LexTEXTILE MACHINERY CORPORATION LIMITED, CALCUTTA versus THE COMMISSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA
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A B .c D E F 0 H :::TILE MA~llNERY CORPORATION UMITED, CALCUTTA\ "II v. THE COMJ.\USSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA January 25, 1977 (H. R. KHANNA, P. K. GOSWAMI AND P. S. KAILASAM, JJ.] , Indian Income-tax Act, 1922-S. 15C(2) (i)-Scope of Tests for determining when benefit of the section available-Reconstruction-Tests for determination. Section I 5C of the Indian Income-tax Act 1922, which deals with exemption from tax of newly established industrial undertakings, provides in sub-s. 2(i) that tl)e sect10n apphes, among others, to any industrial undertaking which is not formed by the splitting up, or the reconstruction of business already in existence. ·The assessee (appellant) was a heavy engineering concern manufacturing boilers, machinery parts and wagons. In addition, it had started a Steel Foundry Division and a Jute Mill Division. The bulk of the goods produced in both the divisions was used in the varic;ms divisions of the assessee company. The assessee's claim for exemption from tax under s. 15C in respect of profits derived from both the companies was rejected by the Income-tax Officer and its appeal was rejected by the App_ellate Assistant Commissioner on the ground that the J.mder- takings were an expansion· and reconstruction of the existing business. On appeal, the Appellate Tribunal held that although the products manufac- tured in the two divisions were used in the assessee's business, the Steel Foundry and the Jute Mill Division were new industrial undertakings, in that the machi- nery used in them was new, they were housed in separate buildings, were established under separate licences and that both the new divisions were main- taining separate books of account. · , On reference, the High Court held that it was a case of reconstruction of the existing business because the goods produced in the two divisions were primarily used in the assessee's engineering concern. Allowing the appeal, HELD : The Tribunal was right in holding in favour of the assessee. Sec- tion !SC is applicable to an absolutely new undertaking for the first time started and in order to deny benefit of the section, the new undertaking must be formed ~ reconstruction of the old bminess. [768 B-C] !. (a) In order to 1'• o•titled to the bene11t of s. 15C, the assessee has to I eitaltlish : . (I) (2) (3) (4) (5) the investmut of substantial fresh eapital in the industrial uder- taking; employment of th• requisite labour therein; manufadure or production of articles in the undertaking; earning or profits 'Clearfy attrioutable to the new undertaking; and separate and distinct indentity of the industrial unit set up. (b) Once the new industrial undertakin¥s. are separate and independent. pro- duction units in the sense that the commod1hes produce? or the results ash1eved are commercially tangible produc~ and the .undertak1!1gs ~an. be earned O!l 11eparately without complete absorpl!on and losmg thelf identity m the old busi- ness, they are not to be treated as being formed by reconstruction of the old business. [772 H, 773 A] TEXTIL:& llACFL CORP. v. COMM. OP I.T. (Gosw11mi; J.) 763 ( c) The object of tit• eection is to encourage the setting up of new industrial undertakings by offeri.!li tu incentives within a certain period. Sub-section (2) has a negative as well as a positive aspect. Negatiyely, a new undertakings should not be. formed by splitting up of the business already in existence and by the reconstruction of business already in existence; and positively, a new under- taking must produce results, that is to say, it has to manufacture or porduce .articles at any time within the stipulated period. Thd new und.ertaking must not be substantially the same as the existing business. The words "the capital em- ployed" are significant, for, fresh capital must be employed in the undertaking Claiming exemption. Manufacture or production of articles yielding additional profits aftributa.ble to the new outlay of capital in a separate and distinct unit is the heart of the matter to earn the benefit from the. exemption of tax liability under s. ! 5C. The fact that by establishing a new industrial undertaking the assessee expands its existing business would not deprive it of the benefit under s. 15C. If an industrial undertaking produces certain machines or parts which are identifiable units being marketable commodities and the undertaking. can exist even
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