Separate industrial unit test upheld where fresh capital, distinct identity, and new infrastructure support deduction eligibility.

A newly established industrial unit is not treated as a split-up or reconstruction of an existing business where it is set up in a new building with new machinery, separate registration, a different PAN, different customers, and substantial fresh investment in land, building, plant and machinery. Limited transfer of machinery and movement of employees from the earlier concern is insufficient, by itself, to deny incentive relief. Applying the test for new industrial undertakings, the unit was held to have a separate and identifiable existence and was entitled to deduction under Section 80-IC of the Income-tax Act, 1961.

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Issues: Whether the new industrial unit was formed by splitting up or reconstruction of an existing business so as to disentitle it from deduction under Section 80-IC of the Income-tax Act, 1961.

Analysis: The unit was found to have been established in a new building with new machinery, substantial fresh investment in land, building, plant and machinery, separate registration, a different PAN, and different customers. The transfer of only a small portion of machinery from the earlier concern and the movement of employees were held insufficient to show that the new unit was merely a split-up or reconstruction of the old business. Applying the principles governing incentive provisions for new industrial undertakings, the relevant test was whether there was a new and identifiable undertaking with a separate existence and substantial fresh capital investment.

Conclusion: The new unit was not formed by splitting up or reconstruction of the existing business and was entitled to deduction under Section 80-IC of the Income-tax Act, 1961.

Final Conclusion: The legal effect of the decision is that the assessee's claim to the industrial deduction was upheld and the revenue's appeal failed.

Ratio Decidendi: A newly established industrial unit with substantial fresh capital, separate identity, and a physically distinct existence is not denied deduction merely because it uses some assets or employees from an earlier concern, unless it is shown to have been formed by splitting up or reconstruction of the existing business.

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