Commissioner of Income Tax vs Titanium Equipment and Anode Manufacturing Co. Ltd.

R. Jayasimha Babu, J.—The question referred to us at the instance of the Revenue is :

"Whether, on the facts and in the circumstances of the case, the value of stock-in-trade leased out by the assessee with Dharangdhara Chemical Works Ltd. and leased out dated November 26, 1979, should be treated as part of the capital employed for the purpose of computing relief u/s 80J of the Act ?"

The assessee manufactures titanium substrate insoluble anodes which are used in the manufacture of caustic soda. The assessee had leased out plant and machinery of the value of Rs, 23,46,154 to Dharangdhara Chemical Works Ltd. The lease of the machinery was for a period of ten years. The value of the machinery so leased was directed to be excluded from the computation of the capital of the assessee for working out the relief u/s 80J of the Income Tax Act by the revisional order of the Commissioner though in the original assessment that sum had been included in the capital employed. The order of the Commissioner has been reversed by the Tribunal.

Section 80J refers to profits and gains "derived from newly established industrial undertakings or ships or hotel business in certain cases". Section 80J in Sub-section (4) specifies certain conditions which should be fulfilled by an industrial undertaking before claiming benefit u/s 80J. Clause (iii) therein refers to manufacture or production of articles. It is therefore evident that relief u/s 80J is in respect of profits and gains derived from the manufacture or production of articles. When the assets of the company had been leased out, it cannot be said that those leased assets are being used by the assessee for the manufacture or production of any article. The manufacture or production is by the lessee of those machineries. When the assessee receives rent by leasing out the manufacturing facility, it cannot also be said that the income is derived from the industrial undertaking. The value of the leased assets, therefore, had been rightly excluded by the Commissioner. The Tribunal was in error in reversing that decision of the Commissioner. The question referred is, therefore, answered in favour of the Revenue and against the assessee.