Second-hand machinery defeats industrial exemption where a new undertaking is formed using previously used assets from other businesses.

Section 15C exemption was unavailable where a new industrial undertaking was formed with machinery that had previously been used in other businesses. The expression "transfer to a new business" was construed broadly to cover not only movement of assets by the same owner but also the purchase and use of second-hand machinery from others for setting up the undertaking. Because about two-thirds of the machinery was old machinery acquired from various persons, the undertaking fell within the disabling condition in section 15C(2)(i), and the assessee was not entitled to the exemption.

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Issues: Whether the assessee's new industrial undertaking was disentitled to the exemption under section 15C of the Indian Income-tax Act, 1922, because a substantial part of the machinery used in the undertaking had been purchased second-hand and had previously been used in the business of other persons.

Analysis: The exemption under section 15C applies only where the industrial undertaking is not formed by the transfer to a new business of building, machinery or plant previously used in any other business. The expression "transfer to a new business" was held to cover not only a transfer by the owner from one business to another, but also the acquisition and use of old machinery purchased from others for setting up the new undertaking. On the facts, about two-thirds of the machinery was old machinery purchased from various persons, and it was therefore machinery previously used in their businesses. That brought the case within the disabling part of section 15C(2)(i).

Conclusion: The assessee was not entitled to the exemption under section 15C, and the question referred was answered against the assessee.

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