1. The question referred for our opinion is :
'Whether, on the facts and in the circumstances of the case, the assessee-company would be entitled to the relief under section 80J of the Act ?'
2. M/s. Electronic Corporation of India Limited, the assessee herein, is a limited company manufacturing various electronic components. It was it was floated by the Government of India with a share capital of Rs. 10,00,00,000 with an initial subscription of a sum of Rs. 80,00,000. Some of the stores, machinery, plant, equipment and manufactured goods worth about Rs. 23.86 lakhs which were with the Bhabha Atomic Research Centre (for short 'BARC') were taken over by the assessee-company and the company started production from October 1, 1967. Before the ITO, the assessee claimed relief under s. 80J of the Act on the ground that the undertaking was formed for the first time by investing a sum of Rs. 23.86 lakhs on plant and machinery taken over from the BARC for the purpose of starting a new business of manufacturing electronic components. The claim was disallowed by the ITO on the ground that the requirements of s. 80J are not fulfilled. The order of the ITO was confirmed on appeal by the AAC and also by the Tribunal. All the three authorities held that, for claiming relief under s. 80J of the Act, the machinery and plant must be one which was not used for any purpose earlier and in the absence of any evidence, the authorities presumed that the plant and machinery taken over from the BARC must have been used by it before its transfer. The assessee thereafter sought for reference of the present question, namely, whether the assessee is entitled to the relief under s. 80J of the Act.
3. The learned counsel for the assessee, Mr. Ratnakar, contended that the view taken by the authorities is manifestly erroneous. It is urged that what is prohibited by clause (ii) of sub-s. (4) s. 80J is the transfer of plant and machinery previously used by the same assessee and not the transfer of machinery and plant for consideration from a stranger. He argues that where the assessee starts a new business by investing considerable capital by purchasing either new or second-hand machinery or plant, the undertaking is entitled to the benefit of s. 80J.
4. On the other hand, it is contended on behalf of the Revenue, that the assessee is not entitled to exemption as rightly held by the authorities since it acquired plant and machinery which was previously used by the BARC. In other words, it is said that the plant and machinery acquired for the business must be a brand new one for entitlement to relief under s. 80J of the Act.
5. To appreciate the rival contentions, it is necessary to ascertain the object of the Act. The task is not very difficult as the same has been analysed in several judicial pronouncements.
6. In Chandulal Harjiwandas v. CIT : 63ITR627(SC) the Supreme Court, dealing with the intendment of the Act, observed at page 631 as follows :
'It should be remembered in this connection that the object of enacting section 15C(1) of the Act is the encouragement of thrift and the section should hence be interpreted in such a manner as not to nullify that object.'
7. Here, it may be mentioned that s. 80J of the 1961 Act corresponds to s. 15C(1) of the 1922 Act.
8. In Textile Machinery Corporation Ltd. v. CIT : 107ITR195(SC) , it is held as follows (p. 202) :
'The principal object of section 15C is to encourage setting up of new industrial undertakings by offering tax incentives within a period of 13 years from April 1, 1948. Section 15C provides for a fractional exemption from tax of profits of a newly established undertaking for five assessment years as specified therein. This section was inserted in the Act in 1949 by section 13 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (Act 67 of 1949), extending the benefit to the actual manufacture or production of articles commencing from a prior date, namely, April 1, 1948. After the country had gained independence in 1947 it was most essential to give fillip to trade and industry from all quarters. That seems to be the background for the insertion of section 15C.
It is also significant that the limit of the number of years for the purpose of claiming exemption has been progressively raised from the initial 3 years in 1949 to 6 years in 1953, 7 years in 1954, 13 years in 1956 and 18 years in 1960. The incentive introduced in 1949 has been thus stepped up ever since and the only object is that which we have already mentioned.'
9. In CIT v. Satellite Engineering Ltd. : 113ITR208(Guj) the Gujarat High Court pointed out the purpose of the Act in the following words (p. 215) :
'Now, the legislative intent behind the enactment of this provision was to provide what is conveniently and aptly called a 'tax holiday' to a newly established industrial undertaking. The section is an exemption section and it grants certain partial benefit so far as the profits of a new industrial undertaking are concerned for a limited period. The principal object of the provision, as observed in Textile Machinery Corporation's case : 107ITR195(SC) , is to encourage setting up of new industrial undertakings by offering tax incentives. After the country gained independence in 1947, it was most essential to give fillip to trade and industry from all quarters and this seems to be the background for the enactment of old section 15C and its continuance in the statute book in one form or the other thereafter till this date with progressive amendments made from time to time with a view to extending its benefit for a longer period. Be it noted, in this connection, that not only has the legislature extended the time-limit from time to time, but it has also made at least two further concessions in favour of new industrial undertakings since its initial enactment : first, from clause (ii) of sub-section (4) of section 80J, which as initially enacted was in pari materia with clause (ii) of sub-section (2) of section 84, the words 'a building (not being a building taken on rent or lease) ' have been omitted by the Finance Act, 1975, with effect from April 1, 1976, and, secondly, a provision for carrying forward has been made in sub-section (3) of section 80J. It would thus appear that the legislature has been progressively relaxing the provisions relating to earning of tax benefits by new industrial undertakings, the end in view being to encourage the setting up of new industries by substantial investment of new capital. Any interpretation of such provision must, therefore, be in consonance with this avowed aim and object of the legislature and not such as would defeat the same.'
10. To the same effect is another decision of the Gujarat High Court in CIT v. Suessin Textile Bearing Ltd. : 135ITR443(Guj) in following the decision of the Supreme Court in Textile Machinery Corporation Ltd. v. CIT : 107ITR195(SC) .
11. Thus, it is seen that the object of s. 80J and its forerunner, s. 15C, is to encourage the setting up of new industrial undertaking by giving tax relief with reference to the investment of capital in the new business.
12. We will now proceed to consider the scope and ambit of s. 80J with its legislative intendment in mind. Section 80J is as follows :
'80J. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the deduction, if any, admissible to the assessee under section 80HH or section 80HHA) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year).......
(4) This section applies ton any industrial undertaking which fulfils all the following conditions, namely :-
(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;......
Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction 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 :
Provided further that, where any building or any part thereof previously used for any purpose is transferred to the business of the industrial undertaking, the value of the building or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking.'
13. We are principally concerned with clause (ii) of sub-s. (4) of s. 80J, which says that the undertaking must be one which is not formed by transfer to a new business of machinery or plant previously used for any purpose. Section 80J applies to all industrial undertakings except the three categories mentioned in clauses (i) and (ii). The two excluded categories under clause (i) are : where the undertaking is formed by splitting up of the existing business or by reconstruction of the existing business. These two categories are necessarily referable to the same assessee. Otherwise, the question of splitting up or re-construction does not arise. The words 'splitting up' or 'reconstruction' of the business already in existence necessarily suggests the splitting up or reconstruction of the existing business of the assessee. The words 'of the assessee' have necessarily to be read into the sub-section. Similarly, the third excluded category in clause (ii) also must necessarily refer to the case of the same assessee. The words 'by the assessee' must be read at the end of the sub-section The expression 'transfer', in the context, means not transfer as used in the Transfer of Property Act, but transfer by the assessee of the assets used by him previously for any purpose, i.e., where the assessee does not invest any capital, but merely transfers plant and machinery used by him previously either in an existing business or for any other purpose, he will not be entitled to the benefit. The words 'for any purpose' were introduced by the 1961 Act by s. 84 which corresponds to the present s. 80J. In the 1922 Act, the words used were 'plant and machinery previously used in any other business'. The change brought about by the amendment is, the plant and machinery must not only not have been used in any business, but it should not have been used for any purpose. But the user is referable only to the assessee. Any other construction would result in nullifying the object of the Act. In fact, all these three excluded categories appeared in one sub-section of the 1922 Act which is as follows :
14. Section 15C of the 1922 Act is as follows :
'15C. Exemption from tax of newly established industrial under-takings. - (1) Save as otherwise hereinafter provided, the tax shall not by payable by an assessee on so much of the profits or gains derived from any industrial undertaking or hotel to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking or hotel, computed in accordance with such rules as may be made in this behalf by the Central Board of Revenue.
(2) This section applies to any industrial undertaking which -
(i) is not formed by the splitting up, or the reconstruction of, business already in existence or by the transfer to a new business of building, machinery or plant previously used in any other business.'
15. The scheme of s. 15C(1) and s. 80J are one and the same. In respect of all the three categories mentioned in clause (i) of s. 15C(2) corresponding to clauses (i) and (ii) of sub-s. (4) of s. 80J, the words 'of the assessee' or 'by the assessee', as the case may be, must be read into the sections. What one undertaking to another by the same assessee.
16. In Textile Machinery Corporation Ltd. v. CIT : 107ITR195(SC) , Goswami J., speaking for the court, observed (p. 203) :
'Again, the new undertaking must not be substantially the same old existing business. The third excluded category mentioned above is significant. Even if a new business is carried on but by piercing the veil of the new business, it is found that there is employment of the assets of the old business, the benefit will not be available. From this it clearly follows that substantial investment of new capital is imperative. The words 'the capital employed' in the principal clause of section 15C are significant, for fresh capital must be employed in the new undertaking claiming exemption. There must be a new undertaking where substantial investment of such capital must be made in order to enable earning of profits attributable to that new capital....... Manufacture or production of articles yielding additional profit attributable to the new outlay of capital in a separate and distinct unit is the heart of the matter, to earn benefit from the exemption of tax liability under section 15C. Sub-section (6) of the section also points to the same effect, namely, production of articles. The answer, in every particular case, depends upon the peculiar facts and conditions of the new industrial undertaking on account of which the assessee claims exemption under section 15C. No hard and fast rule can be laid down. Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments. There is great scope for expansion of trade and industry. The fact that an assessee by establishment of a new industrial undertaking expands his existing business, which he certainly does, would not, on that score, deprive him of the benefit under section 15C. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business.'
17. The test propounded by the Supreme Court is investment of capital and the Supreme Court read the words 'of the assessee' in order to give effect to the section.
18. In CIT v. Sainthia Rice and Oil Mills  82 ITR it was held that an acquisition of a part of the machinery in second-hand from open market by an assessee would not disentitle it to exemption under s. 15C(2)(i) corresponding to s. 80J of the Act and what is being aimed at is to prevent exemption to those industrial undertakings which are formed by splitting up or by reconstruction or by transfer to a new business of plant or machinery of the old business. Of course, the words 'any other business' have been replaced by the words 'for any purpose'. Except for this change, the scheme is the same. This is a direct case which applies to the facts of the present case.
19. In CIT v. Suessin Textile Bearing Ltd. : 135ITR443(Guj) , the the court held that the words 'by the assessee' must be read into clause (ii) of sub-s. (4) of s. 80J in order to give effect to the object and intendment of the section. We respectfully agree with the view taken by the Gujarat High Court. The learned counsel for the Revenue, however, relied upon a decision of the Bombay High Court in CIT v. Suessin Textiles, Ball Bearing & Products (P.) Ltd. : 118ITR45(Bom) . This decision, no doubt, supports the case of the Revenue, but we do not find any discussion in the judgment. We respectfully differ from the view of the Bombay High Court.
20. The assessee had started the business of manufacturing electronic components for the first time. The company was not formed by any transfer of assets from any existing business nor by transfer of plant and machinery used previously by the assessee. Considerable investment was made on the plant and machinery to the tune of Rs. 23.86 lakhs. Acquisition of the plant and machinery used by someone else does not disentitle the assessee for the tax benefit contemplated under s. 80J of the Act. The essential condition of s. 80J, namely, investment of capital, is satisfied in the present case. The assessee is, therefore, entitled to the benefit of s. 80J. We answer the question in the affirmative and in favour of the assessee. No costs.