TaxTMI 
TaxTMI 
1992 (4) TMI 4
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....orters. It entered into an agreement with a foreign collaborator who agreed to grant the licensee the knowhow rights for the manufacture, in India, of tempo commercial three-wheeler vehicles, against payment of German marks. Accordingly, the assessee-company, Messrs. Bajaj Tempo Ltd., Bombay (in short "the company"), was formed for exploiting the manufacturing licence issued by the Government, 32% of the share capital of which was subscribed by the foreign collaborators and the remaining 68% share capital was issued to the shareholders of the Corporation. The assessee-company entered into an agreement with the Corporation which was the promoter company, to secure and take over from the promoter company the rights under the licence to manufacture tempo vehicles and to take over the factory registered under the name of Auto Rickshaw Engineering Factory as going concern with its assets, liabilities, machinery, power, quotas, etc. Clause 10 of the agreement provided that the transferee, that is, the company, shall be in possession of the premises of the factory and the buildings on payment of monthly rent as a lessee. Tools and implements, valued at Rs. 3,500 of the Corporation, were a....
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....played by such transfer should have been such that the industry, without it, could not have come into being. According to the Tribunal, it could not stand to reason that a big industrial undertaking should be denied the benefit of section 15C only because it took the business premises on lease or used implements and tools worth a small amount previously used for the purposes of business. On further reference made by the Department in the High Court, the question of law raised by the Department was answered in its favour and against the assessee without any discussion, only in view of the decision in Capsulation Services P. Ltd. v. CIT [1973] 91 ITR 566 (Bom). The finding of the Tribunal, thus, that the assessee-company cannot be said to have been formed by the reconstruction of the promoter company as "the business of the new industrial undertaking established by the assessee company did not exist prior to its incorporation and was neither carried on by the promoter company nor by any other company" has become final. The dispute centres round whether the company was formed by transfer of building or material used in a previous business. It had two aspects: one, the taking of the bu....
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....expression "paper and pulp" mentioned in the Schedule relevant to the respective assessment years. The court held that since the words "paper and pulp" were mentioned in the Schedule, the intention was to refer to the paper and pulp industry and since the strawboard industry could be described as forming part of the paper and pulp industry, it was entitled to the benefit. The section, read as a whole, was a provision directed towards encouraging industrialisation by permitting an assessee setting up a new undertaking to claim the benefit of not paying tax to the extent of six per cent. in a year on the capital employed. But the Legislature took care to restrict such benefit only to those undertakings which were new in form and substance by providing that the undertaking should not be "formed" in any manner provided in clause (i) of sub-section (2) of section 15C. Each of these requirements, namely, formation of the undertaking by splitting up or reconstruction of an existing business or transfer to the undertaking of building, raw material or plant used in any previous business results in denial of the benefit contemplated under sub-section (1). Since a provision intended for prom....
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....ansferred machinery was low or meagre, the assessee should not be denied the benefit. For instance, the Calcutta High Court, in CIT v. Sainthia Rice and Oil Mills [1971] 82 ITR 778, did not find any reason to deny the benefit to the assessee where the undertaking was formed by acquisition of part of the machinery the second hand from the open market. But the decision which became a leading decision on transfer of machinery was rendered by the Delhi High Court in CIT v. Ganga Sugar Corporation Ltd. [1973] 92 ITR 173. It has been followed in nearly all the decisions given subsequently as it was approved by this court. It was held that use of scrap and material of the old unit of the value of a small fraction of the expenditure involved in the setting up of the new unit did not attract the concluding words of clause (i) of section 15(2). The Calcutta High Court, in CIT v. Electric Construction and Equipment Co. Ltd. [1976] 104 ITR 101, was of the view that where machinery previously used was "very small compared to the value of the machinery installed", the assessee was well within sub-section (1) of section 15C. The same view was taken by the Bombay High Court in CIT v. Asbestos, Mag....
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....n denial of benefit to the assessee. This conclusion was reached by construing the provision either on principles of commercial expediency or practical common sense or to avoid unjust hardship to the assessee. This was legislatively recognised by Explanation 2, to sub-section(4) of section 80J of the 1961 Act. Similarly, the ineligibility due to transfer of building was toned down in the first instance by amending the provision in 1967 and providing that any building used previously for business purposes taken on lease by the new company would not be covered by the mischief in clause (ii) of sub-section (4) of section 80J of the 1961 Act. Later, in 1976, it was deleted, altogether; thus, the restriction of the new undertaking not being formed by transfer to a new business of building used previously for any other business did not disentitle an assessee from claiming the benefit of partial exemption. Sri Ramamurthy, learned counsel for the Department, urged that even though from the analogous provision in section 80J(4)(ii) in the Act of 1961, the restriction of transfer of new business to the building used previously for business has been omitted, that would not reflect favourably....
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....uld be to find out if the undertaking was a new one. Once this test is satisfied, then clause (i) should be applied reasonably and liberally in keeping with the spirit of section 15C(1) of the Act. While doing so, various situations may arise, for instance, the formation may be without anything to do with any earlier business. That is, the undertaking may be formed without splitting up or reconstructing any existing business or without transfer of any building, material or plant of any previous business. Such an undertaking undoubtedly would be eligible to the benefit without any difficulty. On the other extreme may be an undertaking, new in its form but not in substance. It may be new in name only. Such an undertaking would obviously not be entitled to the benefit. In between the two, there may be various other situations. Difficulty arises only in such cases. For instance, a new company may be formed, as in this case a fact which could not be disputed, even by the Income-tax Officer. But tools and implements worth Rs. 3,500 were transferred to it from the previous firm. Technically speaking, it was transfer of material used in a previous business. One could say, as was vehemently....
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....ld not be denied the benefit. Reverting to the Bombay decision on which the High Court relied for answering the question against the assessee, we would assume for purposes of this case that the lease of the building amounted to transfer. Yet what is significant is that the High Court did not examine the impact of the word "formed". It proceeded on the basis that once the lease amounted to a transfer, the assessee became ineligible from claiming any exemption. The court further repelled the contention advanced on behalf of the assessee on the strength of the Calcutta decision in CIT v. Sainthia Rice and Oil Mills [1971] 82 ITR 778 (Cal), that transfer of building to the new business to disentitle the undertaking should have been of the assessee himself. In our opinion, this aspect of the Bombay decision was correctly decided and the Tribunal was not justified in deciding in favour of the assessee on this ground. We, therefore, endorse the view of the Bombay High Court and that of the Punjab and Haryana High Court in Phagoo Mal Sant Ram v. CIT [1969] 74 ITR 734 to this extent that, previously used in any other business" cannot be construed so narrowly as to confine it to the buildin....