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2012 (3) TMI 267 - HC - Income TaxDeduction u/s 80-I - assessee engaged in the business of manufacturing caustic soda primarily and other chemicals incurred expenditure of 7.5 crore towards substantial expansion and bringing into effect new industrial undertaking production capacity increased from 37245 M.Tonnes to 70425 M.Tonnes Revenue denied deduction u/s 80I on ground that it is expansion of the same manufacturing unit Held that -The fact that an assessee by establishment of a new industrial undertaking expands his existing business which he certainly does, would not on that score deprive him of the benefit u/s 80-I. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is a new identifiable endeavour where substantial investment of fresh capital is made to enable earning of profit attributable to that new capital. Only because to a certain extent the new undertaking is dependent on the existing unit, will not deprive the new undertaking the status of a separate and distinct identity. See Textile Machinery Corporation Ltd. v. CIT (1977 - TMI - 6503 - Supreme Court) Relief u/s 80I to be granted Decided in favor of assessee.
Issues Involved:
1. Entitlement to relief under Section 80-I of the Income Tax Act, 1961. 2. Interpretation of "new industrial undertaking" under Section 80-I. 3. Application of precedents and judicial principles. Comprehensive, Issue-wise Detailed Analysis: 1. Entitlement to Relief under Section 80-I of the Income Tax Act, 1961: The primary issue was whether the assessee was entitled to relief under Section 80-I of the Income Tax Act, 1961. The assessee, a public limited company engaged in manufacturing caustic soda, expanded its production capacity significantly by installing new machinery and cells. The Income Tax Officer, Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal denied the relief, stating it was a case of substantial expansion rather than a new industrial undertaking. 2. Interpretation of "New Industrial Undertaking" under Section 80-I: The court examined whether the expanded unit could be considered a "new industrial undertaking" eligible for benefits under Section 80-I. The assessee argued that the expansion involved substantial investment and increased production capacity, thus qualifying as a new undertaking. The Revenue contended that the new project could not function independently and was merely an extension of the old unit. The court referred to several precedents, including the Supreme Court's rulings in Textile Machinery Corporation Ltd. v. CIT and Bajaj Tempo Limited v. CIT, which emphasized that new undertakings should be treated liberally to promote industrial growth. The court noted that substantial investment in new plant and machinery and increased production capacity are crucial factors in determining a new undertaking. 3. Application of Precedents and Judicial Principles: The court analyzed various precedents to determine the correct interpretation of Section 80-I. It cited the Supreme Court's decision in Textile Machinery Corporation Ltd., which stated that substantial investment in new capital and the ability to produce goods independently are key indicators of a new undertaking. The court also referred to CIT v. Indian Aluminium Co. Ltd. and CIT v. Orient Paper Mills Ltd., where expansions with substantial new investments were considered new undertakings. The court found that the assessee's expansion involved a significant investment of Rs.7.5 crore and increased production capacity from 34,000 M.Tonnes to 70,425 M.Tonnes. It concluded that the new unit, despite being dependent on the old unit to some extent, qualified as a new industrial undertaking. The court emphasized that the presence of new plant and machinery and the substantial increase in production capacity were sufficient to grant the relief under Section 80-I. Conclusion: The court answered the question in favor of the assessee, stating that the expanded unit qualified as a new industrial undertaking under Section 80-I of the Income Tax Act, 1961. The court highlighted the importance of substantial new investment and increased production capacity in determining eligibility for tax relief. The reference was disposed of accordingly, with no order as to costs.
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