Partnership firm denied relief under section 80J for used machinery but granted relief under section 80HH

The High Court of Madras ruled that the assessee, a partnership firm in the tannery and export business, was not entitled to relief under section 80J of the Income-tax Act for using machinery previously owned by another firm. However, the Court granted relief under section 80HH for machinery not previously used in a backward area. The decision aligned with the Supreme Court's interpretation in Bajaj Tempo Ltd. v. CIT, emphasizing that relief under section 80J does not apply when machinery previously used by a third party is transferred to a new industrial undertaking.

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Issues:
1. Entitlement to relief under section 80J of the Income-tax Act for an industrial undertaking using previously used plant and machinery.
2. Entitlement to relief under section 80HH of the Income-tax Act for machinery and plant previously used in a non-backward area.

Analysis:

The judgment by the High Court of Madras addressed the issues of relief under sections 80J and 80HH of the Income-tax Act for an assessee, a partnership firm engaged in the tannery and export business. The firm set up an industrial undertaking using machinery previously used by another firm. The Income-tax Officer initially denied the relief under section 80J, stating that the machinery was previously used by partners of the assessee in a different firm. The Appellate Assistant Commissioner upheld this decision. However, the Appellate Tribunal, following a precedent from the Gujarat High Court, allowed the relief under section 80J, emphasizing that the previous user referred to in the Act should be by the assessee, not necessarily by the same person.

Regarding the claim for relief under section 80HH, the Income-tax Officer and the Appellate Assistant Commissioner denied it for the same reasons as section 80J. However, the Tribunal granted the relief under section 80HH, noting that the machinery was not previously used in a backward area, meeting the conditions of the Act. The High Court concurred with the Tribunal's decision on section 80HH but disagreed on section 80J. The Court held that the relief under section 80J is not applicable when machinery previously used by any third party is transferred to a new industrial undertaking, as per the Supreme Court's interpretation in Bajaj Tempo Ltd. v. CIT.

In conclusion, the High Court answered the common questions of law as follows:
1. The assessee was not entitled to relief under section 80J, ruling in favor of the Revenue.
2. The assessee was entitled to relief under section 80HH, ruling in favor of the assessee. No costs were awarded in this case.

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