9911796707
TMI Blog1983 (7) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed, as capital expenditure ? 2. Whether the assessee was entitled to relief under section 80J(4)(i) in respect of the plant put up at Kottayam for manufacture of masticated rubber ?" The assessee in this case has paid a sum of Rs. 4,79,481 being the gross amount of technical charges to the Mansfield Tyre & Rubber Company, U.S.A., in terms of the collaboration agreement dated September 4, 1961. The ITO disallowed 25 per cent. of the gross amount of the royalty and technical charges so paid and this was confirmed in appeal by the AAC. The matter was taken to the Tribunal and the Tribunal held that the entire royalty payment made in terms of the collaboration agreement should be allowed as a deduction. Aggrieved by the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endent unit, set up at heavy capital cost, to produce a commercial product, that it is a new venture without affecting the original character of the Thiruvottiyur unit, that the Thiruvottiyur unit is not intrinsically altered to any extent and it continues to manufacture automobile tyres and tubes in the same way even after the establishment of the Kottayam unit and that, therefore, the Kottayam unit should be taken to be a new industrial undertaking. As against the said contentions, the Revenue contended that the Kottayam unit is only an expansion of the already existing industrial establishment at Thiruvottiyur and since the Kottayam unit had been established only to fulfil the needs of the existing industrial undertaking in the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee was previously procuring masticated rubber, which is a raw material for the, manufacture of automobile tyres and tubes, from others without itself undertaking the process of masticating rubber in its factory at Thiruvottiyur. Subsequently, in the year 1969, the assessee started a new and separate venture for masticating rubber. This unit is found to be a self-contained, independent unit. This unit is engaged in the process of masticating rubber and sells the resultant product not only to the assessee-company, but also to outsiders. The Kottayam unit has not affected intrinsically or otherwise any of the operations in the existing unit at Thiruvottiyur. On these facts, we cannot agree with the contention of the Revenue that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutta High Court held that producing one's own goods systematically used in the existing business instead of buying them from outside would only be a reconstruction of an existing business within the meaning of s. 15C(2)(i). On appeal, the Supreme Court reversed the decision of the Calcutta High Court, holding that the steel foundry and the jute mill were not formed by the reconstruction of the business already in existence, within the meaning of s. 15C(2)(i) and that, therefore, the assessee was entitled to the exemption claimed. It was held that for the reconstruction of an existing business, there must be transfer of the assets of the existing business to the new industrial undertaking and the new activity launched by the assessee by est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking had been transferred to the new unit at Kottayam. It is also seen that the Kottayam unit was set up with new plants and machinery for producing masticated rubber. Though a substantial portion of the masticated rubber produced by the Kottayam unit is used up by the existing undertaking of the assessee-company, it cannot be said that the Kottayam unit was established in the process of reconstruction of the existing business or establishment. The decision of the Supreme Court referred to above, therefore, squarely applied to the facts of this case. The decision of the Tribunal in this case is quite in accord with the view expressed by the Supreme Court in the above case. Therefore, we, answer the second question in the affirmative and a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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