TaxTMI 
TaxTMI 
2012 (3) TMI 267
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....ired a new industrial license and a new letter of intent for substantial expansion of the production capacity of caustic soda from existing 37425 M.Tonnes to 70425 M.Tonnes. Twelve new cells were installed for this purpose. The assessee incurred expenditure of Rs.7.5 crore towards new machinery and plant added to the existing plant. The assessee claimed that this being a new industrial undertaking, relief in respect of the profit attributable to the same should be granted as provided under Section 80-I of the Act. This claim came to be rejected by the Income Tax Officer holding that this was a case of substantial expansion and hence the benefit was not available. The matter was carried in appeal before the Commissioner of Income Tax (Appeals), who concurred with the Income Tax Officer. The assessee carried the matter in appeal before the Tribunal and the Tribunal also confirmed the order of the Commissioner of Income Tax (Appeals). The Tribunal held that since it is expansion of the same manufacturing unit, the assessee will not be entitled to the benefits of Section 80-I of the Act. We may quote the relevant paragraphs of the Tribunal's order as under :- "We have carefully c....
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....utilization of the existing plant and machinery and, therefore, in substance this was an expansion of existing industry and cannot be treated as a new industrial undertaking for the purposes of sec.80I. In view of the aforesaid discussion, we are of the considered opinion that the findings given by the learned CIT(A) in this regard requires no interference. Hence this ground taken by the assessee is rejected." In the background of the above undisputed facts, the question has been referred to this Court under Section 256(1) of the Income Tax Act, 1961 as regards the entitlement to relief under Section 80-I of the Act. At this stage, we find it appropriate to state the grounds on which the assessee claimed benefit to relief under Section 80-I of the Act before the authorities. According to the assessee, relief under Section 80-I of the Act would be admissible in view of the following :- 1. The company has separate letter of intent for the said Industrial Undertaking. 2. The company has separate Industrial licence for the said Industrial Undertaking. 3. The company spent over Rs.7.5 crores for putting up the Plant and Machinery necessary for the purpose. 4. It is not fo....
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....d principle which will, however, be borne in mind in this connection that which are calculated to make a substantial addition to the existing output... ... Minor extensions of the existing undertaking and replacements of the existing installed capacity would be of course, not be eligible for the concession..." Learned counsel further submitted that the Tribunal committed an error of law in recording a finding that the assessee's case is of substantial expansion of the existing unit. He would submit that the Tribunal has also committed an error in coming to the conclusion that the assessee has not been able to establish and prove by adducing cogent, convincing and clinching evidence that the new unit is capable of independently producing goods without the help of the existing plant and machinery of the old unit. Learned counsel would also contend that when an existing industrial undertaking is substantially expanded and the manner of such expansion is such that the newly installed plant, machinery and other facilities such as factory buildings, godowns, etc when taken together are capable of being regarded as an industrial undertaking, the requirements of Sections are met. Lea....
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....on has been substantial, then also such expansion is not an independent unit capable of functioning on its own. He would submit that there are concurrent findings of fact recorded by the Commissioner of Income Tax (Appeals) and upheld by the Income Tax Appellate Tribunal, and in view of the concurrent findings, this Court may not interfere as there is no jurisdictional error committed by the authorities and the order of the Tribunal cannot be termed as perverse. Mr.Parikh, in support of his submissions, has placed reliance on the following decisions : 1. Commissioner of Income-tax v. Associated Cement Company [1979] 118 ITR 406]; 2. Textile Machinery Corporation Limited v. CIT [1977] 107 ITR 195 (SC). III. Object of Section 80-I of the Income Tax Act : The principal object of Section 80-I (Section 15C of 1922 Act) has been succinctly explained by the Supreme Court in the case of Textile Machinery Corporation (supra). The Supreme Court has explained as under :- "... The principal object of section 15C is to encourage setting up of new industrial undertakings by offering tax incentives within a period of 13 years from April 1, 1948. Section 15C provides for a fracti....
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....tive of the provision and not to frustrate it. The Supreme Court has held as under :- "...A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally : In Broach District Cooperative Cotton Sales, Ginning and Pressing Society Ltd. v. CIT [1989] 177 ITR 418 (SC), the assessee, a co-operative society, claimed that the receipts from ginning and pressing activities were exempted under section 81 of the Income-tax Act. The question for interpretation was whether the co-operative society which carried on the business of ginning and pressing was a society engaged in "marketing" of the agricultural produce of its members. The court held that the object of section 81(1) was to encourage and promote the growth of co-operatrive societies and, consequently, a liberal construction must be given to the operation of that provision. And since ginning and pressing was incidental or ancillary to the activities mentioned in section 81(1), the assessee was entitled to exemption and the proviso did not stand in his way. In CIT v. Strawboard Manufacturing Co. Ltd. [1989] 177 ITR 431 (SC), it was held that the law providing for concession for ....
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....e of an assessee, being a company, the provisions of this sub-section shall have effect as if for the words 'twenty per cent', the words 'twenty-five per cent' had been substituted. (2) This section applies to any industrial undertaking which fulfills all the following conditions, namely :- i. it is not formed by the splitting up, or the reconstruction, of a business already in existence; ii. it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; iii. it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of four years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking; iv. in a case where the industrial undertaking manufactures or produces articles or things, undertaking employs ten or more worker in a ....
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.... industrial unit as a part of an already existing industrial establishment may result in an expansion of the industry or the factory, but if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and is itself independently of the old unit capable of production of goods then only it could be classified as a newly established industrial undertaking. In the present case, it is undisputed that the company has a separate industrial licence for the industrial undertaking and spent over Rs.7.5 crore for putting up plant and machinery necessary for the purpose. It is also undisputed that the production capacity of the undertaking of caustic soda has increased from 37245 M.Tonnes to 70425 M.Tonnes. Thus, what has been ignored by the authorities is two things: (i) the capital employed; and (2) the substantial expansion of industrial undertaking, by which the production became almost double the original capacity. In so far as the conditions stipulated by clause nos.(iii) and (iv) to Section 80-I of the Act are concerned, it is not even the Revenue's case that there has been any violation of the said two conditions. In so far as the clau....
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....tled to relief under section 15C of the Indian Income-tax Act, 1922. In the case of Municipal Commissioner, Chinchwad New Township Municipal Council v. Century Enka Ltd., reported in AIR 1996 SC 187, the court reiterated the law laid down in the cases of Orient Paper Mills (supra) and Indian Aluminium (supra). In CIT v. Premier Cotton Mills Limited [1999] 240 ITR (434), the Division Bench of Madras High Court was dealing with almost the same issue. It held as under :- "...The requirements of the section are met if the assessee is able to demonstrate that the assessee has established an industrial undertaking which manufactures or produces article with the aid of plant and machinery newly installed in that undertaking. The term industrial undertaking is not defined in section 80J of the Act. The word "undertaking" is not to be equated with the legal entity which may own undertaking. A single legal entity may own and operate more than one industrial undertaking and the fact of common ownership does not render undertakings which are otherwise capable of being separate into a common undertaking. What is of relevance is the existence of all the facilities including factory buil....
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....ncrease the number of spindles which was apparently less than 20,000 as on the date of that licence, to 50,000. The assessee had added the additional spindlage after securing that licence and had completed the programme of expansion by July, 1981." We are not able to understand the logic of the argument that the true test would be as to whether a new industrial undertaking can function independently of the existing industrial undertaking. If this argument of the Revenue is accepted, it will amount to adding a new clause in Section 80-I of the Act. Assuming for the moment that the new unit is not capable of independently producing the goods without taking the assistance of the existing plant and machinery of the old unit is no ground to reject the claim under Section 80-I of the Act. It all depends upon the mechanism and technology. As held by the Supreme Court in Textile Machinery Corporation (supra), such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of S....
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....Mr.Parikh appearing for the Revenue, we shall look into the judgment in detail so as to decide as to whether the so-called principle propounded in the said judgment would be applicable in the facts and circumstances of the present case or not. In the case of Associated Cement Company (supra), the assessee, a cement company, claimed exemption of profits, under Section 15-C of the Act of 1922, amounting to Rs.8,74,036=00. This was in respect of 4 new kilns which were commissioned at the assessee's factories at Shahabad, Bhupendra, Kistna and Chaibasa. The ITO declined to give relief to the assessee on the ground that the starting of the new kilns did not amount to creation of a new industrial undertaking as contemplated by Section 15C of the Act of 1922, and took the view that these were improvements or extensions to the existing factories and since part of the old buildings, machinery and plant were utilised in the working of the new kilns, the assessee was not entitled to relief under Section 15C of the Act of 1922 in respect of the profits arising as a result of the introduction of these kilns. The assessee went in appeal against the order of ITO and the appeal came to be al....
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....ssitated by the construction of the new kilns at each of the four factories. Taking into consideration the above referred aspects, the Bench observed that there can be no doubt that the construction of each of the new kilns at each of the four factories resulted into an expansion of the factory itself. That by itself would, however, not disentitle the assessee to the relief under Section 15C of the Act of 1922. It is in this background of the entire case that ultimately the Bench ruled as under : "Establishment of a new industrial unit as a part of an already existing industrial establishment may not doubt result in an expansion of the industry or the factory, but if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and is itself, independently of the old unit, capable of production of goods, then, in our view, it could be classified as a newly established industrial undertaking. In Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195, the Supreme Court has pointed out that if a new undertaking is an integrated unit by itself, wherein articles are produced and at least a minimum of 10 persons with the aid of....
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....High Court, the assessee erected new unit of cold storage in new building with new plant and machinery. Some old machinery was used in the new unit. The ITO rejected the claim on the ground that the old plant and machinery were being used in the new industrial undertaking which disentitled the assessee for deduction under Section 80-J. This finding of the ITO was upheld by the AAC in appeal. On further appeal, the Tribunal found that the second unit was set up in a different building with entirely different plant and machinery and independent electrical system. The Tribunal also found from the documents placed that for erecting second unit of cold storage plant, the assessee invested a sum of Rs.5,39,672=00 for factory building, plant and machinery, racks and electrical installation, out of which Rs.31,603=00 represented the written down value of the old machines and electric motor which were used for the new plant as also the old plant. In the facts of the case, after examining the provision of Section 80-J, the Tribunal took the view that in view of the Explanation to sub-section (4) of Section 80J of the Act, the total value of the old assets, if used for the second unit of the ....
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.... up new industrial enterprises and hence, should be construed liberally in a broad commercial sense, keeping its object in view. In this background, the Division Bench, relying on the earlier judgment in the case of Associated Cement Company (supra), held as under : "In this context, the Tribunal has rightly placed reliance upon the decision of this court in the case of CIT v. Associated Cement Companies Ltd. [1979] 118 ITR 406, wherein it is held that if a new industrial unit is established as a part of an already existing industrial establishment and if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and that by itself is capable of production of goods independently of the old unit, even the said unit could be classified as a newly established industrial undertaking, and will qualify for the relief. Thus, looked at from any point of view, the conclusion is inevitable that the assessee was entitled to deduction also under section 80HH. We, therefore, answer the question in the affirmative and in favour of the assessee." What is discernible from the above referred authoritative pronouncements is that in all cas....