2004 (12) TMI 18 - HC - Income Tax

Admissibility of deduction under sections 80J and 80HH - Admissibility of deductions for a new project - HELD THAT - Learned counsel for the Revenue submitted that u/s 80J(4)(i) and 80HH(2)(ii) the requirement is that the unit should not have been formed by the splitting up or the reconstruction of a business already in existence. According to him as the business which was carried on earlier by the respondent in the form of a partnership firm for manufacturing black steel tubes of 2 inches diameter set up a new project No. 2 for manufacturing of 4 inches diameter pipes by converting into a private limited company it amounts to splitting up or reconstruction of a business already in existence and, therefore, the respondent is not entitled to claim the benefit under sections 80J and 80HH. The Tribunal has found that the respondent has set up a new project for manufacturing of 4 inches diameter black pipe which is different from manufacturing 2 inches diameter black pipe by the respondent. Merely because some of the facilities are common that will not mean reconstruction or splitting up. We are of the considered opinion that the Tribunal has correctly applied the principle laid down by the apex court in Textile Machinery Corporation Ltd. 1977 (1) TMI 3 - SUPREME COURT and accordingly answer the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall be no order as to costs.

Summary

Issues Involved:
The judgment involves the interpretation of deductions under sections 80J and 80HH of the Income-tax Act, 1961 for a private limited company engaged in the manufacture of steel tubes, specifically regarding the admissibility of deductions for a new project and the applicability of the conditions for claiming such deductions.

Deduction under Sections 80J and 80HH:
The case involved a private limited company engaged in the manufacture and sale of steel tubes, which set up a new project for manufacturing larger diameter tubes. The company claimed deductions under sections 80J and 80HH for the capital employed in the new project. The Income-tax Officer initially rejected the claim due to lack of separate financial documentation and common use of certain facilities between the new and old projects. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal determined that the new project constituted a separate industrial unit physically and financially, allowing for the deductions claimed. The Tribunal's decision was based on the precedent set by the apex court in Textile Machinery Corporation Ltd. [1977] 107 ITR 195. The court agreed with the Tribunal's interpretation, emphasizing that common facilities did not negate the establishment of a new industrial unit, thus ruling in favor of the assessee and against the Revenue.

Conclusion:
The High Court of Allahabad, in a combined judgment for two Income-tax Reference cases, upheld the Tribunal's decision regarding the admissibility of deductions under sections 80J and 80HH for a private limited company's new project for manufacturing steel tubes. The court found that the new project constituted a separate industrial unit, meeting the criteria for claiming the deductions as per the Income-tax Act, 1961. The judgment was based on the interpretation of relevant legal provisions and the application of established legal principles, ultimately ruling in favor of the assessee and against the Revenue.