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TMI Blog1980 (8) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was entitled to relief under section 80J of the Income-tax Act, 1961, by reference to the capital employed in the industrial undertaking at Faridabad setup in the accounting period relevant to the assessment year 1968-69 ? " The respondent-assessee is a private limited company. It had a factory at Faridabad where it manufactured hand tools. During the assessment year 1968-69 (the corresponding previous year ending on 30th June, 1967) the assessee-company set up another factory to manufacture hand tools. This second factory was housed in a newly constructed separate building at Faridabad across the road from the original factory. New machinery was installed in this new factory, which was operated by electric power, and more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded that it was a case of expansion of business and the exemption under s. 80J of the Act was not available. On appeal, the AAC felt that it was not necessary to raise separate capital for the new unit in view of the capital and reserve available with the assessee-company. Moreover, holding that the provisions had to be construed liberally to as to encourage the establishment of new undertakings and relying on the decision of the Supreme Court in CIT v. Webbing Belting Factory Ltd. [1968] 68 ITR 186, to this effect, he directed the ITO to allow the assessee-company the benefit claimed under s. 80J. Thereafter, the department appealed to the Income-tax Appellate Tribunal contending that the new undertaking was formed by a reconstruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the old factory and was located in close proximity to it, would indicate that it was a case of splitting up or reconstruction. He, therefore, contended that the unit was not entitled to the exemption under s. 80J of the Act. Section 84 of the Act dealt with the income of new industrial undertakings. By the Finance(No.2) Act, 1967, s.84 was deleted with effect from 1st April, 1968, and section 80J inserted. In the Indian I.T. Act, 1922, Act, section 15C dealt with this matter. Though there are a number of differences in the abovementioned three sections, yet for the purposes of this case, they are not relevant. Section 80J stipulates that a new industrial undertaking would be entitled to a deduction of 6 per cent. on return on the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the old business to the new undertaking. Further, the fact that the new activity launched by the assessee is to produce the same commodities as the old business or produce under distinct marketable products which feed the old business, would not amount to reconstruction of the old business. However, the establishment of a new unit with new and separate plant and machinery by investing substantial funds is essential. Applying these principles to the present case, it is clear that the new unit has not been formed by the splitting up or reconstruction of the existing business. The second unit has not derived anything from the old unit either by way of equipment or by way of factory buildings. No assets of the old unit have been transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l undertaking. Employment of capital in a new industrial undertaking is different from the capital belonging to the assessee-company. If surplus/reserve capital is available with the assessee-company, it can utilize a specific amount of this capital for the purchase of the plant, machinery, buildings and other assets of the new undertaking. As soon as the capital is so utilized for acquiring assets for the new undertaking, it will be an employment of capital. The actual amount of capital so utilized/employed in the new undertaking would then qualify for the purpose of calculating the deduction. The utilization of a definite amount of capital appears to be contemplated in order to attract the provisions of the section. Further, as the reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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