was whether the new units at Belur, Alupuram, and Muri were formed by the "reconstruction" of the existing business, which would disqualify them from tax exemption under Section 15C(2)(i). The Tribunal found that the new units were substantial and independent, involving significant capital investment and new machinery, thus qualifying as new industrial undertakings. The Tribunal's decision was based on the facts that the new units were set up in separate buildings, with substantial new machinery and capital investment, and were not merely extensions of the old units.

3. Interpretation of "Reconstruction" and Its Implications on Tax Exemption:

The court had to interpret the term "reconstruction" within the context of Section 15C. The revenue argued that the new units were merely expansions of the existing business and thus constituted "reconstruction." The assessee contended that the new units were independent and not formed by reconstructing the existing business. The court referred to the dictionary definitions of "reconstruction" and "expansion" and concluded that "reconstruction" implies re-establishment or revival of the old business in a new form, whereas "expansion" refers to development or extension of the existing business. The court found that the new units at Belur, Alupuram, and Muri were not formed by the reconstruction of the existing business but were substantial new undertakings. Therefore, they qualified for tax exemption under Section 15C.

Conclusion:

The court held that the new units at Belur, Alupuram, and Muri were not formed by the reconstruction of the assessee's original business. They were substantial new undertakings, involving significant capital investment and new machinery, and thus qualified for tax exemption under Section 15C. The Tribunal's order granting exemption was confirmed, and the question was answered in the affirmative in favor of the assessee. There was no order as to costs.

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