Allahabad High Court
Commissioner Of Income-Tax vs Mahesh Chand Gupta on 3 May, 2005
Equivalent citations: (2006)202CTR(ALL)433, [2005]279ITR396(ALL)
Bench: R.K. Agrawal, Rajes Kumar
JUDGMENT
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following two questions of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court for the assessment years 1990-91 and 1991-92.
"Whether, the Tribunal was justified on facts and in law in allowing the benefit of Sections 80HH and 80I of the Income-tax Act, 1961, in respect of the sole proprietary business of M/s. Khandelwal Wires ?"
2. The brief facts of the case are as follows :
3. The assessee in this case is an individual deriving income from the manufacture and sale of insulated wire under the name and style of Khandelwal Wires being a proprietary concern. In the course of the assessment proceedings for the assessment year 1990-91 deductions were claimed under Sections 80HH and 80I of the Act both at 20 per cent. of the profit from the alleged newly established industrial undertaking in a backward area. To consider the aforesaid claims, the Assessing Officer proceeded to ascertain relevant facts from the record and which revealed that up to the assessment year 1980-81, the assessee was a partner in a registered firm, namely, Khandelwal Associates, Mathura and the said firm came to be dissolved on March 31, 1980. Subsequently, with effect from May 10, 1980, the assessee started his proprietary manufacturing concern under the name of "Khandelwal Electricals" for which the accounts were closed for the first time on December 31, 1980. As the aforesaid concern was operating in a backward area, the assessee claimed deductions under Sections 80HH and 80I of the Act and these were being regularly allowed to him. M/s. Khandelwal Electricals was stated to have been closed on March 31, 1989, but prior to that during the previous year 1988-89 relevant to the assessment year 1989-90, the assessee is stated to have started a new concern, under the name of "M/s. Khandelwal Wires" with effect from June 1, 1988. It was claimed that machinery worth Rs. 1,64,164 had been installed in the said unit. As the said concern was following the financial year as its previous year, the first assessment year was 1989-90 for which the assessee reflected a net loss of Rs. 6,499 and after adjusting the same with the profit of M/s. Khandelwal Electricals as also adjusting various other deductions income was returned at a figure of Rs. 4,62,102. No deductions under Sections 80HH and 80I of the Act were claimed for the assessment year 1989-90 in respect of the alleged new unit, namely, M/s. Khandelwal Wires, and it is also a, matter of record that the return for the assessment year 1989-90 was processed under Section 143(1)(a) of the Act.
4. The assessing authority has disallowed the claim of deductions under Sections 80HH and 80I of the Act on the following grounds :
On the basis of the aforesaid reasons the Assessing Officer concluded that since as the alleged new concern had been formed by the splitting up and reconstruction of a business already in existence and further there being a transfer of machinery and plant previously used in the alleged old concern, there was no justification to accept the claims for deduction under Sections 80HH and 80I vis-a-vis the new concern. She, however, proceeded to allow on a different ground, the claim for deduction under Section 80HH, namely, the assessment year under consideration being the 10th year of the old business, but denied the claim under Section 80I. The Assessing Officer also relied on the judgment of the hon'ble Supreme Court in the case of McDowell and Co. Ltd. v. CTO . On further appeal, the Commissioner of Income-tax (Appeals) confirmed the action of the Assessing Officer and rejected both the claims as canvassed by the assessee.
5. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee filed appeal before the Tribunal. The Tribunal allowed the appeal of the assessee. The Tribunal held as follows :
"We have examined the rival submissions and have also perused the material on record to which our attention was invited during the course of the hearing. The decisions cited at the bar have also been duly considered.
At the outset, we must highlight that the provisions of Sections 80HH and 80I envisage a similar type of scheme for allowing deduction at a stipulated percentage, of the profits and gains derived from an industrial undertaking. Even the conditions to be fulfilled are quite identical, viz., :
(i) manufacture or produce articles before a specified date ;
(ii) should not be formed by the splitting up, or the reconstruction of a business already in existence ;
(iii) not formed by the transfer to a new business of machinery or plant previously used ; and
(iv) employs ten or more workers in a manufacturing process carried on with the aid of power or employs twenty or more workers in a manufacturing process carried on without the aid of power.
Both the sections have a number of Explanations and provisos and one Explanation is to the effect that where the machinery or plant previously used is transferred to a new business and if the value thereof does not exceed twenty per cent. of the total value of the machinery used in the said new business then condition (iii) above shall be deemed to be satisfied.
The aforesaid Explanation was referred to by learned Counsel for the proposition that even if it was to be assumed although not admitting that 'plant and machinery' from the old unit had been transferred to the new unit then the value thereof did not exceed 20 per cent. of the total value of the plant and machinery of the new unit. The main submission was, however, to the effect that no item of plant and machinery had been transferred and the items taken over were in the nature of 'office appliances' such as computer, car, scooter, furniture, etc., valued at Rs. 1,21,673. As against this, the balance-sheet of the 'new unit' as on March 31, 1990, reflected fixed assets at Rs. 11,10,932 before deduction for depreciation and the figure of plant and machinery alone stood at Rs. 6,24,348 and whichever way the matter was looked at the transferred assets did not exceed 20 per cent. of the total whether it be of the plant and machinery or the whole or the assets of the new unit.
Another exception had been taken this time by the Commissioner of Income-tax (Appeals) as to the fact that the number of workers was less than ten 'initially', viz., in April and May, 1989, although he did not dispute that the limit was exceeded in the subsequent months. In our opinion it is sufficient compliance with the condition if the workers remain ten or more during a substantial part of the year and which is a fact in the present case. The total number of workers are ten and more throughout the year if office workers are included and exceeds the stipulated number for all the months with the exception of April and May, 1989 in case office workers are excluded.
On coming to the other aspects of the matter we find ourselves in agreement with the submissions made by learned Counsel vis-a-vis the establishment of a 'new unit' at a place admittedly different than the old unit, and manufacturing an item different to the one manufactured earlier although both come under the category of 'wires and cables'. In annexure '8A' to the present order the points of distinction have been drawn up on behalf of the assessee and these do aptly support the view-point canvassed by learned Counsel and there being no effective challenge or material in rebuttal placed on record by the Revenue represented by the Departmental Representative. Much stress has been laid by the Revenue on the similarity between the customers, employers and the commission agents of the old and the new units but in our opinion these on the facts of the present case are not at all valid, since the assessee in operating a 'new unit' has to fall back on his old contacts, customers as well as employers. The law does not create a bar on these aspects to deny a rightful claim.
Then again the Revenue has alleged that the machinery and plant of the old unit has been utilised by the new unit and has also laid much stress on the value of the old machinery. In our opinion there is no material on record for the said allegation and something more was required to be proved on the part of the Revenue and which has not been done. We, therefore, accept that the items other than those which had been transferred from the old to the new unit were not used or utilised by the new unit in its manufacturing process. The onus to prove so was on the Revenue. Then again the exemptions granted by the various State Govt. authorities cannot be ignored. These do prove the assessee's case that a 'new unit' came into existence."
6. The Tribunal also placed reliance on various decisions cited on behalf of the assessee and more particularly the following :
(1) CIT v. Hindustan General Industries Ltd. ;
(2) Nagardas Bechardas and Brothers P. Ltd. v. CIT ;
(3) CIT v. Ganga Sugar Corporation Ltd. ;
(4) CIT v. Associated Cement Companies Ltd. .
7. For the subsequent assessment year 1991-92, the Tribunal allowed necessary relief to the assessee on the same grounds as directed in the assessment year 1990-91. In doing so it specifically noted that there were no distinguishing features either of fact or law as compared to the preceding assessment year i.e., 1990-91.
8. Heard Sri R. K. Upadhyaya, learned standing counsel for the Revenue. No one appears on behalf of the assessee.
9. We do not find any error in the order of the Tribunal The Tribunal has recorded a categorical finding of fact that the alleged transferred assets did not exceed 20 per cent. of the total whether it be of the plant and machinery or the whole of the assets of the new unit. The Tribunal further held that the number of workers remained ten or more during a substantial part of the year and if the office workers are to be included the total number of workers were more than ten throughout the year. The Tribunal further found that the establishment of a new unit was at a place different from the old unit and manufacturing an item was also different to that manufactured earlier, although both come under the category of "wires and cables". The Tribunal further found that apart from the items other than those which had been transferred from the old to the new unit no other machinery was used or utilised by the new unit in its manufacturing process. On the aforesaid facts, the Tribunal held that the assessee was entitled for deduction under Sections 80HH and 80I of the Act. Learned standing counsel is not able to assail the findings recorded by the Tribunal, as stated above. He is also not able to show any illegality in the order of the Tribunal which is based on appreciation of the evidence on record.
10. In the result, the question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall be no order as to costs.