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TMI Blog1993 (2) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... ding and installed its, own plant and machinery, and started production in 1959. The original idea was to convert the firm into a private limited company but, on account of certain unforeseen difficulties with the Registrar of Companies, a separate company, which is the present assessee, was required to be floated and the manufacturing licence obtained by the firm was got transferred to the assessee-company. The assessee-company did not have its own building or plant and machinery. It, therefore, occupied the firm's building and used the firm's plant and machinery for the purpose of carrying on its business of manufacturing carbide-tipped tools under an agreement with the firm. Under the agreement, the assessee-company was to pay to the firm rent of Rs. 1,500 per month for the use of the factory building and hire charges of Rs. 2,500 per month for the use of machinery and electrical installations. Though the agreement was initially for a period of eleven months commencing from the date of the agreement, i.e., December 22, 1960, it is an agreed position that it continued throughout till the accounting year relevant to the assessment year 1965-66. The assessee claimed that being a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act, as it stood at the relevant time, provides for relief to be granted to newly established industrial undertakings to the extent of 6% per annum on the capital employed in such undertakings. Sub-section (2) thereof lays down the conditions which are to be fulfilled to be entitled to avail of this benefit. Section 84, so far as relevant, reads as follows : " 84. Income of newly established industrial undertakings or hotels. (1) Save as otherwise hereinafter provided, income-tax shall not be payable by an assessee on so much of the profits and gains derived from any industrial undertaking or hotel to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking or hotel, computed in the prescribed manner. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely : (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of building, machinery or plant previously used for any purpose; (iii) it manufactures or produces articles or operates one or more cold storage plants, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or plant for the manufacture or production of the articles. It had taken the same on lease from the existing partnership firm which itself had been using the same for the last 2-3 years for the purpose of manufacture. The taking over of these assets from the partnership was effected by an agreement dated December 22, 1960, under which the assessee had to pay to the owner thereof, i.e., the firm, an amount of Rs. 1,500 per month for the use of the factory building and hire charges of Rs. 2,500 per month for the use of machinery and electrical installations. The question that falls for determination is whether, on these facts, it can be said that the industrial undertaking of the assessee-company was not formed by the transfer to the new business of building, machinery and plant previously used by the firm. The Income-tax Officer was of the opinion that there was no transfer of the building which was given on rent but there was a transfer of machinery and plant which were given on hire.Accordingly, he held that the assessee did not fulfil the condition laid down in clause (ii) of sub-section (2) of section 84 of the Act and, as such, he was not entitled to the relief under the said s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in section 2(47) of the Act in the following terms " 2.(47) 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. " " Capital asset " again has been defined in section 2(14) to mean property of any kind held by the assessee whether or not connected with his business or profession except those specified in the four sub-clauses thereof which are not relevant for our purpose. The Supreme Court in the case of A. R. Krishnamurthy v. CIT [1989] 176 ITR 417 had occasion to consider the meaning of the expression " transfer of a capital asset ". It was dealing with a mining lease. The question was whether the " grant of mining lease " amounts to " transfer of a capital asset ". The Supreme Court -C referred to the decision of the Division Bench of the Patna High Court in Traders and Miners Ltd. v. CIT [1955] 27 ITR 341, which had already been referred to with approval by the Supreme Court in its earlier decision in R. K. Palshikar (HUF) v. CIT [1988] 172 ITR 311. The following passage from the decision of the Patna High Court ( at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ownership but includes also dominion or the right of ownership or of partial ownership. It is the most comprehensive of all terms which can be used inasmuch as it is indicative and descriptive of every possible interest which the party can have. Ordinary modes of transfer as referred to in the Transfer of Property Act are sale, mortgage, lease, gift and exchange. In the case of sale, gift and exchange there may be complete transfer of ownership. But, in the other two cases of transfers, namely, mortgage or lease, the entire bundle of rights that go to constitute ownership are not transferred but some limited rights or interest in or to the property are transferred. Even in the case of mortgage or lease of immovable property, it is well-settled that it is a transfer of property. The words 'transfer to a new business of building' cannot, therefore, be restricted to a case 'where. full rights of ownership are transferred', but they will be wide enough to include within their scope cases where even rights or interest to or in such building is created. A lease of an immovable property as defined under the Transfer of Property Act is a transfer of a right to enjoy such property, made fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (ii), lease of premises. It provides that the condition in clause (ii) shall be deemed not to have been contravened if the industrial undertaking is set up in rental premises. As a natural corollary, in the absence of this deeming provision, the condition in clause (ii) is violated if the industrial undertaking is set up in rented premises. Evidently, this deeming provision is not applicable to the assessment year 1965-66 to which this reference relates. Besides, in the case under reference, not only building, even the machinery and electric installations were previously used and had been obtained by the assessee by transfer on payment of a monthly rent/hire. Moreover, from a conjoint reading of the two clauses (i) and (ii) of sub-section (2), it is clear that the whole idea is that the industrial undertaking should be in the true sense a new industrial undertaking. It should not be formed by transfer of building, machinery or plant previously used for any purpose. These two clauses read together make it abundantly clear that the new business of manufacture formed by transfer of building, machinery or plant previously used by another firm for the purpose of manufacture does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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