Surinder Singh, J.
1. This reference has been initiated by the applicant-assessee, M/s. Oswal Woollen Mills Ltd., Ludhiana, who required the income-tax Appellate Tribunal, Chandigarh Bench, to refer to this court certain questions-of law, which according to the assessee, arose out of the order of the Tribunal dated September 15, 1975, in the income-tax appeal filed by the Revenue. The case relates to the assessment year 1970-71, i.e., for the previous year ending December 31, 1969. At the time of the assessment before the ITO, the assessee claimed a deduction to the tune of Rs. 3,058, which related to the income of the export wing of the assessee. The ITO, however, did not allow this deduction, on the ground that the assessee was already manufacturing hosiery goods and the export wing was merely a reconstruction of the business in existence. The assessee filed an appeal before the AAC, and, inter alia, contended that the export wing of the company was established in a separate premises, and that separate books of account had been maintained for the knitwears, all of which had been manufactured for export and had, in fact, been exported. The AAC accepted the plea of the assessee and held that the export wing was an industrial undertaking, to which the provisions of Section 80J were applicable. The claim for deduction of income in respect of the export wing was, therefore, allowed. The Revenue, however, went up in appeal before the Income-tax Appellate Tribunal, which, after a consideration of the matter, has referred the following, questions for the opinion of this court :
' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right, in law, in holding that the export wing was not an industrial undertaking because it was formed by the reconstruction of the hosiery business already in existence and, therefore, was not entitled to any deduction in respect of its profits and gains under Section 80J ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for purposes of computation of capital under Section 80J read with Rule 19A in respect of vanaspati unit, the old machinery worth Rs. 21,921 was not to be taken into account? '
2. At the time of the arguments in this reference, the learned counsel for the petitioner, Mr. B.S. Gupta, submitted that he would make his submissions only in regard to question No. (1) and not question No. (2), and the point involved in the said question was not pressed. Question No. (2) is, therefore, returned unanswered.
3. Adverting to question No. (1) now, it would be beneficial to note, as to what the Income-tax Appellate Tribunal has observed in respect thereof. The Tribunal has taken into account certain facts and circumstances, which may be noticed. It is not disputed that the assessee had spent a sum of Rs. 1,62,989 during the year before the assessment on the construction of a new building, and a sum of Rs. 14,859 had been spent during the year to which the assessment pertained. It is the case of the assessee that a part of the new building constructed during this period has been utilised for installing the machinery required for production of woollen knitwears for the export wing. The said machinery was purchased for Rs. 83,772 during the previous year. Some statistics have been given to show that more such machinery was purchased during subsequent years. The assessee has also furnished figures for the sales in their export wing, in comparison with the sales made in their head office, as also in the hosiery Section. The figures so provided are not in dispute and the chart, which is noticed in the statement of the case, indicates that for the year ending December 31, 1969, i.e., the assessment year in question, the sales in the export wing were to the tune of Rs. 38,90,322. In the subsequent years, these sales have been gradually mounting, the sales in the year ending December 31, 1973, being Rs. 4,88,85,995. According to the Tribunal, none of the facts and circumstances noticed above would be sufficient to hold that the export wing of the assessee was a separate industrial undertaking, which would entitle the assessee to a deduction under Section 80J. It was also held by the Tribunal that as the assessee had been manufacturing hosiery in the past, by merely manufacturing some more hosiery in a separate premises for the purpose of export, the export wing would not be deemed to be an industrial undertaking. The Tribunal also took into consideration that the total assets of the export wing as on December 31,1969, were Rs. 1,28,012 as compared to the total assets of the company as a whole, being Rs. 2,35,05,820. From a comparison of these two figures, a conclusion was drawn that the assets of the export wing were not substantial This, of course, is the purport of the observation, though it is not said in so many words. However, a conclusion was indeed drawn that on account of the comparative consideration of these figures, it could not be said that the export wing was a separate industrial undertaking. The Tribunal also declined to take into account that the assets of the export wing had mounted in subsequent years. The Tribunal noticed certain authorities, some of which had either been reversed or overruled by the Supreme Court.
4. In so far as the assessee is concerned, the facts and circumstances on which they have relied upon, have been noticed in substance. The learned counsel for the assessee has, during the course of his arguments, added some more circumstances, the same being that the export wing had been separately registered under the Factories Act, and that a membership certificate of the Wool & Woollen Export Promotion Council had been obtained. It is also emphasised that the entire production in the exportwing, had actually been utilised for export, and that the material used for the goods manufactured in the said wing under the raw material, was different from the one used for production of goods for sale in the local market.
5. With a view to opine upon the controversy, it would be desirable to notice the legal position as envisaged under Section 80J of the I.T. Act. Under the said Section, where the gross total income of an assessee includes anyprofits and gains derived from an industrial undertaking, to which this Section applies, a deduction from such profits and gains is to be allowed, while computing the total income of the assessee. Sub-section (4)(i) ofSection 80J lays down that the above benefit would be applicable to an industrial undertaking, if it is not formed by the splitting up, or the reconstruction, of a business already in existence. The question, therefore, falls forconsideration as to whether from the circumstances of the present case, it can be concluded that the export wing of the assessee is a reconstruction of their existing business. As noticed earlier, the Tribunal has made a reference to certain authorities, two of which have been reversed or overruledby subsequent decisions of the Supreme Court. The basic authority on the point is Textile Machinery Corporation Ltd. v. CIT : 107ITR195(SC) . In this authority, the Supreme Court has laid down certain salient tests for deciding as to whether an undertaking is a reconstruction of an existing business, or not. One of these tests is that in the case of reconstruction, there must be a transfer of the assets of the existing businessto the new industrial undertaking. This is evidently not so in thecase in hand. The Supreme Court also held that a new activity launch ed by the assessee by establishing new plants and machinery by investing substantial funds, may produce the same commodities of the oldbusiness or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold inthe open market. All that is required to be seen is that the new under taking must be an integrated unit by itself, wherein articles are produced. Such a new industrially recognisable unit of an assessee cannot be said to be a reconstruction of his old business, as there is no transfer of any assetsof the old business to the new undertaking, which is a sine qua non in the case of reconstruction of an old business. In the ultimate analysis, the Supreme Court held that if an undertaking is not formed by the reconstruction of the old business, that undertaking will not be denied the benefit of Section 15C (of the old Act), which is equivalent to Section 80J (of the new Act).
6. In a later decision of the Supreme Court in CIT v. Indian Aluminium Co. Ltd. : 108ITR367(SC) , the dictum laid down in Textile Machinery Corporation Ltd. : 107ITR195(SC) was reiterated and followed.
7. In our considered opinion, the case of the assesses falls squarely within the Rule of law, as laid down by the Supreme Court in the above-mentioned two authorities, and, on the facts found, it must be held that the export wing of the assessee which is housed in a separate premises, in which new machinery had been installed, solely for the purpose of manufacture of knitwears for purposes of export, and there being absolutely separate accounts maintained for the said undertaking, is an independent entity which has no nexus with the original unit. It cannot, therefore, be said that the export wing had been formed by the reconstruction of the business of the assessee, already in existence. The answer to question No. (1) is, therefore, returned in the negative, i.e., in favour of the assessee and against the Revenue. The finding in regard to question No. (2) has already been recorded, as the point involved in the same was not pressed. In the circumstances of the case, we leave the parties to bear their own costs of this reference.