Srinivasa Iyengar, J.
1. These two references relate to the same assessee who is assessed as an individual. He claimed relief under s. 80J of the I. T. Act, 1961, on the ground that he was carrying on a new industrial undertaking of book-binding under the name and style of 'Compact' at Udupi. The assessee is a partner in a firm, M/s. Manipal Power Press, Manipal, which is carrying on the business of printing and also carrying on business in book-binding. The assessee started an independent business of book-binding in the year 1967. In the assessment for that year, the ITO refused relief under s. 80J. During the assessment year 1969-70, when a similar claim was made that was also rejected. On appeal, the AAC held that the assessee was entitled to relief. But on further appeal to the Tribunal, the Tribunal called for a report from the ITO in regard to certain matters and, on receipt of such report, held that the assessee satisfied the requirements of s. 80J(4), cls. (ii), (iii) and (iv). But it held that the assessee did not satisfy the requirement of clause (i) of sub-s. (4) and accordingly held that the assessee was not entitled to relief under s. 80J.
2. The assessee asked for a reference to this court, but the Tribunal refused to refer the case. However, on an order made by this court under s. 256(2) of the Act the Tribunal has referred the following question :
'Whether there was any material for the Tribunal to hold that the assessee's business of book-binding had been formed by the splitting up of the business which was already in existence and consequently to hold that the assessee was not entitled to the deduction under section 80J of the Income-tax Act, 196 ?'
3. The Tribunal, following its decision for the assessment year 1969-70, declined to grant relief in the assessment for 1972-73. The Tribunal has referred the following question in relation to that assessment year :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not entitled to relief under section 80J of the Income-tax Act, 1961, in respect of his business known as 'Compact ?'
4. It is, therefore, seen that the question in substance in the two cases is the same. Accordingly, these two references are disposed of by this common order.
5. The Tribunal called for the report of the ITO in regard to the following points in relation to the assessment year 1969-70.
(i) What are the materials used by the assessee for the binding wor
(ii) Are the materials purchased by hi If not, who supplied the materials and who bore the cost of material
(iii) The number of workers employed
(iv) When did not assessee start this business
(v) Whether any agreement exists between the assessee and the other firm, M/s. Manipal Power Press, Manipal, for the work entrusted to the assessee by the latter. If there is any agreement what does it indicate regarding supply of material
(vi) Whether that agreement, if any, spells out the nature of the work entrusted to the assessee that it was one purely of labour wor
6. The ITO made a report as follows :
(i) That the business of book-binding was started by the assessee on September 1, 1967, during the previous year ending March 31, 1968. This business had two units, one at Manipal and the other at Udupi.
(ii) The unit at Manipal employs 17 people and the one at Udupi 19 people.
(iii) Work at both these units is mostly binding work entrusted to the assessee by Manipal Power Press as well as by others. Most of the work is the one provided by Manipal Power Press. Formerly, this Manipal Power Press was doing the binding work itself. Now, part of the work is entrusted to the assessee.
(iv) The materials used by the assessee for binding works are account books, card-boards, calico, leather, gum, straw-boards and threads. Account books, card-boards, calico, leather, gum, straw-boards and thread are supplied by the Manipal Power Press while wheat flour, copper sulphate, thread, brushes, etc., are purchased by the assessee from outside. The value of the materials supplied by Manipal Power Press are adjusted against the bills of the assessee.
(v) The work involved in binding is labour work of pasting, stitching, etc.
(vi) There is no (specified) agreement between the assessee and Manipal Power Press regarding the work entrusted to the assessee by the latter.
(vii) The labourers employed by the assessee were not formerly those employed by Manipal Power Press.
On the basis of these findings, the Tribunal gave a categorical finding that the assessee had satisfied the requirements of cls. (ii), (iii) and (iv) of sub-s. (4) of s. 80J, i.e., the assessee's business was not formed by the transfer to a new business of machinery or plant previously used for any purpose; that it was manufacturing or producing articles and the undertaking employed twenty or more workers in the manufacturing process carried on without the aid of machinery. However, it was of the opinion that the undertaking was formed by the splitting up of a business already in existence. The report of the ITO did not record such a finding and there was no material brought on record by the ITO to the effect that the new undertaking was formed by the splitting up of a assessment already in existence.
7. In order to hold that there is a splitting up of a business already in existence, there must be some material to hold that either some asset of an existing business is divided and another business is set up from such splitting up of assets, or that the two businesses are the same and one formed was an integral part of the earlier one and it was only a question of breaking up of the same business. It implies a unity of control in regard to two businesses, i.e., earlier one in existence and a new one which is brought into existence. While clause (ii) of sub-s. (4) of s. 80J may comprehend transfer of machinery or plant previously used for any purpose and which may belong to an outsider also, clause (i) implies such a transfer and setting up of another business by splitting up of the assets of the earlier one in existence. In a case, where the same person carries on business and brings into existence another business of the same nature by the user of the assets belonging to the earlier business, it may be said that the unity of control continues and the business brought into existence is a part of the earlier existing business. There being no tangible evidence of transfer of any assets from an earlier business to the new business, a conclusion cannot be reached that a new business is formed by the splitting up of the business already in existence.
8. In the instant case, the Manipal Power Press is a firm and the assessee is carrying on the business under the name and style of 'Compact' as an individual. There is no unity of control in regard to the two businesses. There is no transfer of either capital or machinery or any other asset from Manipal Power Press to the assessee's business. The labour employed in the new business were different and not taken out from the staff of Manipal Power Press. It was not the case of the department that the business carried on by the assessee was benami for Manipal Power Press. These are circumstances which militate against any conclusion that the business carried on by the assessee was formed by the splitting up of a business which was already in existence. The mere fact that some work of binding is entrusted to the assessee by Manipal Power Press does not lead to the inference that there is a splitting up of the business. The assessee is an independent contractor and the Manipal Power Press is as much a customer as any other of the assessee.
9. In these circumstances, we are of the view that there was no material to hold that the assessee's business of book-binding had been formed by the splitting up of the business which was already in existence, and that it did not satisfy the requirement of clause (i) of sub-s. (4) of s. 80J. Accordingly, the question referred to in I.T.R.C. No. 63/1975 is answered in the negative and in favour of the assessee. The question in I.T.R.C. No. 64 of 1975 is also answered in the negative and in favour of the assessee. The assessee will have his costs. Advocate's fee is Rs. 250 one set.