Prior use of machinery test limits disqualification from industrial relief where new machinery formed the undertaking's core.

Relief under section 15C was not denied because the assessee's undertaking was held not to have been formed by transfer of machinery or plant previously used in another business. The decisive factual test was whether the reconditioned machinery constituted the nucleus of the new undertaking; on the findings, it did not, as most of the machinery used in the relevant years was new. The expression "machinery or plant used in any business" was construed as referring to machinery previously used in business in India. As no material showed prior use of the imported reconditioned machinery before installation, the disqualifying condition was not proved and the exemption remained available.

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Issues: Whether the assessee-company's industrial undertaking was disqualified from relief under section 15C(2)(i) of the Indian Income-tax Act, 1922, because it was formed by the transfer to a new business of machinery or plant previously used in another business.

Analysis: The decisive inquiry was whether the reconditioned machinery formed the nucleus of the new undertaking or merely an important component of a block dominated by new machinery. On the facts found, the reconditioned machinery was not the nucleus around which the undertaking was formed, and the preponderance of the machinery used in the relevant years was entirely new. The Court also held that the expression "machinery or plant used in any business" in section 15C(2)(i) should be read, consistently with the construction adopted in similar fiscal contexts, as referring to machinery previously used in business in India. In the absence of material showing prior use of the imported reconditioned machinery either in the U.K. or in India before installation, the disqualifying condition was not established.

Conclusion: The assessee-company was not formed by the transfer to a new business of previously used machinery or plant, and it remained entitled to the relief under section 15C.

Final Conclusion: The reference was answered in favour of the assessee, and the departmental challenge to the exemption failed.

Ratio Decidendi: For disqualification under section 15C(2)(i), it must be shown by material on record that the undertaking was formed by transfer of machinery or plant previously used in another business, and the expression is to be construed as referring to prior use in India for purposes of the provision.

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