JUDGMENT
S.B. Sinha, C.J.
1. As these matters involve identical questions, they will be governed by this common judgment.
2. Pursuant to the direction given by this Court under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), following questions have been referred for opinion of this Court by Income Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi (hereinafter referred to as the ‘Tribunal’):-
“1. Whether, on the facts and circumstances of the case, the Tribunal was justified in law in directing the Income-tax Officer to work out and allow the assessed relief under Section 80-J of the Income-tax Act, 1961, in respect to its Mohuda Unit?
2. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that Sub-rule (3) of Rule 19-A of the Income-tax Rules is in conflict with the provisions of Section 80-J of the Income-tax Act and is, therefore, to be ignored and that in computing the capital employed in the Mohuda Unit for purposes of Section 80J, the capital borrowed by the assessed should also be included?
3. Whether, on the facts and circumstances of the case, the Tribunal was justified in remitting the case back to the Appellate Assistant Commissioner for Consideration, on merits, and for disposal in accordance with law, the question of levy of penal interest under Section 215 of the Income-tax Act?”
3. The relevant assessment years are 1969-70 and 1970-71.
We may notice that the first and the second questions are common for both the assessment years, whereas the third question relates only to the assessment year 1970-71.
4. Ms. Radha Rangaswamy, the learned counsel appearing on behalf of the assessed, submitted that the first question is covered by a decision of the Apex Court inter-parties in Orissa Cement Ltd. v. Commissioner of Income-tax reported in (1993) 200 ITR 636.
Mr. R.C. Pandey, the learned counsel appearing on behalf of the Revenue, however, submitted that the said decision is distinguishable.
Mr. Pandey submitted that in the instant case, old machineries worth Rs. 89,600/- have been purchased out of a total capital investment of Rs. 2,91,677/-, which constitutes about 34% of total investment in the said new unit set up by the assessed. The learned counsel further submitted that the benefit under Section 80J of the Act may be claimed by an assessed provided a small part of machinery one previously used forms part of the new business. Drawing our attention to ‘Explanation’ appended to the said provision, the learned counsel submitted that the intention of the legislature would be manifest in so far as 20% of the total value of the machinery and plant used in the business has been exempted in terms thereof. Strong reliance in this connection has been placed on a decision of the Apex Court in Bajaj Tempo Ltd. v. Commissioner of Income Tax reported in (1992) 196 ITR 188 ; decision of the Karnataka High Court in Commissioner of Income Tax v. Nippon Electronics (India) Pvt. Ltd. reported in (1990) 181 ITR 518 ; and the decision of the Madhya Pradesh High Court in Glass Fibre Textiles v. Commissioner of Income Tax reported in (1988) 170 ITR 453 .
5. The factual matrix,in a nutshell, is as follows:-
The assessed is a company registered and incorporated under the Companies Act. It is engaged in manufacturing cement. The assessed in setting up its Mohuda Unit purchased some second-hand machinery from M/s. Heavy Engineering Corporation, Ranchi. The fact that M/s. Heavy Engineering Corporation is a public sector undertaking is not in dispute. The Income-tax Officer (hereinafter referred to a ‘ITO’) held that the assessed was not entitled to any deduction under Section 80J of the Act, as the conditions laid down under Section 80-J(4)(ii) of the Act had not been satisfied. The Tribunal, however, observed the scheme of the said provision is such that the benefit thereof is to be denied only in the event the machinery or plant, previously used by the assessed in any business carried on by him, is transferred to a new unit set up by him, in respect of which such relief is claimed and that it would not apply to a case where plant and machinery used by an entirely different person is purchased second-hand by the assessed for setting up a new industrial unit.
In the present case, it is not in dispute that the Mohuda Unit was not set up by the assessed by splitting up its existing units or by transferring machinery or plant from one unit owned by it to another unit. The purchase of second-hand machinery is from a public sector undertaking, namely, Heavy Engineering Corporation Ltd.
Section 80-J(i) of the Act, as it stood at the relevant time is as follows:-
“80-J. Deduction in respect profits and gains from newly established industrial undertakings or ships or hotel business in certain cases.-
(1) Where the gross total income of an assessed 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 assessed, a deduction from such profits and gains (reduced by the deduction, if any, admissible to the assessed under Section 80HH of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent per annum on the capital employed in the industrial undertaking or ship or business of the hole, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this Section, referred to as the relevant amount of capital employed during the previous year).
…..
Clause (ii) of Sub-section (4) of Section 80-J of the Act, which is relevant for the purpose in the present case, reads as follows:-
(4) This Section applies to any industrial undertaking, which fulfills all the following conditions, namely,:-
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;
…..
Explanation 2 . – Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for nay 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 and the total value of the machinery or plant or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking.”
Sub-section (4) of Section 80-J of the Act, this restricts the application of the said Sub-section thereof stating that the same would apply if the conditions laid down therein are satisfied.
Section 80-J of the Act is a beneficiary provision so far as an assessed is concerned. Sub-section (4) of Section 80-J of the Act is an exception thereto.
Having regard to well-known principles of construction of taxing statute,l the assessed shall not be denied of the benefit to which he may be otherwise entitled to Clause (ii) of Sub-section (4) of Section 80-J of the Act must be construed to mean the machinery or plant previously used those machinery, etc. which were used in the earlier business of the assessed, which alone would not form part of the new business.
The learned Tribunal has held as under:-
“In the present case, the assessed had purchased some second-hand machinery from M/s. Heavy Engineering Corporation, Ranchi for setting up the new Mohuda unit. It was claimed by the assessed, on the strength of the decision of the Calcutta High Court in Commissioner of Income-tax, West Bengal – II v. Sainthia Rice and Oil Mills (82 ITR 778) that the purpose of second-machinery from outside, for setting up the new industrial undertaking will not amount to violation of the condition laid down in Section 80J (4)(ii) and that the assessed would be entitled to the deduction under Section 80 – J.”
Thus, it is not in dispute that the second-hand machinery had been purchased from M/s. Heavy Engineering Corporation, Ranchi by the assessed for setting up its new Mohuda Unit. The assessed, therefore, did not transfer any machinery or plant previously used by it to a new unit set up by him.
In relation to claiming the benefit under Section 80-J of the Act, the Calcutta High Court has clearly held as under:-
“This scheme of this section is to encourage new industrial undertakings provided they fulfill the conditions mentioned in the various clauses of the Sub-section. It is true that in order to be entitled to exemption as assessed must strictly come within the terms of the provision under which such exemption is being claimed, but in construing the provisions of this section one must construe the said section reasonably in the context of the purpose for which the section has been introduced. The expression ‘transfer’ is used in varying senses in different statutes depending on the context. In a broad sense, it will certainly include an acquisition of an asset by one person from whatever source. But the scheme of the section indicates that what is being claimed at is to prevent exemption to those industrial undertakings, which are formed by the splitting up or by reconstruction or by transfer to a new business, plant or machinery of the old business. The transfer, in our opinion, in this context, must mean a transfer of plant which is essential for the formation of new industrial undertaking and that must again mean a transfer to the new business of the transferee of any machinery used by the said transferee in his old business. Merely because some machinery in the new industrial undertaking has been purchased from the second-hand market cannot, in our opinion, disentitle the assessed to the relief or the exemption contemplated under Section 15C of the Indian Income-tax Act, 1922.”
The said decision would, therefore, squarely apply in the instant case. The decision of Supreme Court in Bajaj Tempo (Supra), the Karnataka High Court in Nippon Electronics (Supra) and the Madhya Pradesh High Court in Glass Fibre Textiles (Supra) were rendered on different factual matrix.
It is a well-settled principles of Statute that where two interpretations are possible, such interpretation, which favors the assessed, should be adopted. (See Federation of A.P. Chambers of Commerce & Industry and Ors. v. State of A.P. and Ors., ) .
6. The assessed ordinarily should not be deprived of the benefit of such provision, if its case is not covered by Clause (ii) of Sub-section (4) thereof.
Mr. Pandey, however, urged that second-hand machinery have been utilized for setting up its Mohuda Unit and thus, the assessed is not entitled to the benefit of Section 80(J) of the Act. He, therefore, submitted that the same cannot be said to be used of old plant of the value of a small fraction of the expenditure involving setting up of a new unit. The submission of Mr. Pandey cannot be accepted. Sub-section (4) of Section 80-J of the Act in terms of an assessed is entitled to Sub-section (1) thereto operate in a limited sphere. The said provisions will have no application where the second-hand machinery and plants for the purpose of establishment of a new industrial unit are procured from outside. The purpose and object of Sub-section (4) of Section 80-J of the Act is evident. It seeks to prevent taking of double benefit by an assessed as thereby depreciation might been claimed on the machineries, which had been used on the one hand and again the benefit under Section 80J would be claimed on the other. Benefit in relation to the second-hand machinery, which are re-utilized while setting up a new industrial unit, Sub-section (4) of Section 80-J of the Act does not prohibit procurement of new or second-hand machinery from outside.
7. The Explanation appended to Sub-section (4) of Section 80-J of the Act also serves as a guide to constitution of the Statute.
The object of an Explanation to a statutory provision is-
a) to explain the meaning and intendment of the Act itself.
b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve.
c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful.
d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the court in interpreting the true purport and intendment of the enactment, and right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.
(See S. Sundaram v. V.R. Pattabhiraman, ) .
In the instant case, the explanation not only clarified the doubt, but also provides an additional support to the dominant object of the Act to make it meaningful and purposeful.
A Division Bench of this Court in Orissa Cement (Supra) upon taking into consideration the decision of this Court in C.I.T. v. Ganga Sugar Corporation Ltd. (1973) 92 ITR 173 held that having regard to the fact that the second-hand machineries were purchased from outside and the said machinery had been used by the assessed for the first time, the same was new to the assessed and not old one as contemplated under Clause (ii) of Sub-section 4 of Section 80-J of the Act. We, therefore, are of the opinion that the aforementioned question must be answered in affirmative, i.e., against the Revenue and in favor of the assessed.
8. So far as the second question is concerned, the same is covered by Lohia Machines Ltd. and Anr. v. Unit of India and Ors. reported in (1985) 152 ITR 302 . The said question must, therefore, be answered in favor of the Revenue and against the assessed.
9. So far as the third question is concerned, it is not in dispute that the same is also covered by Central Provinces Manganese Ore Co. Ltd. v. Commissioner of Income Tax reported in (1986) 160 ITR 961 .
It appears that an appeal is pending and, thus, the same may now by considered in accordance with this opinion.
10. These references are thus disposed of accordingly.