JUDGMENT
D.A. Mehta, J.
1. The Tribunal, Ahmedabad Bench ‘C’ has referred the following question for the opinion of this Court under Section 256(1) of the IT Act, 1961 (the Act’) at the instance of the CIT.
Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that assessee was entitled for the deduction as claimed by it under Section 80-I of the Act?
2. The assessment years are 1982-83, and 1983-84. The relevant accounting periods are calendar years ended on 31st Dec, 1981 and 31st Dec, 1982, respectively. The assessee, a public limited company, claimed deduction under Section 80-I of the Act, which was disallowed by the AO on the basis of a report tendered by the Inspector on 16th Sept., 1985. The claim for the first assessment year is restricted to a part of year considering the fact that the plant was commissioned w.e.f. 2nd June, 1981 for manufacture of Um-1 and Um-3 types of dry cell batteries. The Inspector, in his report stated as under:
During the accounting year under consideration, the assessee company has undertaken manufacturing of two types of dry cell batteries namely Um-1 and Um-3 and for this it has installed new assembly lines. However, as mentioned above for the manufacturing of these two types of cells, all the aforesaid five sections are required out of which the assessee company has installed the new assembly lines. And the rest of the requirements i.e. (1) utilities air, water and gas etc. are met from the existing sections installed earlier for the old unit. Thus, it would appear that only two additional assembly lines have been installed during the year and the other sections namely zinc and electrolyte, utilities. The assessee’s contention that new unit has come into existence could have been acceptable if all the five broad sections mentioned above were installed and no assistance was drawn from the existing facilities meant for the old plant.
3. On the basis of the aforesaid report, the AO denied the claim made by the assessee in the following words:
From the above report, it would appear that the assessee company has installed only 2 additional assembly lines during the year for the manufacture of Um-1 and Um-3 types dry cell batteries (which were being manufactured in earlier years also) and, these assembly lines certainly cannot manufacture any dry cell batteries on their own unless the material is fed into them from zinc section and electrolytes sections etc. Thus, it is clear that the new assembly lines are depending very much on the earlier existing facilities like zinc and electrolyte section and other utilities viz. air, water, gas and electricity generator etc. and they are not capable of functioning on their own without seeking assistance from the old facilities.
4. The assessee carried the matter in appeal before the CIT(A) and succeeded. The Revenue carried the matter in second appeal before the Tribunal. The Tribunal has upheld the order of CIT(A) by recording, thus:
From the facts and circumstances as have been brought in the appeal records, it cannot be said that the new industrial undertaking has been brought into existence by reconstruction or by splitting up the old business or transferring the old plant and machineries.
5. Mr. K.M. Parikh learned standing Counsel for the applicant Revenue has assailed the impugned order of Tribunal dt. 8th April, 1996 by contending that the Tribunal has committed an error in law in upholding the claim for deduction under Section 80-I of the Act when the assessee had only installed two assembly lines which could not be termed to be new and independent industrial undertaking in light of the facts available on record, more particularly, as recorded by the AO. That the Tribunal ought to have considered the question in context of the business of the assessee company as a whole, because, there was only expansion of existing business. That two new assembly lines could not independently produce any article or thing, independent of the existing sections considering the business as a whole. In support of the submissions, reliance has been placed on the following four decisions:
1. Ashok Leyland Ltd. v. CIT ;
2. Kanhiyalal Rameshwar Das v. CIT ;
3. Khoday Industries (P) Ltd. v. CIT ;
4. CIT v. Travancore Rayons Ltd. .
6. On behalf of the respondent company Mr. J.P. Shah learned advocate has submitted that the Tribunal has recorded various findings of fact after appreciating the evidence on record and in light of the said findings of fact on application of settled legal principles, no interference was warranted in the impugned order of Tribunal. Learned advocate has invited attention to the following four decisions:
1. Textile Machinery Corporation Ltd. v. CIT ;
2. CIT v. Indian Aluminium Co. Ltd. ;
3. CIT v. Shree Digvijay Cement Co. Ltd. ;
4. CIT v. Shri Digvijay Cement Co. Ltd. .
7. Section 80-I as is relevant for the present, reads as under:
80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof:
Provided that in the case 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 fulfils 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 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 2 : Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business 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 (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.
8. On a plain reading, it transpires that under Sub-section (1) of Section 80-I of the Act, an assessee becomes entitled to a deduction equal to twenty per cent of the profits and gains where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, to which, Section 80-I applies. Under Sub-section (2) of Section 80-I of the Act, four different conditions are prescribed. Clause (i) of Sub-section (2) stipulates that an industrial undertaking is not formed by the splitting up, or the reconstruction, of the business already in existence; Clause (ii) stipulates that an industrial undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose; Clause (iii) requires the industrial undertaking to manufacture or produce any article or thing, except an article or thing specified in the list in the Eleventh Schedule, (rest of the part of the clause not being material for the present); and Clause (iv) requires an industrial undertaking to employ ten or more workers in a manufacturing process carried on with the aid of power, or employ twenty or more workers in a manufacturing process carried on without the aid of power.
9. Insofar as conditions stipulated by Clause Nos. (iii) and (iv) are concerned, it is not even Revenue’s case that there is any violation of the said two conditions. Insofar as condition Nos. (i) and (ii) are concerned, when one reads the assessment order, it becomes clear that though not stated clearly it is not Revenue’s case that the industrial undertaking is formed by splitting up, or reconstruction, of a business already in existence. Mr. Parikh accepted this position. That leaves only condition No. (ii) to determine whether the assessee is, or is not, entitled to relief under Section 80-I of the Act. The said condition vide Clause (ii) places an embargo in case of an industrial undertaking which is formed by the transfer, of machinery or plant previously used for any purpose, to a new business. In fact, during course of hearing, the learned advocate for the applicant Revenue was not in a position to even point out that this was the case of the Revenue. No new business as such has been set up by the assessee. Therefore, there is no question of any transfer to such new business of any plant or machinery previously used for any purpose. Therefore, strictly even Clause (ii) cannot be invoked to deny the claim of the assessee. Thus, in effect, none of the four conditions laid down in Sub-section (2) of Section 80-I of the Act, are shown to have been violated.
10. However, even if Clause (ii) of Sub-section (2) of Section 80-I of the Act is loosely read, as becoming applicable when one permits partial user of existing facilities of other sections, other than the newly installed sections, Expln. 2 carves out an exception to the prohibition in a case where the value of such plant and machinery, so transferred, does not exceed twenty per cent of the total value of the machinery or plant used in the business.
11. On facts, none of the authorities have recorded any finding in this regard. However, as noticed hereinbefore, the Tribunal has referred to the negligible value of the existing facilities used by the two new sections for which relief under Section 80-I of the Act has been claimed. The Tribunal has noted that additional machinery for the new unit is worth Rs. 1.04 crores, whereas, the machinery utilised for common facilities like air, water, gas etc. is Rs. 5 lacs only.
12. Therefore, in the facts and circumstances of the case, the Revenue has not been able to make out a case as to how and in what manner the impugned order of Tribunal suffers from any legal infirmity so as to warrant intervention. In fact, the Tribunal has recorded clear finding about non-applicability of either Clause (i) or Clause (ii) of Sub-section (2) of Section 80-I of the Act so as to not deny the benefit under the said section to the assessee.
13. In the circumstances, the question referred for the opinion of this Court is answered in the affirmative, i.e. in favour of the assessee and against the Revenue. The reference stands disposed of accordingly. No order as to costs.