Separate undertaking test supports section 80IC deduction where new unit has distinct premises, registrations, employees, and business operations.

Unit-III was treated as a separate and distinct undertaking for deduction under section 80IC because it operated from different premises, had separate registrations, employees and client base, and carried on distinct business activities. The fact that it began from premises earlier used as a registered office did not, by itself, establish splitting up or reconstruction of Unit-II. In the absence of evidence that Unit-II's plant and machinery was used for Unit-III, the unit was regarded as an independent expansion into fresh lines of business. Accordingly, Unit-III was eligible for section 80IC deduction and its initial assessment year could not be linked to Unit-II.

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Issues: Whether Unit-III was a new and separate undertaking entitled to deduction under section 80IC of the Income-tax Act, 1961, or whether it was a reconstruction/splitting up of the existing business so as to take the same initial assessment year as Unit-II.

Analysis: The assessee established that Unit-II and Unit-III were run from different premises, had separate registrations, separate employees, separate client base, and distinct business operations. The mere fact that Unit-III commenced operations from a premises which had earlier been used as the registered office did not, by itself, show splitting up or reconstruction of Unit-II. There was also no material to show that the plant and machinery of Unit-II had been used for Unit-III. On the facts, Unit-III was found to be an independent undertaking engaged in expanded and fresh lines of business.

Conclusion: Unit-III was held to be a separate and distinct unit eligible for deduction under section 80IC, and its initial assessment year could not be treated as that of Unit-II. The assessee succeeded on this issue.

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