1. This statement of the case has been stated under s. 256(1) of the I.T. Act, 1961, by the Income-tax Appellate Tribunal at the instance of the department and relates to the assessment years 1962-63, 1963-64 and 1964-65.
2. One of the questions which arose for determination in the assessments of the respondent-company in respect of the above assessment years was whether the respondent-company was entitled to relief under the old s. 84 of the I.T. Act, 1961, which has now been omitted and replaced by s. 80J with effect from April 1, 1968. This question arose because the factory which the respondent-company had set up was located in portion of the building belonging to the Structural Engineering Works Ltd., which the said company had given on a lease to the respondent-company at an annual rent of Rs. 17,520. Under the said s. 84, subject as otherwise provided in the said section, income-tax was not payable by an assessee on so much of the profits or gains, derived from any industrial undertaking or hotel to which the said section applied, as did not exceed 6 per cent. per annum on the capital employed in the undertaking or hotel, computed in the prescribed manner. The respondent-company was admittedly an industrial undertaking. But under sub-s. (2) of the said s. 84, for an industrial undertaking, to become eligible for the relief under the said s. 84, certain conditions had to be fulfilled. One of these conditions which was contained in cl. (ii) of that sub-section was that the industrial undertaking was 'not formed by the transfer to a new business of building, machinery or plant previously used for any purpose'. The Explanation to the said section provided as follows:
'84. Income of newly established industrial undertakings or hotels. - ..
Explanation. - Where any building, machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the building, machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the building, machinery or plant used in the business, then, for the purposes of clause (ii) of sub-section (2) and clause (a) of sub-section (3), the industrial undertaking or hotel to which the transfer has been made shall be deemed to have complied with the condition specified therein and the total value of the building, machinery or plant or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking or hotel.'
3. The ITO in his order for the assessment year 1962-63 held that the condition contained in the said cl. (ii) was not fulfilled. He further held that the value of the portion of the building taken on lease by the respondent-company from the said Structural Engineering Works Ltd. was more than twenty per cent. of the total value of the respondent-company's assets. The ITO gave no reasons as to why, according to him, the condition contained in the said cl. (ii) had not been complied with. it, however, appears from the order of the AAC that in the course of the hearing of the appeal filed by the respondent-company the ITO had succeeded in showing to the appellate authority that this was 'not a new building previously unused by the Structural Engineering Works Ltd., but a building that has been used by them and depreciation claimed by them on that building'. The AAC thereupon rejected a contention which had been raised by the respondent-company in the appeal that this was a new building. The AAC, however, following the decisions of the Tribunal, held that the word 'transfer' in the said cl. (ii) did not cover a lease and, therefore, the respondent-company was not disentitled to relief on the ground that it had not complied with the condition contained in the said clause. On an appeal by the department to the Tribunal, the Tribunal held, following its earlier decisions, that the lease was not a transfer within the meaning of the said expression under the said cl. (ii). It also observed that the Explanation to the said s. 84 showed that the asset transferred would form part of the total block of fixed assets and that under the lease the respondent-company had not acquired any fixed asset but it merely got leasehold rights and it would be contrary to the principles of accountancy to show the value of such leasehold rights as an asset in the balance-sheet. It also observed that ascribing a value of Rs. 1,50,000 to the leasehold rights, which the ITO had done, was excessive and that even if the leasehold rights had to be valued, it would be wrong to equate their value with the cost of construction of the rented premises as had been done by the ITO. The orders for the two subsequent years merely followed suit.
4. On an application made by the department, this case was stated by the Tribunal and the following question referred to us:
'Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under section 84 of the Income-tax Act ?'
5. Now, it will be obvious from the facts recited above that the Tribunal decided the appeal really on one ground only, namely, whether the lease by the said Structural Engineering Works Ltd., to the respondent company amounted to a transfer within the meaning of that expression in the said cl. (ii), and that it did not decide any other point which arose in the said appeal. Though it does not appear that any specific finding was given by the ITO on the point whether the said premises were previously used by the said Structural Engineering Works Ltd. prior to leasing them to the respondent-company, the point was argued before the AAC. It, however, appears that this point was decided by the AAC on the basis whether this portion of the building was a new construction. The Tribunal has not given any finding upon this point. Mr. Joshi, learned counsel for the applicant, however, relied upon the following sentence in the statement of the case, namely:
'The Income-tax Officer rejected this claim on the ground that the working of this unit had resulted in a loss, that the factory was located in a lease building and that the taking of the lease amounted to a transfer of a building used for the purpose of the business of another concern.'
6. Placing reliance upon the phrase 'amounted to a transfer of a building used for the purpose of the business of another concern', Mr. Joshi submitted that this amounted to a finding of fact by the Tribunal because it showed that the parties had proceeded upon this basis before the Tribunal. We are unable to accept this submission. What the Tribunal was doing was to recite the order of the ITO and his findings. A recital of what the order of the lower authorities contained cannot amount to a finding by the Tribunal. As pointed out above, this finding of the ITO was challenged before the AAC. The question of the respondent-company challenging before the Tribunal this finding of the AAC in this behalf does not arise because the appeal to the Tribunal was filed by the department and not by the respondent-company. The Tribunal has also not given any finding as to whether the Explanation to the said s. 84 was applicable to the case of the respondent-company. In dealing with this point it has proceeded upon the basis that the lease was not a transfer and in the alternative, it has held that even if leasehold rights were to be valued, the valuation was excessive and that the method of valuation adopted by the ITO was not correct. But, what the correct method of valuation should be, and what the correct valuation was, have not been determined by the Tribunal. Thus, the only question which arises for determination out of the order of the Tribunal is whether the said lease amounts to a transfer.
7. The question which has been referred to us is, however, too wide and does not bring out the real controversy between the parties in this reference.
8. According to us, this question, therefore, requires to be reframed to bring out the real controversy and we reframe it as follows:
'Whether the lease granted to the respondent-company by the Structural Engineering Works Ltd., of a portion of the factory building belonging to the Structural Engineering works Ltd. and situate at Mulund amounts to a transfer within the meaning of that expression in section 84(2)(ii) of the Income-tax Act, 1961 ?'
9. The determination of this question hardly requires any debate. After the decision of the Tribunal in this matter, in Capsulation Services Pvt. Ltd. v. CIT : 91ITR566(Bom) , a Division Bench of this High Court held that the word 'transfer' in the said clause cannot be restricted to a case where the full rights of ownership were transferred and that it would include a transfer also of some limited right or interest in or to the property and, therefore, where a transfer was effected by the creation of a lease in a building in favour of a new business or a person carrying on a new business it would amount to a transfer within the meaning of that expression as used in s. 15C(2)(i) of the Indian I.T. Act, 1922, which corresponded to s. 84(2)(ii) of the I.T. Act, 1961, with which we are dealing.
10. In a later case, CIT v. Suessin Textiles, Ball Bearing & Products (P.) Ltd. : 118ITR45(Bom) , another Division Bench of this High Court reiterated the view taken earlier and further held that it was not necessary for the purposes of the said s. 15C(2)(i) of the Indian I.T. Act, 1922, that the building transferred to the newly started undertaking must have been previously used by the assessee himself in any other business and that a building earlier used for business by a stranger was included.
11. In view of these decisions, the question as reframed by us will have to be answered in favour of the department and, accordingly, we answer the question in the affirmative.
12. Even though the lease amounts to a transfer, the respondent-company would still be entitled to the relief under the said s. 84 if it had complied with the other part of the condition laid down in the said cl. (ii) of s. 84(2). Further, even if this was a portion of the building which was previously used by the Structural Engineering Works Ltd., if the Explanation to the said s. 84 applied to the case of the respondent-company, the respondent-company would still be entitled to relief under the said s. 84, there being no dispute that all other conditions have been complied with by the respondent-company. These points, as mentioned earlier, have not been determined by the Tribunal and the Tribunal will now proceed to dispose of the case conformably with what we have stated earlier in this judgement.
13. There will be no order as to costs of this reference.