BAJAJ TEMPO LTD., BOMBAY versus COMMISSIONER OF INCOME TAX, BOMBAY CITY-III, BOMBAY

Citation: [1992] 2 S.C.R. 765 · Decided: 24-04-1992 · Supreme Court of India · Bench: R.M. SAHAI · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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BAJAJ TEMPO LTD., BOMBAY 
v. 
COMMISSIONER OF INCOME TAX, BOMBAY CITY-III, 
BOMBAY 
APRIL 24, 1992 
[R.M. SAHAI AND A.S. ANAND, JJ .] 
Income Tax Act, 1922 : 
A 
B 
Section JSC-lndustrial undertaking established by taking on lease 
C 
building previously used for other business-Transfer of machinery or plant 
of very nominal value--Whether the undertaking entitled to claim benefit of 
exemption. 
Interpretation of Statutes : 
Taxing statute--Provision granting incentives for promoting economic 
growth and development-To be liberally const1Ued. 
The appellant-Company, which was formed for exploiting the 
manufacturing licence issued by the Government in favour of its promoter-
Corporation, entered into an agreement with the promoter Corporation to 
secure and take over from the promoter Corporation the rights under the 
licence to manufacture tempo vehicles and to take over its factory as a 
going concern with its assets, liabilities, machinery, power, quntas etc. 
Clause 10 of the agreement provided that the transferee, the appellant-
Company, should be in possession of the premises of the factory and the 
building on payment of monthly rent as a lessee. Tools and implements 
valued at Rs. 3,500 of the promoter Corporation, were also transferred to 
the company. After the take-over, the licence was endorsed by the ap-
propriate authority of the Government of India in favour of the assessee-
company. 
In assessment proceedings for the year 1960-61, the appellant Com-
pany, the assessee claimed benefit of partial exemption from payment of 
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tax under S~ion lSC of the Act of 1972 as the Company was a new 
undertaking. The Income Tax Officer rejected the claim on the ground that 
though the undertaking was new, it was not entitled to the benefit, as it H 
765 
766 
SUPREME COURT REPORTS 
(1992] 2 S.C.R. 
A 
was formed by splitting up of business already in existence and also by - )11111 
transfer to the new business of the building and machinery previously used 
B 
in the other business. However, the Income Tax Officer observed that it 
could not be held, on the facts of the case, that it was a case of reconstruc· 
tion of the business already in existence. 
On appeal by the assessee-Company, the Ap~llate Assistant Com· 
missioner held that taking premises on lease could not be held to amount 
transfer of the building as the building in which the undertaking was set 
up was not purchased but taken on lease. only and that since, admittedly, 
the value of the building could not be included in the capital computation 
C for the purposes of Section lSC, the value of which would be negligible as 
compared to the value of the assets installed; the assessee was entitled to 
claim the benefit. In•furthe.- appeal, the Income Tax Appellate Tribunal 
agreed with the order of the Appellate Authority and rejected Revenue's 
contention that since the premises in question were earlier used for the 
D purpose of business, the assessee was disentitled from claiming the benefit 
as the 'newly established undertaking must aiso refer to a building pre-
viously used by the assessee himself in any other business'. It heid that 
lease _could not be held to be transfer, and that an industrial undertaking 
to be covered in the mischief of Clause (i) or sub-s~tion (2) of Section 15C 
should. have been 'formed' by transfer of building, plant or machinery, 
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which was substantial and prominent in the formation of the undertaking; 
in other words, the part played by such transfer should have been such 
that the industry without it could not have come into being, and that it . 
could not stand to reason that a big industrial undertaking should be 
denied the benefit of Section lSC, only because it took the business 
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premises on lease or used its implements and tools worth a small amount 
previously used for the purposes of business. 
On a reference made by the department, the High Court answered 
the question of law ·raised by the department in its favour and against the 
assessee. Hence the appeals by the assessee; 
On the question whether the assessee was entitled to claim partial 
exemption from payment of tax under Section 15C of the Income Tax Ac:t, 
1922 on profits and gains derived from an ifidustrial undertaking estab· 
lished in a building taken on lease used for other business, and whether 
H the assessee-Company, which had been found by the Tribunal, to be a new 
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