Commissioner of Income Tax, Tamil Nadu-II vs Ambur Co-operative Sugar Mills Ltd.

Venugopal, J.—The assessee owned a sugar mill, which had a capacity to cursh 800 metric tonnes of sugarcane per day. In the relevant

accounting year, the assessee installed a second unit having a capacity of 450 metric tonnes per day. The assessee claimed relief under s. 80J of

the I.T. Act, 1961. The ITO negatived the claim for relief on the ground that the plant and machinery cannot be considered as an independent unit,

as it was admitted by the chief accountant of the assessee that the unit has to work with the help of crystallisers and pans of the already existing

unit. On appeal, the AAC held that even though the installation of the second unit entailed on outlay of over Rs. 45 lakhs, it cannot be stated that it

brought into existence an entirely new or independent undertaking and there was only an expansion, perhaps a substantial expansion, of the existing

industrial undertaking and the assesssee was not entitled to s. 80J relief. There was a further appeal to the Tribunal. The Tribunal held that though

the second unit was working with the help of pans and crystallisers of he already existing plant, there was no transfer of the pans crystallisers of the

old unit to the second unit, and it was only temporarily being used in the second unit and even otherwise the Explanation to sub-s. (6) of s. 80J

would come to the rescue of the assessee, since the value of the pans and crystallisers of the old unit was only Rs. 4 lakhs whereas the machinery

installed in the second unit was worth about Rs. 45 lakhs. The Tribunal ultimately concluded that the second unit was not formed by the transfer of

machinery or plant used in the existing unit and the second unit satisfied all the requirements specified in sub-s. (4) of s. 80J and, hence, the

assessee was entitled to the relief under s. 80J for the second unit. Arising out of the order of the Tribunal, the following question of law has been

referred to this court for opinion under s. 256(1) of the I.T. Act, 1961 :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in allowing relief u/s 80J in respect of the second unit

installed by the assessee for the year 1969-70 ?

The learned counsel for the revenue contended that the second unit had been formed by the splitting up and reconstruction of a unit already in

existence and in view of s. 80J(4)(i), the assessee was not entitled to any relief.

The Supreme Court in the decision in Textile Machinery Corporation Limited, Calcutta Vs. The Commissioner of Income Tax, West Bengal,

has pointed out that the reconstruction of a business involves the idea of substantially the same persons carrying on substantially the same business

and there is a element of transfer of assets and continuity and a preservation of the old undertaking in an altered form and if the second unit set up

by the assessee was a new activity launched by investing substantial funds and constituted an integrated unit employing its own labour, producing

the same commodity or a different commodity, it is a new industrial under taking and not an undertaking formed by the reconstruction of the

existing unit.

In the present case, the Tribunal has found as a question of fact that the working of the second unit is not tied up with the old unit and both are

independent and they can work separately and the working of the second unit is in no way dependent upon the working or the existence of the first

unit. The Tribunal''s finding is that the value of machinery installed in the second unit is worth about Rs. 45,65,000. As there was was an investment

of substantial fresh capital in the second unit and the employment of requisite labour therein, and manufacture or production of articles in the

second unit, and thus having its own separate and distinct identity, it cannot be considered as an undertaking formed by the splitting up or

reconstruction of the existing unit and s. 80J(4)(i) is not, therefore, attracted.

The further finding of the Tribunal is that the pans and crystallisers of the existing unit were used in the second unit only as a temporary measure

and there was no transfer of the pans and crystallisers from the first unit to the second unit. Moreover, the value of the pans and crystallisers of the

first unit alleged to have been used in the second unit is only about Rs. 4 lakhs, whereas the value of the machinery installed in second unit is of the

value of Rs. 45,65,000 and since the value ofthe machinery alleged to have been transferred from the existing unit to the second unit does not

exceed 20 per cent. of the total value of the machinery put up inthe second unit, s. 80J relief cannot be negatived by relying on s. 80J(4)(ii). Since

the assessee cannot be brought within the ambit of either s. 80J(4)(i) or s. 80J(4)(ii), the Tribunal was justified in coming to the conclusion that the

assessee is entitled to s. 80J relief claimed. The question referred to is answered in the affirmative and in favour of the assessee. The assessee is

entitled to costs of Rs. 500.