Gujarat High Court
Atul Limited vs Deputy Commissioner Of Income Tax Range ... on 10 December, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 126 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
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ATUL LIMITED
Versus
DEPUTY COMMISSIONER OF INCOME TAX RANGE - 1 AHMEDABAD
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Appearance:
MR B S SOPARKAR(6851) for the Appellant(s) No. 1
MR.VARUN K.PATEL(3802) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 10/12/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. This Tax Appeal is filed by the appellant-
assessee under section 260A of the Income Tax Act,1961 [for short 'the Act'] arising out of the order of the Income Tax Appellate Tribunal [for short 'the Page 1 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined Tribunal'] in ITA No. 1732/AHD/2015 for A.Y.2009-10.
2. This Court [Coram: Hon'ble Mr. Justice Vipul Pancholi and Hon'ble Ms. Justice Deven Desai] by order dated 27.06.2023, admitted the Tax Appeal on the following substantial questions of law:
"(a) Whether, in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in not allowing deduction u/s.
80IA of the Act on the New Power Plant by not treating the same as a new industrial undertaking within the meaning of provisions of S. 80IA of the Act?"
3. The above substantial question is covered by the decision of even date rendered in Tax Appeal No. 1319/2008 for Assessment Year 2001-02 and is answered in favour of the assessee and against Revenue as under:
Page 2 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined "11. So far as Question No.5 is concerned, the Tribunal has observed as under:
"9. We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. The deduction u/s. 80IA is available to an assessee where the gross total income of the assessee includes any profits and gains derived by an undertaking or enterprise from any eligible business as referred to in sub- section (4). The deduction shall be allowed an amount equal to 100% of the profits and gains derived from such business for ten consecutive years. As per section e 801A(4) this section applies to any undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the is 1st day of April, 1993 and ending on the 3ist day of March, 2010. Sub-section (3) of section 80lA requires that such undertaking must fulfill the conditions laid down therein. The first condition therein is that the undertaking should not be formed by splitting up, or the reconstruction, of a business already in existence.
The second condition states that the Page 3 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 2 to this sub-section states that where in the case of an undertaking, any machinery or plant of any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or any part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for 'the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. This undisputed fact that in this case the assessee has not transferred the existing boiler to the new undertaking for generating the power but the contention of the assessee is that the same very boiler 1s being used for supplying the steam to both the turbine which was already in existence and the new one established by the assessee. The claim of the assessee is that the new turbine established by him itself is a new undertaking engaged in the business of generating the power.New turbine itself cannot generate Power until and unless the steam is provided to it through boiler. An undertaking which is eligible for deduction u/s 801A, in our opinion, must itself be an Page 4 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined independent undertaking and should be able to carry out the activities for which it has been established. The new turbine established by the assessee cannot itself generate the power. The undertaking so that it may generate the power will be complete only when both new turbine and the boiler are installed. The assessee has not installed boiler but it is part of existing undertaking generating the power. This, in our opinion, is merely an expansion of the existing undertaking. If the existing boiler is carved out from the new turbine installed by the assessee, the new turbine claimed to be eligible undertaking itself cannot generate the power. No material or evidence was brought to our knowledge which may prove that the new turbine installed by the assessee can independently generate the power. The assessee is already having the undertaking engaged in the business of generating the power. The assessee in this case has merely added a new turbine to the in undertaking which his capacity to generate the power has increased. This, in our opinion, is merely an expansion of the of the existing undertaking. The new undertaking as is eligible u/s 801A, in our opinion, must be independent and integrated unit which should be able to carry on the activities or Page 5 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined to carry on the business as has been stipulated u/s 80IA independently. It is not the case of the assessee that the new unit established by the assessee has taken from the existing unit for its exclusive use and generation of power. It is only in the existing unit the assessee has added new turbine which, in our opinion, cannot be regarded to be establishing the new undertaking qualifying for deduction u/s 80IA. We, therefore, do not find any illegality or infirmity in the order of the CIT(A) in denying deduction to the assessee u/s 801A. Thus, Ground Nos.3 and 4 stand dismissed."
12. Learned Senior Advocate Mr. Soparkar relied upon the decisions of this Court in case of Principal Commissioner of Income Tax vs. Jay Chemical Industrial Ltd. reported in [2020] 422 ITR 449 (Guj.) and submitted that the steam generated from the existing boiler would not mean that the new turbine is not a new industrial undertaking. It was submitted that expansion of the power generating facility by the assessee is required to be considered as new undertaking and therefore, the Tribunal was not justified in holding that in absence of of boiler, installation of the new turbine would not be considered Page 6 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined as a new undertaking. Alternatively it is submitted that even if boiler is a common use for both old and new turbine, it cannot be said that a new turbine is not an independent industrial undertaking as the turbine is meant for generation of power by use of steam either from the old boiler or the steam can also be purchased from outside. It was further submitted that if the assessee would have used old boiler exclusively for new turbine, then also, industrial undertaking would satisfy the condition of 80IA(3) read with Explanation 2 of the Act. Reliance was also placed on the decision of the Hon'ble Apex Court in case of Textile Machinery Corporation Limited, Culcutta vs. The Commissioner of Income Tax, West Bengal reported in 107 ITR 195 to submit that a substantial expansion would qualify for deduction under section 80IA of the Act.
13. On the other hand, learned Senior Standing Counsel Mr. Patel for the Revenue submitted that reliance placed by the assessee on the decision of this Court in case of Jay Chemical Industries Ltd (supra) is misplaced as the facts of the said case is different than that of the case of the assessee. It was submitted that in case of the assessee i.e. Atul Limited, this Court has held in favour of the Page 7 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined Revenue which is reported in (2016) 74 Taxmann.com 255. Reference was also made to the decision of this Court in case of Gujarat Alkalies and Chemicals Ltd vs. Commissioner of Income Tax reported in (2013) 350 ITR
94. It was submitted that in case of the assessee, the decision held by this Court that the Tribunal did not commit any error in arriving at conclusion that by mere installation of turbine, assessee did not install a new industry since turbine themselves would not be sufficient for power generation without generation of steam. It was therefore, submitted that Question No.5 may be answered in favour of the Revenue and against the assessee.
14. We have considered the rival submissions. The Hon'ble Apex Court, in case of Textile Machinery Corporation Ltd.(supra) while considering the issue regarding entitlement to the exemption claimed under section 15C(2)(i) of the Income Tax Act,1922, which is peri materia to section 80IA of the Act, has held as under:
"Reconstruction of business involves the idea of substantially the same persons carrying on substantially the same business. It is stated on behalf of the Revenue that the same company in the Page 8 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined instant case continues to do the same business of heavy engineering---no matter certain spare parts necessary as components to completion of the end- product are now manufactured in the business itself. The fact that the assessee is carrying on the general business of heavy engineering will not prevent him from setting up new industrial undertakings and from claiming benefit under section-15C if that section is otherwise applicable. However, in order to be entitled to the benefit under' section 15C, the following facts have to be established by the assessee. subject always to the time-schedule in the section :--
(1) investment of substantial fresh capital in the industrial undertaking set up, (2) employment of requisite labour therein, (3) manufacture or production of articles in the said undertaking, (4) earning of profits clearly attributable to the said new undertaking, and Page 9 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined (5) above all, a separate and distinct identity of the industrial unit set up.
We may add that there is no bar to an assessee carrying on a particular business to set up a new industrial undertaking on account of which exemption of tax under section 15C may be claimed.
The legislature has advisedly
refrained from inserting a
definition of the word
'reconstruction' in the Act. Indeed, in the infinite variety of instances of restructuring of industry in the course of strides in technology and of other developments, the question has to be left for decision on the peculiar facts of each case.
If any undertaking is not formed by reconstruction of the old business that undertaking will not be denied the benefit of section 15C simply because it goes to expand the general business of the assessee on some directions. As in the instant case, once the new industrial undertakings are separate and independent production units' in the sense that the commodities produced or the results achieved are commercially tangible products and the undertakings can be carried Page 10 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined on separately without complete absorption and losing their identity in the old business, they are not to be treated as being formed by reconstruction of the old business. The business of the assessee is of heavy engineering. The two new undertakings are independently producing arti- cles which may be of aid to the principal business but yet the undertakings are distinct and not reconstruction out of the existing business of the assessee. Use by the assessee of the articles produced in its existing business or the concept of expansion are not decisive tests in construing section 15C. The High Court is not right in holding the two undertakings as formed by reconstruction of the existing business of the assessee."
15. Section 80IA(3) reads as under:
"80IA:- Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. (1)xxx xxx xxx (2)xxx xxx xxx (3) This section applies to {an [industrial undertaking] referred to in clause (iv) of sub-section (4)} which fulfills all the following conditions, namely ~ Page 11 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of an {industrial undertaking} which is formed as a result of the re- establishment, re-construction or revival by the assessee of the business of any such {industrial undertaking] as is referred to in section 33B, in the circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation 1.--For the purposes of clause (i), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely --
(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;Page 12 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025
NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined
(b) such machinery or plant is imported into India from any country outside India; and
(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee.
Explanation 2.~Where in the case of an {industrial undertaking}, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with."
16. On perusal of the above provision, as it existed at the relevant time, Explanation-2, provides that when any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of machinery or plant or part does not exceed twenty percent of the total value of the machinery or plant Page 13 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined used in the business, then, for the purpose of clause (ii) of the sub- section (3), the condition specified therein that such new industrial undertaking is not formed by transfer to a new business of machinery or plant previously used for any purpose shall be deemed to have been complied with. Therefore, even considering the fact that the boiler was used for the purpose of obtaining steam to run the new turbine for generation of the power, cost of new turbine is less than twenty percent of the total value, would Condition No.2 of the conditions prescribed in Clause (ii) shall be deemed to have been complied with in the facts of the case. The total value of the plant and used for the purpose of generating power works out to Rs. 14,56,44,295/- (Rs. 18,27,180/- value of the plant and machinery and Rs.1,26,42,715/- for turbine new industrial unit) and the value of boiler (pre-existing and pre-used) is Rs. 14,76,600/- purchased second hand on 09.11.1998. In view of such facts even as per the Explanation-2 to section 80IA(3) there is no breach of the condition on use of the old boiler for obtaining steam to run the turbine for generation of power. Moreover, as per the decision of this Court in case of Principal Commissioner of Income Tax vs. Jay Chemical Industries Ltd. reported in [2020] 120 taxman.com 315 (Gujarat) (supra), Page 14 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined the steam is also a power and energy as held as under:
"22. The word "Power" should be understood in common parlance as "Energy". "Energy" can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the "steam" produced by the assessee can be termed as power and would qualify for the benefits available under section 80IA(4) of the Act."
17. It is true that the question raised before this Court in case of Jay Chemical Industries Ltd (supra) was only for the purpose that vapour would not fall within the meaning of 'Power' and therefore, would not be generation of power to which, the deduction is granted under section 80IA(4). Therefore, this Court has rightly held that as the facts in the said case was different from the facts of the Atul Limited (supra), ratio was not made applicable in the facts of the case.
18. On perusal of the decision of this Court rendered in case of Atul Limited (Supra), it appears that the decision in case of Textile Machinery Corporation Ltd, West Bengal (supra) was not referred to and reference was only made to the decision of Gujarat Alkalies and Chemicals Ltd. Moreover, the said decision was rendered with regard to question of law as to Page 15 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025 NEUTRAL CITATION C/TAXAP/126/2023 JUDGMENT DATED: 10/12/2024 undefined whether Income Tax Tribunal was justified in recalling its judgement regarding on the subsequent decision of the Court in case of Gujarat Alkalies and Chemicals Ltd. on the ground that there was error apparent on the face of the record committed by the Tribunal. Therefore, this Court never called upon to decide the issue as to whether the assessee is eligible to get the deduction under section 80IA on merits. This Court only decided as to whether on the basis of the decision on the case of Gujarat Alkalies & Chemicals Ltd (supra), Tribunal have recalled the order while exercising power of section 254(2) of the Act or not.
19. In view of the above foregoing reasons, we are of the opinion that the Tribunal was right in law in not allowing deduction under section 80IA of the Act on the installation of the new turbine by the assessee being a new power plant by not treating the same as new industrial undertaking within the meaning of the proviso of section 80IA of the Act. We therefore, answer the question in favour of the assessee and against the Revenue."
Tax Appeal is disposed of.
(BHARGAV D. KARIA, J) (D.N.RAY,J) JYOTI V. JANI Page 16 of 16 Uploaded by JYOTI V. JANI(HC00213) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 21:44:44 IST 2025