JUDGMENT
V.A. Mohta, J.
1. This is a reference at the behest of the Revenue to answer the following question :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the assessee was entitled for deduction under section 80HH of the Income-tax Act, 1961 ?”
2. The assessee, Chanda Diesels, a partnership firm, had claimed in the return of income for the assessment year 1978-79 deductions under (i) section 32A, (ii) section 80HH of the Income-tax Act, 1961 (“the I.T. Act”). Both the deductions were disallowed by the Income-tax Officer as well as the Appellate Assistant Commissioner. The Tribunal, however, allowed the deduction on both the counts and at the instance of the Revenue made this reference only in respect of deduction allowed under section 80HH.
3. One Kabra Brothers, a partnership firm, was carrying on the business of selling diesel engines at Chanda (backward area) in the trade name of Chanda Diesels up to September 30, 1976. The business assets of Chanda Diesels were valued at Rs. 35,066. The assessee-firm was formed by a deed dated October 1, 1976. It took over the said business and assets and carried on the business of selling diesel engines. It subsequently purchased machinery worth Rs. 79,726 for manufacturing fuel injection pipes for diesel engines by making nipples and giving shapes at both the ends of the tubes which were used as raw material in the process.
4. Section 32A(1) permits deduction of investment allowance equal to 25 per cent. of the cost of ship, aircraft, machinery or plant owned by the assessee and wholly used for the purposes of the business carried on by him. Sub-section (2) specifies the ship or aircraft or machinery or plant covered by sub-section (1). Sub-clauses (b) (i), (ii) and (iii) of section 32A(2) refer to a new machinery or plant installed after March 31, 1976. The Tribunal came to the conclusion that the case of the assessee fell under section 32A(2)(b)(ii). In other words, it was accepted that the “new machinery was installed after the 31st day of March, 1976, in a small-scale industrial undertaking for the purpose of business of manufacture or production of any article or thing”.
5. Under section 80HH, the profits and gains from newly established industrial undertaking in backward areas which fulfils the conditions prescribed by the said section are entitled to deduction to the extent of 20 per cent. Sub-section (2) specifies the conditions which are these :
“(i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970, in any backward area;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence in any backward area :
Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area;
(iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power.
Explanation. – Where any machinery or plant or any part thereof previously used for any purpose in any backward area is transferred to a new business in that area or in any other backward area and the total value of the machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the machinery or plant used in the business, then, for the purposes of clause (iii) of this sub-section, the condition specified therein shall be deemed to have been fulfilled.”
6. According to the Revenue, section 80HH is not attracted because (i) there existed no industrial undertaking, (ii) the industrial undertaking did not either manufacture or produce any article, (iii) it was formed by the splitting up or reconstruction of a business already in existence and/or by the transfer to a new business of machinery previously used.
7. Now, the Income-tax Act does not define the expression “industrial undertaking”. Therefore, reference to its definition in similar enactments or adoption of its ordinary meaning is inevitable. Section 80HH is intended to encourage setting up new industrial enterprises and hence, will have to be construed liberally in a broad commercial sense, keeping its object in view. The Orissa High Court, in the case of CIT v. N. C. Budharaja and Co. [1980] 121 ITR 212 has, under the circumstances, held that the concept of industrial undertaking need not necessarily be confined to manufacture and production of articles and even in the absence of either of them, there could be an industrial undertaking. That case pertained to the business of a contractor who had undertaken the construction of an irrigation project.
8. Chanda Diesels, when taken over by the assessee, had neither any machinery nor was it making fuel injection pipes. It was carrying on only the business of selling diesel engines. Its business assets were only worth Rs. 35,066. The assessee made investment to the tune of Rs. 79,726 in purchasing new machinery for the purposes of making fuel injection pipes for diesel engines by making nipples and giving shape at both the ends of the tubes. Tube was the raw material and the fuel inaction pipe was the produce. Tube had undergone a change as a result of the operation performed on it by men and machine and a new identifiably different commercial and saleable commodity had emerged. The Tribunal was satisfied after seeing the raw material, the demonstration of the process of making the produce, and the produce that manufacturing activity was involved in the endeavour. There is nothing on record to hold that the said finding of fact is in any way perverse.
9. There is yet another angle to the controversy. The Revenue has not challenged the deduction under section 32A. The basic concepts of “industrial undertaking”, “manufacture”, “produce” occur even in section 32A. If the unit having a new machinery amounted to an industrial undertaking and the process amounted to manufacture for the purposes of section 32A, it is difficult to see how any different legislative intent could be attributed to the identical expressions used in section 80HH.
Sub-section (2) of section 80HH refers to “industrial undertaking” and not to the assessee or his other business. In the instant case, there is no question of formation of “industrial undertaking” by the splitting up of the business already in existence since there was no such activity before. For the same reason, there is no question of formation of an industrial undertaking by the transfer to a new business, of machinery previously used for any purpose. Hence, conditions Nos. (ii) and (iii) in sub-section (2) are also fulfilled.
10. 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.
11. No order as to costs.