9911796707
TMI Blog1989 (9) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... the old assets exceeded the limit of 20% as stipulated in section 80J(4)(ii) of the Act and negatived the contention that the percentage should be reworked for the year in question and not as in the initial assessment year. Against that order, the assessee filed an appeal to the Appellate Assistant Commissioner, who having held that eligibility had to be considered each year on the basis of the then prevalent circumstances, found that the assessee was eligible to the benefit under section 80J of the Act. The Revenue being aggrieved by that order filed unsuccessfully second appeal before the Tribunal. At the instance of the Revenue, the Tribunal has made this reference for our opinion under section 256(1) of the Act on the following questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery. It is, therefore, contended that, for the purposes of deductions under section 80J, the only thing relevant is the year in which manufacture commenced and if the undertaking fulfils the conditions mentioned in sub-section (4), the undertaking becomes eligible and if that requirement is not fulfilled in the first year, even if in any subsequent year the proportion of the value of the old assets is made to fall below 20 per cent., by making fresh investment so as to fulfil the requirement mentioned in Explanation 2, the same is of no consequence. The Tribunal rejected this contention following a decision of the Gujarat High Court in CIT v. Satellite Engineering Ltd. [1978] 113 ITR 208. The Gujarat High Court proceeded, in that case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80J of the Act in the initial year of its manufacture or production can claim such relief if those conditions are satisfied in the subsequent four years. The object of section 80J(1) of the Act has been explained by the Supreme Court in Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 as encouraging the setting up of new industrial undertakings by offering tax incentives. The relief that is granted under section 80J(1) of the Act is in respect of profits and gains of an undertaking to the extent it does not exceed the amount calculated at the rate of 6 per cent. per annum on the capital employed in such industrial undertaking. The percentage of relief is at the rate of 71/2 per cent. per annum in the case of companies which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons is that an undertaking, to be eligible for the benefit of the relief under section 80J(1), is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 2 of sub-section (4) of section 80J provides that where, in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose was transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with and the total value of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted is one at the time of formation of the new undertaking. The eligibility for exemption has to be tested in the initial assessment year. Therefore, the exemption would not be available if, in the initial assessment year, the proportion of old assets transferred or utilised for the new business is above 20 per cent. of the total investment, though in any subsequent year, even if it be within five years, new investment is made so as to reduce the proportion of the value of the old assets below 20 per cent. Therefore, the eligibility stands determined in the initial assessment year and once an industrial undertaking is found eligible in the initial year of manufacture, such benefit could be availed of in any of the succeeding four years. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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