Section 15C exemption turns on substantial formation from old assets, not incidental use of leased premises or minor used tools.

Section 15C, an incentive provision, must be construed liberally so as not to defeat industrialisation. The disqualifying transfer of previously used building, machinery or plant applies only where the new industrial undertaking is formed by such transfer in substance, not where old assets are merely used incidentally or nominally. Leasing premises and using minor previously used tools and implements did not, on the facts stated, make the undertaking a re-formed business or trigger the statutory bar. The assessee therefore remained entitled to partial exemption under section 15C.

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Issues: Whether an assessee establishing a new industrial undertaking in premises taken on lease, with minor use of previously used tools and implements, was disentitled to partial exemption under section 15C of the Indian Income-tax Act, 1922 because the undertaking was formed by transfer of building, machinery or plant previously used in another business.

Analysis: Section 15C was an incentive provision intended to promote industrialisation and had to be construed liberally, while the restrictive language in sub-section (2)(i) had to be read reasonably so as not to defeat the legislative object. The decisive inquiry was not whether any building, plant or machinery previously used in another business had been transferred, but whether the undertaking was formed by such transfer in the sense that the transfer was dominant or substantial in bringing the new unit into existence. A nominal or insignificant use of old assets, or the taking of premises on lease, did not by itself establish that the new undertaking was formed out of the old business. On the facts found, the leased premises and the small-value tools and implements did not constitute the dominant formative element of the undertaking.

Conclusion: The assessee was entitled to partial exemption under section 15C and was not disqualified merely because the undertaking was carried on in leased premises or because minor old tools and implements were used.

Ratio Decidendi: For the purpose of section 15C, the disqualifying transfer must be such that the new industrial undertaking is formed by it in substance and not merely uses some previously used assets; nominal or incidental use of old premises or equipment does not attract the statutory bar.

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