2012 (5) TMI 8 - HC - Income Tax

Exemption u/s 10A - Percentage of new plant and machinery and old machinery - inclusion of plant and machinery received on returnable basis for determination of percentage - held that - Neither in section 10A(2) nor in section 80-I, there is any requirement in law that the assessee should own the machinery before claiming the said exemption. The requirement of law is that the assessee should use the machinery or plant in the business. - In the instant case, it is not in dispute that the total value of the plant and machinery which was owned by the assessee is Rs. 44,93,797/-. - the plant and machinery which is used and transferred to the new undertaking is only Rs. 13,15,083/-, which is less than 20% of the total value of the machinery used in the business. - Decided in favor of the assessee

Issues Involved:
1. Whether the ownership of machinery is relevant for granting deduction under section 10A of the Income-tax Act, 1961.
2. Whether the value of plant and machinery brought in on a lease basis should be treated as exceeding 80% of the existing asset when computing deduction under section 10A of the Act.

Issue-wise Detailed Analysis:

1. Ownership of Machinery for Deduction under Section 10A:
The revenue challenged the Tribunal's affirmation of the Appellate Commissioner's decision that the assessee is entitled to the benefit of section 10A of the Income-tax Act, 1961. The Assessing Officer had denied the benefit on the grounds that the machinery received from foreign customers was not shown in the fixed asset schedule and did not satisfy conditions under section 10A(2). The Appellate Commissioner and the Tribunal held that ownership of the machinery is not a condition for claiming exemption under section 10A. The relevant factor is whether the machinery transferred to the new business does not exceed 20% of the total value of the machinery used in the business. The Tribunal found no infirmity in the Appellate Commissioner's order, leading to the dismissal of the revenue's appeal. The High Court upheld this view, emphasizing that neither section 10A(2) nor section 80-I requires the assessee to own the machinery. The law requires the machinery to be used in the business, and the value of the old machinery transferred should not exceed 20% of the total value of the machinery used.

2. Value of Plant and Machinery on Lease Basis:
The revenue contended that the machinery received from foreign customers on a no-cost, returnable basis should not be considered for calculating the 20% threshold under section 10A(2). The assessee argued that the value of the machinery used in the manufacturing process, including the leased machinery, should be considered, and it does not exceed 20% of the used machinery transferred to the new undertaking. The Appellate Commissioner and the Tribunal agreed with the assessee, stating that the value of the leased machinery should be included in the total value of the machinery used in the business. The High Court upheld this decision, noting that Explanation 2 to section 80-I(2) clarifies that machinery used outside India and imported into India is not regarded as previously used machinery. The Court concluded that the total value of the machinery used in the business, including the leased machinery, should be considered, and the old machinery transferred did not exceed 20% of this total value.

Conclusion:
The High Court dismissed the revenue's appeals, affirming that the assessee is entitled to the benefit of section 10A of the Income-tax Act, 1961. The Court held that ownership of the machinery is not a requirement for claiming exemption under section 10A, and the value of leased machinery should be included in the total value of machinery used in the business for calculating the 20% threshold. The substantial questions of law were answered in favor of the assessee and against the revenue.

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