1969 (2) TMI 33 - HC - Income Tax

Reconditioned imported machinery qualifies as new for tax exemption under Indian Income-tax Act

The High Court of Madras held that reconditioned machinery imported from abroad and used in a newly established industrial undertaking qualifies for ... Exemption u/s 15C - industrial Undertaking Issues:1. Interpretation of section 15C(2)(i) of the Indian Income-tax Act, 1922 regarding reconditioned machinery imported from abroad.2. Eligibility of exemption under section 15C for a newly established industrial undertaking using reconditioned machinery.3. Determination of whether reconditioned machinery qualifies as new machinery for tax exemption purposes.Analysis:The judgment delivered by the High Court of Madras addressed the issue of whether reconditioned machinery imported from abroad falls under the purview of section 15C(2)(i) of the Indian Income-tax Act, 1922. The case involved an assessee, a limited liability company engaged in manufacturing V Belts and other rubber goods, which started a new unit named 'Resilla division' for manufacturing industrial rubber goods. The company imported second-hand but reconditioned machinery for this new unit. The Appellate Assistant Commissioner allowed exemption under section 15C, which was upheld by the Tribunal, leading to the reference before the High Court.The Court considered the interpretation of section 15C, which provides for exemption from tax for newly established industrial undertakings. It was noted that the exemption is available for profits not exceeding six percent per annum on the capital employed in the undertaking. The key condition relevant to the case was that the industrial undertaking should not involve the transfer of machinery previously used in any other business. The Court emphasized that the machinery imported by the assessee was reconditioned and considered as new as any other machinery, as per the findings of the Appellate Assistant Commissioner and the Tribunal.The Court further analyzed the definition of machinery previously used in a business, highlighting that the reconditioned machinery, although second-hand, was not previously used in any business before its import into the country. The Tribunal's view that the machinery was reconditioned and new for all practical purposes was upheld. The Court did not delve into the aspect of whether the user of the machinery should be in another business carried out in the country, as it was not necessary for the decision in this case.In conclusion, the Court ruled against the revenue, affirming that the assessee was entitled to exemption under section 15C for the Resilla division using reconditioned machinery. The judgment clarified that reconditioned machinery, if not previously used in any business, can be considered as new machinery for the purpose of tax exemption. The revenue was directed to bear the costs, including counsel's fee.