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TMI Blog1994 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... 4)(ii) of the Income-tax Act, 1961, for the purposes of deduction under section 80J of the Act, 1961? " The brief facts of the case are that the assessee is a registered firm and is a manufacturer of packing material particularly in bags of hessian cloth and D. W. tarpaulin mixed with bitumen, rayons, etc. During the course of assessment, it was found by the Income-tax Officer that the deduction which has been claimed under section 80J(4) of the Income-tax Act, 1961, is not available to the assessee since the difference of the total cost of machinery is Rs. 1,62,275 and the old machinery for Rs. 57,066 have been purchased which exceeded the 20 per cent. of the limit prescribed under this section. It was also found by the Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that basis, it was observed that the conditions of section 80J(4)(iv) have been complied with. Against this order of the Appellate Assistant Commissioner, the assessee challenged the matter before the Income-tax Appellate Tribunal and it was submitted that the old machinery were purchased from the open market and never formed part of the assessee's business before the commencement of the undertaking. The provisions of clause (ii) to subsection (4) of section 80J, therefore, were not applicable. The Income-tax Appellate Tribunal came to the conclusion that the old section 15C corresponds to section 80J of the Act of 1961. The Revenue has to prove that the assessee transferred any machinery or plant of its old business to new business. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was under clause (ii) of subsection (4) that it should not be formed as an industrial undertaking by the transfer to a new business of machinery or plant previously used for any purpose. Sub-clause (ii) of sub-section (4) of section 80J has been explained under Explanations 1 and 2 and since the assessee is not fulfilling the conditions of clause (ii) of sub-section (4) of section 80J as explained in the Explanation, the assessee is not entitled to deduction. We have considered over the matter. The provisions of section 80J(4), clause (ii), read as under : " This section applies to any industrial undertaking which fulfils all the following conditions, namely :-- . . . (ii) it is not formed by the transfer to a new business of machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount in computing the capital employed in the industrial undertaking. " From the bare perusal of the Explanations, it is evident that Explanation 1 refers to use of machinery by any person other than the assessee outside India. Clause (a) of the Explanation mentions that such machinery or plant was not, at any time, previous to the date of the installation by the assessee used in India and clause (b) mentions that such machinery or plant is imported into India from any country outside India. This section contemplates that the machinery might have been used outside India, but has not been put to use in India before it was imported into India on the date of installation by the assessee. Explanation 2 refers to another condition, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in a new industrial undertaking should not have been previously used in India in connection with any business. This court in Kanhiyalal Rameshwar Das v. CIT [1985] 156 ITR 463, has taken the view that under Explanation 2, section. 80J(4), all old and used machinery irrespective of as to who has used such machinery previously and from which source it was acquired is not entitled for deduction. The words " by the assessee himself " cannot be read after the word " purpose " in the said section. Circular No. 40, dated December 3, 1962, of the Central Board of Direct Taxes has provided that machinery or plant should not have been used in India previously at any time or for any purpose and it should not have also been previously used abroad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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