Commissioner of Income Tax vs Nayyars Minerals Export (P.) Ltd. (No. 1)

M. Srinivasan, C.J.—The question referred to this court is as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that hiring of certain machineries from sister concern would not amount to transfer as provided u/s 80J(4)(ii) of the Income Tax Act, 1961 ?"

The learned Advocate-General contends that hiring of certain machinery would also be a transfer within the meaning of Section 80J(4)(ii) of the Income Tax Act. For that purpose reliance is placed upon the judgment of the Bombay High Court in Capsulation Services Pvt. Ltd. Vs. Commissioner of Income Tax, Bombay City-I, , but that said judgment has been disapproved on this question by the Supreme Court in Bajaj Tempo Ltd., Bombay Vs. Commissioner of Income Tax, Bombay City-II, Bombay, , though on another aspect of the matter the judgment of Bombay High Court has been approved by the Supreme Court. However, the Supreme Court has clearly pointed out that the crucial word in that section is "formed" and importance should be given to that word and not to the word "transfer". The Supreme Court observed as follows (page 199) :

"But we do not approve of the Bombay view that, if a new undertaking is established in premises taken on lease, then it always amounted to formation of the undertaking by transfer of the building previously used as the decision was given without examining the scope of the word ''formed'' which, as we have indicated above, was construed by this court in Textile Machinery Corporation Limited, Calcutta Vs. The Commissioner of Income Tax, West Bengal, , which approved a decision of the Delhi High Court in Commissioner of Income Tax Vs. Ganga Sugar Corporation, ."

Again, the Supreme Court said (page 199) :

"The transfer, to take the new undertaking out of the purview of Sub-section (1), must be such that, but for the transfer, the new undertaking could not have come into being."

The Tribunal has in its order dated September 22, 1982, stated relevant facts in paragraphs 8 to 10 where it has discussed this question. The said paragraphs read as follows :

"8. Ground No. 4 raised by the assessee in its appeal, is in respect of relief denied to the assessee in respect of Section 80J in respect of slate and timber business. The Inspecting Assistant Commissioner while denying the relief u/s 80J, discussed the matter in paras 6 and 7 of his assessment order. When the issue was carried by the assessee before the Commissioner of Income Tax (Appeals) he dealt with the same in para 4 of the order and observed that the assessee''s claim is hit by Explanation 2 to Section 80J(4) as, according to him, the condition as specified in Section 80J(4)(ii) is not fulfilled in respect of slate and timber business of the assessee and, therefore, he held that the assessee is not entitled to Section 80J relief.

Learned counsel for the assessee while disputing this action of the Commissioner of Income Tax (Appeals) observed that simply because certain machineries have been obtained by the assessee in respect of timber and slate business of the assessee on hire, the same would not amount to transfer and, therefore, it is not a case of machinery which is transferred to a new business. The learned Departmental Representative, on the other hand, in this respect relied on the order of the Commissioner of Income Tax (Appeals).

After taking into consideration the rival submissions and careful perusal of facts, we find that the business of slate and exploitation of forests has not been done or formed by taking over the business of the old firm and merely because certain machineries have been taken on hire by the assessee from other sister concerns, this, according to us, would not mean to be a "transfer" as provided u/s 80J(4)(ii). The assessee, therefore, on the merits is entitled to its claim pertaining to Section 80) relief both in respect of slate and timber. Further, coming to ground No. 5 of the assessee''s appeal pertaining to computation of relief admissible u/s 80J, we restore the matter back to the file of the Inspecting Assistant Commissioner with the direction to rework the same in the light of our observation in the case of Rajinder Nath ITA No. 444/Chandi/82, dated August 16, 1982. Since the issue pertaining to Section 80J relief is to be adjusted as per Section 80J and the said section on the one hand, having undergone retrospective amendment and, on the other hand, the said retrospective amendment being under challenge before the Supreme Court, we have restored back this issue to the file the Inspecting Assistant Commissioner as per consistent view of this Bench."

The facts referred to by the Tribunal there can be no doubt whatever that the hiring of the machinery by the new undertaking from the sister concern will not be a transfer within the meaning of this section. It cannot be said by any stretch of imagination that the new undertaking was formed by such transfer of machinery.

The learned Advocate-General contends that strictly speaking in view of the pronouncement of the Supreme Court in Bajaj Tempo Ltd., Bombay Vs. Commissioner of Income Tax, Bombay City-II, Bombay, , the question referred to this court is not properly framed and this court should direct the Tribunal to reframe the question and submit the reference if it thinks necessary. In our opinion, it is not necessary in this case because of the facts set out in the order of the Tribunal itself. Secondly, we find that this relates to the assessment year 1977-78 and the reference itself has been pending in this court for more than 13 years. In such circumstances, we do not think it a proper course on the facts of this case to request the Tribunal to make a fresh reference if so advised on a refrained question. As the materials are available before us we decide the case on the basis of the Supreme Ctiurt in Bajaj Tempo Ltd., Bombay Vs. Commissioner of Income Tax, Bombay City-II, Bombay, .

The learned Advocate-General has drawn our attention to the judgments in Commissioner of Income Tax, Bombay City-III Vs. Indian Expanded Metals P. Ltd., L.G. Balakrishnan and Bros. Ltd. Vs. Commissioner of Income Tax, Madras, ; Kerala State Cashew Development Corporation Vs. Commissioner of Income Tax, and Travancore Rayons Ltd. Vs. Commissioner of Income Tax, .

On a perusal of the same we are of the opinion that they are not relevant for the purpose of this case and particularly in the view we have taken above.

Hence, the reference is answered in the affirmative by holding that the Tribunal was right in law in holding that the hiring of certain machinery from the sister concern will not amount to transfer as provided in Section 80J(4)(ii) of the Income Tax Act, 1961, in the facts and circumstances of this case.