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TMI Blog1999 (2) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment years 1981-82 and 1980-81 ?" So far as the first question is concerned we may straightaway refer to the decision of the Supreme Court in the case of CIT v. Indian Engineering and Commercial Corporation Pvt. Ltd. [1993] 201 ITR 723. It was held by the Supreme Court in that case that both sections 40(c) and 40A(5) of the Income-tax Act apply to employees who also happen to be directors and that "in the case of directors who are also employees, both the provisions will be attracted--the higher of the two ceilings has to be applied." The first question refers to the salary, perquisites paid to the managing director. It is not in dispute that the managing director is also an employee as, though he is a director of the company, he receives salary from the company and also enjoys the perquisites given to him by the company after the company had secured the approval required under the Companies Act for paying the salaries and perquisites for the managing director. The Tribunal was not right in holding that section 40A(5) of the Act is not applicable to the managing director. As observed by the Supreme Court both sections 40(c) and 40A(5) of the Act apply to the emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no dispute that the assessee had substantially increased the capacity, separate factory buildings have been erected, new plant and machinery had been purchased and installed and new facility like godown, etc., including a carding room have been found installed and the entire expansion is an independent unit and capable of functioning as such." There is no dispute regarding the correctness of the finding of the Tribunal. We have to consider the arguments advanced by learned counsel for the Revenue in the background of that finding of the Tribunal. It was contended by learned senior counsel for the Revenue, Mr. S. V. Subramaniam, that section 80J of the Act cannot at all be invoked by the assessee which had not established a new industrial undertaking and that the scope of section 80J of the Act is limited to new industrial undertakings and does not extend to expansion of existing undertakings. The further submission was that as the expansion was not accomplished within a single year, but was spread over a longer period of time, additional spindlage having been added over a period of five years the benefit if any, found to be Permissible under section 80J of the Act could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty three years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking ; (iv) in a case where the industrial undertaking manufactures or produces articles, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power" The first two conditions are in negative terms. They require that the industrial undertaking in respect of which the deduction is claimed under section 80J of the Act is not one which is formed by the splitting up, or the reconstruction, of a business already in existence and is also not formed by the transfer to a new business of machinery or plant previously used for any purpose. These two provisions indicate that it was not the bringing into existence of a separate legal entity or the commencement of a business as a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other facilities such as factory buildings, godowns, etc., when taken, together are capable of being regarded as In industrial undertaking, the requirements of the section are met. The fact that the industrial undertaking so established by way of substantial expansion is at a location which is adjacent to the existing undertaking would not in any way render such an undertaking any the less a new undertaking for the purpose of determining its eligibility under section 80J of the Act. When substantial expansion of industrial undertaking is embarked upon such expansion cannot be expected to be completed overnight of within the same assessment year. The size of the expansion, the amount of investment required, the extent of the construction that may be involved, the lead time required for securing the new machinery, the source of the supply, the extent of finance available and the speed with which such finance can be obtained are all factors which along with other relevant factors cumulatively determine the extent of time within which the expansion can be completed. All these factors are no doubt relevant even when a new undertaking is established for the first time by the newly cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . .". "Manufacture or production of articles yielding additional profit attributable to the new outlay of capital in a separate and distinct unit is the heart of the matter to earn exemption of tax liability under section 15C". Regarding the effect of substantial expansion, the court observed, "the true test is not whether the new industrial undertaking connotes expansion of an existing business of the assessee, but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not". In the case of CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 567. The Supreme Court upheld the claim of the assessee for benefits under section 15C of the Indian Income-tax Act, 1922, inter alia, in respect of expansion of its existing factories by setting up units side by side with the old units and adding to the respondent's total output. In the case of CIT v. Orient Paper Mills Ltd. [1989] 176 ITR 110, the apex court upheld the decision of the Calcutta High Court which had held that the assessee which had set up a pla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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