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TMI Blog1976 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... 733, out of which buildings and lands accounted for Rs. 14,46,530. The plant and machinery which were without any dispute not used in any other business previously were valued at Rs. 8,69,627 while the reconditioned machinery was worth a little more than Rs. 5 lakhs. It appears that thereafter the assessee purchased new as well as reconditioned machinery--the latter imported from the U.K.--in the next two years. At the end of the accounting period relevant to the assessment year 1961-62, the machinery which was not used previously was valued at Rs. 17,22,682 while the reconditioned machinery was valued at Rs. 14,95,715. The assessee-company claimed exemption before the Income-tax Officer provided for in section 15C on the ground that the company was carrying on an industrial undertaking, whose profits qualified for exemption under that provision. The Income-tax Officer accepted the claim of the assessee-company and allowed the exemption of profits amounting to Rs. 2,31,855. Acting under section 33B of the Act the Commissioner of Income-tax took the view that the order of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue, inasmuch as, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery formed 13% of the total block in the first year of its operation, 20% in the second year of its operation and 24% in the third year of its operation. It was also contended that the reconditioned machinery could not be treated as machinery previously used for any other business for the purpose of section 15C, both on the ground that such machinery was required to be used previously in India before the company disqualified itself from getting relief contemplated by section 15C and that the reconditioned machinery could not be regarded as second-hand machinery. It was urged that having regard to the scheme of section 15C machinery, whose transfer would disqualify an undertaking for the relief, would be machinery previously used in any other business in India or in any other business which was liable to Indian income-tax and that in any case machinery, whose transfer would disentitle an undertaking from getting relief, should be big enough to form an undertaking by itself. The Tribunal held that the company was an industrial undertaking which was entitled to get the relief under section 15C because it could not be said to be an undertaking which had been formed by the transfer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany's block, the assessee-company would not have been in a position to manufacture its products and, therefore, the company should be regarded as an industrial undertaking formed by the transfer, to a new business, of building, plant or machinery previously used in any other business. In support of his contention reliance was placed by him on a decision of this court in the case of Capsulation Services Pvt. Ltd. v. Commissioner of Income-tax [1973] 91 ITR 566 (Bom), where this court has taken the view that section 15C(2)(i) applies to an industrial undertaking which is not formed by the transfer to a new business of a building used in any other business. He pointed out that this court has taken the view that the requirement of a building, whatever may be its shape, size or form, is essential for the formation of an industrial undertaking. In view of this the industrial undertaking can never be formed unless it has a building for its factory or establishment, and though in that case the assessee had acquired an area of 2,000 sq. ft. at a monthly rent of Rs. 1,500 for the purpose of establishing its factory, since that building and the portion thereof which had been taken on a mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961-62, the total value of the new machinery which had not been used previously was of the value of Rs. 17,22,682 while the reconditioned machinery was of the value of Rs. 14,95,715. It was because of these figures which were available from the reconciliation statement that the Tribunal has recorded a finding that the reconditioned machinery was not the nucleus around which an undertaking was formed and that in all the relevant years there was preponderance of entirely new machinery. In other words, from the valuation point of view substantial part of machinery which went to form the nucleus was the new machinery and not the reconditioned machinery. None of the taxing authorities below nor the Tribunal has gone into the question whether from the production point of view, which was more important, the reconditioned machinery was important or newly purchased machinery was important nor was any argument on that aspect of the matter ever made before the taxing authorities as well as before the Tribunal. It may be pointed out that even the Commissioner of Income-tax had come to the conclusion that the order passed by the Income-tax Officer who had accorded relief to the assessee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of clause (ii) of sub-section (4) and clause (a) of sub-section (6), the condition specified therein shall be deemed to have been complied with and the total value of the building, machinery or plant or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking or the business of the hotel." The contention of Mr. Joshi was, having regard to this percentage which has been fixed of valuation of plant or machinery which has been so transferred as compared to the total value of the entire block, similar aspect should be taken into consideration in the instant case, for even according to the assessee's own showing such reconditioned machinery formed 13% of the total block in the first year, 20% in the second year and 24% in the third year, being the relevant assessment year 1961-62. He, therefore, urged that the assessee-company should be regarded as an undertaking formed by the transfer, to a new business, of machinery or plant previously used in any other business. It is not possible to accept this contention of Mr. Joshi for the obvious reason that the Explanation, which is to be found in section 80J, has been put on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion did find favour with the Madras High Court in Commissioner of Income-tax v. Fenner Cockill Ltd. [1969] 74 ITR 394 (Mad). Mr. Awasthy contends that the basis of percentage is not the basis that can be taken into account under the 1922 Act. It is undoubtedly true. We have not taken that as the basis. We have only used the proportion to illustrate the point. The basis for our view is the same as that adopted by the Madras High Court in Fenner Cockill's case [1969] 74 ITR 394 (Mad). Therefore, whatever way the matter is examined, we are of the opinion that the Tribunal was right in allowing the benefit, of section 15C of the Act to the assessee." It will appear from the above observations, that reference to percentage was made by the Tribunal in its order and the same was approved by the High Court. A contention was raised on behalf of the department that such percentage would riot be relevant under the old Act. But the High Court has pointed out that percentage was not referred to for the purpose of making it the basis of its decision but the same had been used for the purpose of illustrating the point and the court took the view that there was no fallacy in the approach of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ", has been imported by the assessee-company from the U.K. and according to the statement of reconciliation at the end of the accounting period relevant to the assessment year 1961-62, the machinery which was not used previously was of the value of Rs. 17,22,682 while the reconditioned machinery was of the value of Rs. 14,95,715. The question is whether the industrial undertaking of the assessee-company could be said to have been "formed by the transfer, to a new business, of machinery or plant used in a business ". A two-fold contention was raised before us by Mr. Kaka appearing for the assessee-company. In the first place, he urged that the reconditioned machinery should not be equated with second-hand machinery or machinery which has been previously used but should be regarded as a new machinery. Secondly, he urged that there was no evidence on record to show that this reconditioned machinery which had been imported by the assessee-company from the U.K. had been used previously either in the U.K. from where it was imported or in India after it was imported but before it was installed in the assessee's factory; and in any case he urged that this reconditioned machinery was never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is that the machinery must have been in use in any other business in India and not in any business anywhere else in the world. This view finds ample support from the phraseology used in the provision. The use of the word 'building', in relation to transfer, clearly indicates that the transfer is of a thing existing in India, whether that is building or machinery or plant, otherwise the legislature would not have clubbed the word 'building' along with 'machinery' or 'plant'. In the very ontext of the provision, the machinery can be new or old and all that would have to be seen is whether in the case of old machinery it had been used in a business in India or not. The object of this provision seems to be that the benefit of section 15C is not available qua the same item twice. We are, therefore, clearly of the view that the contention of the learned counsel to the contrary cannot be accepted." It would appear clear from the aforesaid decision and the relevant observations which we have quoted above that the expression "machinery or plant used in any business" occurring in sub-section 2(i) of section 15C have been interpreted by the Punjab and Haryana High Court in [1972] 84 ITR ..... 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