High Court: Cossipore factory qualifies as new industrial undertaking for tax relief

The High Court of Calcutta ruled in favor of the assessee, holding that the Cossipore factory was a new industrial undertaking and not formed by the transfer of assets from the Hazra Road factory. The Court emphasized the importance of the establishment date of the new undertaking and found that the Cossipore factory was independent, installed with new machinery, and operated separately from the old factory. The assessee was entitled to relief under section 15C(1) of the Income-tax Act, with no costs awarded. Judge R. N. Pyne concurred with the judgment.

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Issues involved: Interpretation of section 15C(2)(i) of the Indian Income-tax Act, 1922 regarding the formation of a factory by reconstruction of existing business or transfer of machinery.

Summary:
The High Court of Calcutta considered a case where the assessee had two factories, one at Hazra Road and another at Cossipore. The assessee started the Cossipore factory in 1956 by purchasing new machinery and plant, similar to what was being manufactured at the Hazra Road factory. The Hazra Road factory was closed in 1957. The Tribunal presumed that machinery from the Hazra Road factory was used at the Cossipore factory. The assessee claimed relief under section 15C(1) of the Income-tax Act for the Cossipore factory, which was disallowed by the Income-tax Officer but allowed by the Appellate Tribunal. The main question was whether the Cossipore factory was a new industrial undertaking or formed by the reconstruction of the existing business.

The Court analyzed the provisions of section 15C(1) and (2)(i) of the Act, emphasizing that the relief is available for new industrial undertakings and not for businesses formed by the transfer of assets from existing businesses. Various legal precedents were cited to determine the interpretation of "formed by the splitting up, or the reconstruction, of business already in existence." The Court highlighted that the relevant date for assessing this is the establishment date of the new undertaking.

In the present case, the Tribunal found that the Cossipore factory was independent and new, as it was installed with new machinery and run separately from the Hazra Road factory for some time. The Court noted that no machinery was transferred from Hazra Road to Cossipore, and the cost of installation at Cossipore far exceeded any transferred machinery's value. The Court distinguished this case from a previous judgment involving a sugar manufacturing plant, where the new unit was considered distinct and separate from the old unit.

Ultimately, the Court rejected the revenue's argument that the Cossipore factory was not a new industrial undertaking formed by the transfer of assets from the Hazra Road factory. The Court ruled in favor of the assessee, holding that they were entitled to the benefit under section 15C(1) of the Act. No costs were awarded in this case.

Judge R. N. Pyne agreed with the judgment.

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