Allahabad High Court
Commissioner Of Income-Tax vs Quality Steel Tubes P. Ltd. on 6 December, 2004
Equivalent citations: (2006)200CTR(ALL)400, [2006]280ITR254(ALL)
Bench: R.K. Agrawal, Prakash Krishna
JUDGMENT
1. In Income-tax Reference No. 73 of 1989 the Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256(2) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for opinion to this Court :
Whether, on the facts and circumstances of the case, the Tribunal is justified in Jaw in holding that deduction under sections 80J and 80HH is admissible to the assessee in respect of the capital employed in project No. 2 ?
2. Whereas in Income-tax Reference No. 109 of 1986 the Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256(2) of the Act for opinion to this Court :
Whether, on the facts and circumstances of the case, the Tribunal is justified in law in holding that the assessee was entitled to deduction under Section 80HH of the Income-tax Act, 1961 ?
3. The reference relates to the assessment year 1981-82. Since both the questions relate to the same assessee and involve the same controversy they have been heard together and are being decided by a common judgment.
4. Briefly stated the facts giving rise to the present reference are as follows :
5. The respondent-assessee is a private limited company and is engaged in the business of manufacture and sale of black steel tubes and galvanised steel tubes. Earlier it was a partnership firm which was converted into a private limited company. It had set up a project called project No. 2 consisting of a milling plant for manufacture of steel tubes of 4 inches diameter. Previously it was manufacturing such tubes only of 2 inches diameter. The respondent had claimed 71/2% of the capital employed in the project No. 2 amounting to Rs. 18,41,349 after deduction of loans from UPFC and PICUP. The respondent claimed relief under sections 80J and 80HH of the Act. The Income-tax Officer in order to verify the factual position inspected the factory premises and found that the new plant was only a moulding plant set up parallel to the original moulding plant which manufactured steel tubes up to 2 inches diameter. He also found that not only the mill compound but also the factory building was the same for both the projects and there was only one composite structure. He, accordingly, rejected the claim on several grounds, namely, no separate profit and loss account and balance-sheet has been prepared in respect of the new project and, therefore, it was not possible to ascertain whether it had earned any profit and further the condition laid down in Section 80J(4)(i) was also not satisfied. According to him it was a case where the new project was formed by the splitting up or the reconstruction of a business already in existence. He also found that several machinery and plant were common to both the projects or the moulding plants and, therefore, it was a case of splitting of the old undertaking. According to the Income-tax Officer the common use of the two projects of the land, building, splitting machine, galvanised plant, threading machine, store room, workshop, generating set and factory office proves that it was a case of splitting up of the old business.
6. The claim of deduction under Section 80HH had been, however, negatived on the ground that as the claim under Section 80J is not admissible. This finding of the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals). However, in further appeal the Tribunal has held that the new project of the respondent is a new industrial unit, which is separate physically from the old one, the capital of which and the profits thereon are ascertainable. The Tribunal was, however, of the view that merely because some of the processes for the manufacture of new tubes are carried on with the help of the old machines or there is common store room and common factory office are not fatal to the claim of the respondent. The Tribunal while coming to the aforesaid conclusion had relied upon a decision of the apex court in the case of Textile Machinery Corporation Ltd. v. CIT .
7. We have heard Sri A. N. Mahajan, learned standing counsel for the Revenue, and Sri Shakeel Ahmad, learned Counsel appearing for the asses-see.
8. Learned counsel for the Revenue submitted that under Section 80J(4)(i) as also under Section 80HH(2)(ii) the requirement is that the unit should not have been formed by the splitting up or the reconstruction of a business already in existence. According to him as the business which was carried on earlier by the respondent in the form of a partnership firm for manufacturing black steel tubes of 2 inches diameter set up a new project No. 2 for manufacturing of 4 inches diameter pipes by converting into a private limited company it amounts to splitting up or reconstruction of a business already in existence and, therefore, the respondent is not entitled to claim the benefit under Sections 80J and 80HH. The Tribunal has found that the respondent has set up a new project for manufacturing of 4 inches diameter black pipe which is different from manufacturing 2 inches diameter black pipe by the respondent. Merely because some of the facilities are common that will not mean reconstruction or splitting up.
9. We are of the considered opinion that the Tribunal has correctly applied the principle laid down by the apex court in Textile Machinery Corporation Ltd. and accordingly answer the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall be no order as to costs.