Industrial undertaking relief upheld where old machinery was only a minor part of the plant and not vital to formation.

Industrial undertaking relief under section 15C of the Indian Income-tax Act, 1922 was not denied where the new unit was established mainly with newly purchased machinery and the old machinery transferred from another business was only a minor fraction of the total plant. The transferred machinery was not of such vital importance that the undertaking could be said to have been formed by its transfer, especially since a substantial part of it was later returned without affecting manufacturing activity. The point was treated as one of fact, and the contention that the transfer agreement itself made the old machinery decisive was rejected. The issue was answered in favour of the assessee.

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Issues: Whether the industrial undertaking of the assessee was formed by the transfer to a new business of machinery or plant previously used in another business, so as to disentitle it from relief under section 15C of the Indian Income-tax Act, 1922.

Analysis: The undertaking was set up mainly with newly purchased machinery of substantial value, while the old machinery transferred was of relatively minor value and only a fraction of the total plant used. A substantial part of that old machinery was even returned without affecting the manufacturing activity. On these facts, the transferred machinery could not be regarded as of such vital importance that the undertaking was formed by its transfer. The determination was treated as one of fact, and the departmental case that the agreement for transfer itself made the old machinery vital was rejected. The reasoning was supported by the earlier decision dealing with the significance of old machinery in the formation of an industrial undertaking.

Conclusion: The question was answered in the negative and in favour of the assessee.

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