Court rules in favor of company claiming relief under Income-tax Act for new industrial undertaking

Commissioner Of Income-Tax, Gujarat IV Versus Suessin Textile Bearing Limited

Commissioner Of Income-Tax, Gujarat IV Versus Suessin Textile Bearing Limited - [1982] 135 ITR 443, 21 CTR 219, 5 TAXMANN 170 Issues Involved:
1. Entitlement to relief under Section 84 of the Income-tax Act, 1961.
2. Interpretation of conditions under Section 84(2) of the Income-tax Act, 1961.
3. Applicability of the principle of noscitur a sociis in interpreting the Act.
4. Impact of legislative amendments and judicial precedents on the interpretation of Section 84.
5. Consistency and uniformity in judicial interpretation of tax statutes.

Detailed Analysis:

1. Entitlement to Relief under Section 84 of the Income-tax Act, 1961:
The primary issue was whether the assessee, a limited company engaged in manufacturing ball-bearings and textile machinery, was entitled to relief under Section 84 of the Income-tax Act, 1961, for the assessment year 1962-63. The Income Tax Officer (ITO) had denied this relief on the basis that the assessee could not be termed a new industrial undertaking as per Section 84. This decision was contested by the assessee and subsequently upheld by the Appellate Assistant Commissioner (AAC) and the Tribunal, leading to the current reference.

2. Interpretation of Conditions under Section 84(2) of the Income-tax Act, 1961:
Section 84(2) stipulates that to qualify for relief, an industrial undertaking must not be formed by:
- The splitting up or reconstruction of a business already in existence.
- The transfer to a new business of a building, machinery, or plant previously used for any purpose.

The Tribunal noted that the plant and machinery were new, and the assessee had leased office space and factory premises previously used by others. The key question was whether leasing such premises disqualified the assessee from claiming relief under Section 84.

3. Applicability of the Principle of Noscitur a Sociis:
The court applied the principle of noscitur a sociis, interpreting the term "transfer to a new business" in the context of the assessee's own business. The court concluded that the negative conditions in Section 84(2) should be interpreted to mean that the new industrial undertaking must not be formed by the transfer of assets from the assessee's existing business. Therefore, leasing premises previously used by others did not disqualify the assessee.

4. Impact of Legislative Amendments and Judicial Precedents:
The court considered the legislative history and amendments to Section 84 and its successor, Section 80J. The amendments clarified that leasing premises did not contravene the conditions for relief, reinforcing the court's interpretation. The court also reviewed judicial precedents, including the Supreme Court's decision in Textile Machinery Corporation Ltd. v. CIT, which emphasized the importance of substantial new capital investment and the separate identity of the new undertaking.

5. Consistency and Uniformity in Judicial Interpretation:
The court acknowledged the need for uniformity in interpreting tax statutes but noted that the Supreme Court's decision in Textile Machinery Corporation's case provided overriding reasons to diverge from the Bombay High Court's earlier rulings. The court also referenced decisions from other High Courts, finding support for its interpretation.

Conclusion:
The court concluded that the assessee was entitled to relief under Section 84, as the new industrial undertaking was formed with new plant and machinery, and the leasing of previously used premises did not disqualify it. The Tribunal's decision to uphold the AAC's ruling in favor of the assessee was affirmed. The question referred to the court was answered in the affirmative, in favor of the assessee, and against the revenue. The Commissioner was directed to pay the costs of the reference to the assessee.