Reconstruction of business under tax exemption law depends on the facts; new units with fresh investment may still qualify for relief.

Section 15C exempted profits of a qualifying industrial undertaking but denied relief where the undertaking was formed by splitting up or reconstruction of an existing business. The Calcutta HC noted that the Belur, Alupuram and Muri units involved substantial new buildings, machinery, capital expenditure and increased production, and were not shown to be mere feeders or replacements for parts earlier procured from outside. It held that reconstruction does not cover every expansion or extension; whether a new unit is formed by reconstruction depends on the nature and character of the undertaking and the facts of each case. The earlier textile machinery decision was distinguished on its facts, and the assessee was entitled to relief.

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Issues: Whether the new production units at Belur, Alupuram and Muri were formed by the reconstruction of the assessee's existing business so as to deny exemption under section 15C of the Indian Income-tax Act, 1922.

Analysis: Section 15C granted exemption to profits derived from a qualifying industrial undertaking, but denied it where the undertaking was formed by splitting up or reconstruction of an existing business. On the facts found, the additions at Belur, Alupuram and Muri involved substantial new buildings, machinery, capital outlay and increased production, and they were not shown to be mere feeders or replacements for parts previously procured from outside. The expression "reconstruction" was held not to cover every case of expansion or extension; whether a new unit was formed by reconstruction depended on the nature and character of the undertaking and the facts of each case. The reasoning in the earlier decision concerning textile machinery was held distinguishable on its facts.

Conclusion: The new units were not formed by reconstruction of the existing business, and the assessee was entitled to relief under section 15C.

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