Commissioner of Income Tax vs Hindustan Malleables and Forgings Ltd.

Bharuka, J.—In these cases there is consolidated statement of case relating to the assessment years 1977-78 and 1978-79, which has been referred to this Court u/s 256(1) of the income tax Act, 1961 (''the Act'') seeking an answer to the following question of law:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had set up a new Industrial unit which is eligible for relief u/s 80J of the income tax Act, 1961 ?

The assessee is a limited company. During the assessment years in question, the assessee-company had claimed deduction u/s 80J of the Act but the same was rejected by the ITO. The assessee preferred an appeal to the Commissioner (Appeals) who allowed the same. Against this part of the appellate order, the revenue went in appeal to the Tribunal which affirmed the order of the Commissioner (Appeals) on this count.

It has been noticed by the Tribunal in paragraph 3 of its order that some of the basic facts were not disputed even by the ITO. These facts are, (i) the assessee had made substantial investments in executing an ambitious modernisation and expansion project with a view to push up production of malleable cast iron, forged fittings, etc., with improved technology so as to enable the company to cater to the ever-increasing demand of automobile industry, (ii) the assessee-company had installed new machineries in newly-constructed buildings, and (iii) there was greater production by engaging more workers.

The Tribunal after going through the annual reports of the assessee-company for the calendar years 1972 to 1977 and on perusal of the directors'' reports contained therein, has recorded its own findings of fact to the extent that, "there can be no dispute that the assessee made substantial investment in setting up a new factory building as also in the installation of new plant and machineries". The Tribunal also agreed with the findings of the Commissioner (Appeals) , who, on consideration of some technical expert'' reports, had held that "the expansion effected by the assessee during the calendar years 1974, 1975 and 1976 brought into existence a new unit, which had separate and distinct identity of its own as it was capable of producing ferritic black hard malleable and paralytic iron malleable castings".

Even though the aforesaid facts were not challenged by the revenue before the Tribunal, still an objection was taken with regard to the grant of deduction u/s 80J on the pleas that, (i) the management of both the old and the new units is common, (ii) common books of account were maintained, and (iii) the assessee''s power units are same for both the old and the new units. Notwithstanding these objections it was conceded before the Tribunal by the department that the assessee had furnished the details of production pertaining to both the old and the new units in pursuance of the Commissioner (Appeals) order and the month- wise details of the production for each of the two assessment years under appeal for both the old and the new units were available on the ITO''s file.

In my view the question as referred to is concluded by the decision of the Supreme Court in the case of Textile Machinery Corporation Limited, Calcutta Vs. The Commissioner of Income Tax, West Bengal, . In this case the Supreme Court has laid down the requisites for entitlement of deduction u/s 15C of the Indian income tax Act, 1922, which corresponds to section 80J of the 1961 Act. It has been held by the Supreme Court at page 206 that in order to be entitled to the benefit of deduction in question, the following facts have to be established by the assessee, namely, (i) investment of substantial fresh capital in the industrial undertaking set up, (ii) employment of requisite labour therein, (iii) manufacture or production of articles in the said undertaking, (iv) earning of profits clearly attributable to the said new undertaking, and (v) above all, a separate and distinct identity of the industrial unit set up.

As stated earlier, in the present case the Tribunal has recorded findings of facts in respect of each of the pre-requisites as laid down by the Supreme Court in the above referred case and as such, the assessee is clearly entitled to the benefits of section 80J.

Since the revenue has not tried to resist the claim in question on the ground of ''re-construction'' of the unit, therefore, it is not necessary to enter into that issue.

So far as the objection regarding common source of power is concerned that per se cannot be a ground for denying the deduction claimed because this reason by itself cannot destroy the independent identity of the unit. Similarly common. management of the two units or maintenance of common books of accounts per se are also not germane for considering the claim u/s 80J. This view of mine is fortified by the view taken by the Karnataka High Court in the case of International Instruments P. Ltd. Vs. Commissioner of Income Tax, Karnataka, , wherein it has been held that:

... The fact that there was common management or the fact that separate accounts had not been maintained, would not also lead to the conclusion that they were not separate undertakings. Even if separate account is not maintained the investment on each of the units can be reasonably determined with the material which the assessee may make available to the department. We are, therefore, of the view that the finding of the Tribunal that the assessee was not entitled to relief u/s 84 and deduction u/s 80J of the Act, during the assessment years in question is erroneous. (P- 21)

Similar view has been taken by the Calcutta High Court in the case of Commissioner of Income Tax (Central) Vs. Rohtas Industries Ltd., and by the Bombay High Court in the case of Mahindra Sintered Products Ltd. v. CIT [1989] 177 ITR 111 1.

Under the aforesaid facts and circumstances, I am clearly of the view that the Tribunal was right in law in holding that the assessee had set up a new industrial unit, which is eligible for relief u/s 80J. Accordingly, the question as referred is answered in affirmative, i.e., in favour of the assessee and against the department. However, there shall be no order as to costs.