1. This is a reference at the instance of the Revenue under section 256(1) of the Income-tax Act, 1961. The question to be considered reads thus :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that a new industrial undertaking had come into being and that the assessee was entitled to relief under section 80J of the Income-tax Act, 1961 ?'
2. We are concerned with the assessment year 1971-72. The assessee had been carrying on business in the manufacture and sale of self-locking nylocnuts for vehicles. For the purposes of such manufacture, it imported or purchased from local sources nylocinserts. In the accounting year relevant to the assessment year here concerned, the assessee set up a plant for the manufacture of nylocinserts and commenced that manufacture. For setting up the plant, it raised fresh capital to the extent of Rs. 2,50,000. It housed the plant in an extension of its existing premises. The entire production of nylocinserts was used in the main factory as components for self-locking nylocnuts.
3. The assessee claimed relief under section 80J of the Income-tax Act, 1961, in respect of the plant for the manufacture of nylocinserts. The Income-tax Officer refused it on the ground that there was no new undertaking. The Appellate Assistant Commissioner confirmed the Income-tax Officer's order. The assessee went up in appeal to the Income-tax Appellate Tribunal which held that a new industrial undertaking had come into being. Finding that the assessee was entitled to relief under section 80J, it directed the Appellate Assistant Commissioner to determine the quantum there of.
4. The argument on behalf of the Revenue, advanced by Mr. Jetly, its learned counsel, is based on sub-section (4)(i) of section 80J of the Income-tax Act, 1961. Sub-section (1) provides for relief to be given where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking to which the section applies. Sub-section (4) provides that the section shall apply to any industrial undertaking which fulfils all the four conditions therein stated. The first of those conditions is :
'(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;'
5. Mr. Jetly submitted that inasmuch as there had been, in the instant case, the reconstruction of a business already in existence, the relief under section 80J of the Income-tax Act, 1961, was not available to the assessee.
6. He also relied on the fact that the plant for manufacturing nylocinserts had been housed in an extension of the existing business premises.
7. In the decision of the Supreme Court in Textile Machinery Corporation Ltd. v. CIT : 107ITR195(SC) , 'reconstruction' in section 80J(4)(i) of the Income-tax Act, 1961, has been taken to mean that an undertaking of some definite kind was being carried on and the conclusion was arrived at that it was not desirable to kill that undertaking but to preserve it; to continue in some altered form the undertaking in such a manner that the persons carrying it on would substantially continue to be the same. It meant that substantially the same business would be carried on and substantially the same persons would carry it on.
8. No 'reconstruction' as defined by the Supreme Court has, in the instant case, taken place. A plant was set up to manufacture the nylocinserts that were previously purchased. That the new plant was set up in an extension of the premises where the assessee was carrying on its business of manufacturing nylocnuts would seem to us to make no difference whatever.
9. The only argument on behalf of the Revenue is, therefore, negatived.
10. The question is answered in the affirmative and in favour of the assessee.
11. The Revenue shall pay to the assessee the costs of the reference.