High Court affirms relief under Income Tax Act for new industrial unit

The High Court upheld the Tribunal's decision to grant relief under section 80J of the Income Tax Act to the assessee who installed a second unit in their sugar mill. The Court found that the second unit constituted a new industrial undertaking with substantial investment, separate labor, and distinct operations from the existing unit. The Court also determined that the machinery from the first unit used in the second unit was temporary and within the permissible limit, thus qualifying for the relief. The assessee was awarded costs of Rs. 500.

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Issues involved: Interpretation of relief under section 80J of the Income Tax Act, 1961 for the installation of a second unit in an industrial undertaking.

Summary:
The assessee, owning a sugar mill, installed a second unit and claimed relief under section 80J. The Income Tax Officer (ITO) denied the claim, stating the second unit was not an independent undertaking. The Appellate Authority Commissioner (AAC) also rejected the claim, considering it as an expansion of the existing unit. The Tribunal, however, ruled in favor of the assessee, stating the second unit met the requirements of section 80J. The High Court was asked to opine on the matter.

The revenue contended that the second unit was formed by splitting up and reconstruction, disqualifying it from relief under section 80J(4)(i). Referring to a Supreme Court decision, it was clarified that a new industrial undertaking involves substantial investment, separate labor, and distinct identity. The Tribunal found the second unit to be independent, with significant fresh capital investment and separate operations from the first unit.

Additionally, the Tribunal noted that the machinery from the existing unit used in the second unit was temporary and did not exceed 20% of the total machinery value in the second unit, thus not falling under section 80J(4)(ii). As the assessee did not meet the criteria of either section 80J(4)(i) or 80J(4)(ii), the Tribunal's decision to grant relief under section 80J was upheld by the High Court. The assessee was awarded costs of Rs. 500.

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