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Kanhiyalal Rameshwar Das Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Income-tax Reference No. 23 of 1974
Judge
Reported in[1985]156ITR463(Raj)
ActsIncome Tax Act, 1961 - Sections 80J and 80J(4)
AppellantKanhiyalal Rameshwar Das
RespondentCommissioner of Income-tax
Appellant Advocate V.K. Singhal, Adv.
Respondent Advocate R. Surolia, Adv.
Excerpt:
.....:mere acquisition of the machine would not, in our opinion, constitute setting up of a new industrial undertaking in the context of these facts'.in other words, the assessee had failed to satisfy the tribunal on facts that by adding the process of polishing of stone to his existing business, which consisted of cutting of rocks for making building stones, the assessee had started, to quote their lordships of the supreme court from their judgment in textile machinery corporation's case [1977]107itr195(sc) 'a new and identifiable undertaking separate and distinct from the existing undertaking'.the assessee had placed on record before us, after the making of this reference, a copy of the judgment of the appellate tribunal for the assessment years 1970-71 to 1972-73 in an attempt to..........to express any opinion on the effect of these amendments on the transfer to a new business of a building previously used for any purpose by the lessor.8. so far as previously used machinery is concerned, there is no change in sub-section (4)(ii) even as a result of its amendment in 1976. the explanations which were inserted into this sub-section in 1976 would, however, further show that if an industrial undertaking is formed by the transfer to it of machinery previously used for any purpose, the capital employed on the acquisition of such machinery would not qualify for tax relief under section 80j. explanation 1 deals with machinery or plant used outside india. if the assessee acquires such machinery, the capital employed on such acquisition would qualify for tax relief if the.....
Judgment:

Sidhu, J.

1. On an application made by the assessee under Section 256(1), Income-tax Act, 1961 (hereafter called 'the Act'), the Appellate Tribunal made a reference to this court inviting our opinion on three questions of law framed by the Appellate Tribunal as follows :

'(i) Whether, on the facts and in the circumstances of the case, the Tribunal is right, in holding that the purchase and installation of secondhand machinery not earlier used by the firm, which was otherwise an industrial undertaking, disentitles the firm from claiming deduction under Section 80J of the Income-tax Act ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that mere purchasing of a polishing machine by an undertaking already in existence and addition of one more process to the existing manufacturing in the accounting year corresponding to the assessment year 1969-70 did not constitute setting up of a new industrial undertaking ?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee-firm is not entitled to deduction under Section 80J of the Income-tax Act, 1961 ?'

2. The facts leading to this reference may be shortly stated here. The assessee, M/s. Kanhiyalal Rameshwar Das, a resident firm of Bundi, is engaged in the business of cutting rocks for making building stones and of excavating silica sand for sale. Its previous year, that is to say, the accounting year, is Diwali to Diwali. During the course of proceedings of assessment for the assessment year 1969-70, relating to the previous year ending Diwali, 1968, the assessee filed a revised return claiming tax relief under Section 80J of the Act in respect of the capital employed on the purchase of some machinery. The assessee claimed that it had purchased second-hand and used machinery (crane, jeep, compressor and crusher) in 1966 and a new machine for polishing stones in 1967. In his returns filed for the assessment years 1966-67, 1967-68, 1968-69 and 1969-70, the assessee did not claim any relief under Section 80J in respect of the capital employed on the aforementioned purchases. It was only during the course of assessment proceedings for 1969-70 that it occurred to the assessee that he should claim such relief and it was on such realisation that he filed a revised return for 1969-70 claiming such relief. The ITO rejected the claim, but on appeal the AAC allowed it. The Revenue carried the matter in further appeal to the Appellate Tribunal. By its order, dated July 30, 1973, the Tribunal allowed the appeal, reversed the order of the AAC, and held on facts that the assessee had purchased old and used machinery in 1966, long after he had established the original industrial undertaking in the accounting year ending Diwali, 1965. Therefore, the Tribunal took the view that Section 80J of the Act did not apply to this undertaking inasmuch as no capital had been employed by it on the purchase of new machinery in 1966. As for the purchase of a new polishing machine by the assessee in 1967, the Tribunal held as under ;

'The addition of new machine and of one more process to the existing manufacturing would not constitute the setting up of a new industrial undertaking which is the sine qua non of the claim in terms of Section 80J(4). The facts would be clear from the narration given above of the Indian Aluminium Co. Ltd. which were far different from the facts of the present case. In the present case, the respondent started his business with second-hand machine. The business consisted of excavating and dressing of the stones. After doing this business for about 3 years, he also purchased a machine for polishing the dressed stone. Mere acquisition of the machine would not, in our opinion, constitute setting up of a new industrial undertaking in the context of these facts. '

3. Question (i)--The answer to this question depends on the interpretation of Section 80J of the Act. The marginal heading of this section would show that it deals with deductions in respect of profits and gains, inter alia, from newly established undertakings. 'Newly established industrial undertaking' is a phrase which is not defined in this section. It must, therefore, be construed on the basis of the plain meanings of the words used therein. A new industrial undertaking would be an undertaking which produces or manufactures articles yielding profits, as their Lordships of the Supreme Court pointed out in Textile Machinery Corporation Ltd. v. CIT : [1977]107ITR195(SC) attributable to the new outlay of capital in a separate and distinct unit '. Though Section 80J does not, strictly speaking, define what is a newly established industrial undertaking, it contains enough material for the guidance of the assessing and adjudicating authorities under the Act, and of the courts, to enable them to determine as to what is meant by a newly established industrial undertaking of which mention is made in the marginal heading. Whether an industrial undertaking is a newly established undertaking to which Section 80J applies can be determined by testing it on the touchstone of Section 80J, Sub-section (4) which, as it stood at the time material for the instant case, was as under :

' 80J. (4) This section applies to 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 a building (not being a building taken on rent or lease), machinery or plant previously used for any purpose;

(iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of twenty-eight years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;

(iv) in a case where the industrial undertaking manufactures or produces articles, the undertaking employs ten or more workers in a manufacturing process carried on, with the aid of power or employs twenty or or more workers in a manufacturing process carried on without the aid of power: 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 ;'

4. We may also reproduce here Section 80J, Sub-section (4), as it stands today after its amendments with effect from April 1, 1976. It reads :

'(4) This section applies to 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 :

(iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty-three years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;

(iv) in a case where the industrial undertaking manufactures or produces articles, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power:

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. Explanation 1.--For the purpose of Clause (ii) of this sub-section, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant; previously used for any purpose, if the following conditions are fulfilled, namely :--

(a) such machinery or plant was not, at any time, previous to the date of the installation by the assessee, used in India;

(b) such machinery or plant is imported into India from any coun-try outside India ; and

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian Income-tax Act, 1922 (XI of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.

Explanation 2.--Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the machinery or plant used in the business, then, for the purposes of Clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with and the total value of the machinery or plant or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking.'

5. Learned counsel for the assessee would have us read Sub-section (4)(ii) of Section 80J as it stood before its amendment in 1976, in such a manner as to infer from it that the capital employed by the assessee in 1966, in the purchase and consequent transfer to the new business of old and used machinery would qualify for deduction in accordance with the provisions of Section 80J, Sub-section (1), by reason of the fact that the old and used machinery so transferred did not previously belong to the assessee. On the other hand, Mr. Surolia, learned counsel for the Revenue, contended that the language of Sub-section (4)(ii) is quite plain and unambiguous, and that, therefore, there is no room for any two opinions as to what it means. Mr. Surolia argued that the capital employed in acquiring old and used machinery would not qualify for any deduction under Section 80J, Subsection (1), no matter whether the old and used machinery, so acquired, belonged to a third person or to the assessee himself.

6. On a careful consideration of the arguments advanced on both sides, reading Section 80J as it stood before and after its amendment in 1976, again and again, we have no hesitation in holding that Section 80J will not apply to an industrial undertaking, even if it claims to be a newly established industrial undertaking, if it is formed by the transfer of machinery or plant previously used for any purpose. The words 'previously used for any purpose' are wide enough and cover all old and used machinery, no matter who used such machinery previously and from which source it was acquired. We do not see any justification for reading into Sub-section (4)(ii), the words 'by the assessee himself' after the last word 'purpose' occurring therein. The meaning which the assessee would want us to draw from Sub-section (4)(ii) is impossible to be drawn unless we read into this sub-section, the words 'by the assessee himself' after the word 'purpose'. The law does not permit a court to add into a statute words which are not there.

7. A little deliberation on the other wording of Sub-section (4)(ii) would confirm the correctness of our reading of this sub-section, as discussed above. Mindful of the plain meaning of the language employed by it in enacting Sub-section (4)(ii) and conscious of the fact that the said language takes in machinery previously used for any purpose, no matter whether such use was by the assessee or by a third person, the Legislature took care to use the explanatory words '(not being a building taken on rent or lease)' in order to make an exception in respect of a leasehold building which, even if previously used for any purpose by the lessor would still entitle the assessee to tax relief in respect of the capital employed in aqquiring the lease. However, if the building transferred to the new business is not a building taken on rent or lease by the assessee, the capital employed on the acquisition of such a building, if it happens to be a previously used building, would not qualify for tax relief under Section 80J, Sub-section (4). We may further mention here that Sub-section (4)(ii) has been amended since 1976 in that the words 'a building (not being a building taken on rent or lease)' have been omitted from it and the second proviso and the Explanation, reproduced in an earlier part of this judgment, have been inserted in it. We are not called upon for the purpose of this reference to express any opinion on the effect of these amendments on the transfer to a new business of a building previously used for any purpose by the lessor.

8. So far as previously used machinery is concerned, there is no change in Sub-section (4)(ii) even as a result of its amendment in 1976. The Explanations which were inserted into this sub-section in 1976 would, however, further show that if an industrial undertaking is formed by the transfer to it of machinery previously used for any purpose, the capital employed on the acquisition of such machinery would not qualify for tax relief under Section 80J. Explanation 1 deals with machinery or plant used outside India. If the assessee acquires such machinery, the capital employed on such acquisition would qualify for tax relief if the machinery had been under use by a person other than the assessee. Had Sub-section (4)(ii) been intended to mean that machinery previously used by a person other than the assessee, if acquired by the assessee for his new business, would qualify for tax relief, the Legislature would not have felt the necessity of inserting Explanation 1, for this Explanation has obviously been inserted by way of an exception to Sub-section (4)(ii) to provide tax relief to an assessee who acquires old machinery from another person who had used it outside India. If Sub-section (4)(ii) was adequate enough to provide tax relief to an assessee in respect of acquisition of used machinery from another person, Explanation 1 would become redundant. We cannot attribute redundancy to the Legislature.

9. In the view taken by us above, we are supported by a ruling of the Punjab and Haryana High Court in Phagoo Mal Sant Ram v. CIT in which a Division Bench of that High Court held, while construing Section 15C(2), Indian Income-tax Act, 1922 (which is similar to Section 80J(4) of the Act), that the exemption given by Section 15C in respect of a new industrial undertaking will not be available where the undertaking is formed by the transfer to the new business of machinery previously used in any other business of the assessee himself or of another from whom the assessee has acquired the machinery.

10. Reference may also be made here to a Division Bench judgment of the Gujarat High Court in CIT v. Suessin Textile Bearing Ltd. : [1982]135ITR443(Guj) which was cited in support of the opposite view. The assessee in the cited case had taken on rent a building for office purposes and a shed for installing machinery. Both the building and the shed had been used by other persons for their own purposes prior to letting them out to the assessee. The assessee claimed tax relief under Section 84 of the Act, as it stood at the time of the assessment year 1962-63', which was under consideration in that case, in respect of the capital employed by him in hiring the said accommodation. The relevant provision of Section 84 on the basis of which such relief was claimed was as under :

'84. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :--......... (ii) it is not formed by the transfer to a new business of a building, machinery or plant previously used for any purpose......'

11. While construing Section 84(2)(ii) reproduced above, the Gujarat High Court held in the cited case that since the building and shed in question had been rented by the assessee from another person, the assessee must be held to have fulfilled the condition specified in Section 84(2)(ii). In the opinion of the learned judges, the condition 'it is not formed by the transfer to a new business of a building...... previously used for any purpose', should

be so construed as if it had been enacted to read, ' it is not formed by the transfer to a new business of a building........previously used for any purpose for the business of the assessee'. With great respect to the learned judges of the Division Bench of the Gujarat High Court, we cannot adopt a similar approach which, in our opinion, runs into the teeth of all accepted canons of interpretation of statutes. We have carefully gone through the ruling of the Supreme Court in the case of Textile Machinery Corporation Ltd. : [1977]107ITR195(SC) on which the Division Bench of the Gujarat High Court relied for justifying its approach of reading into Section 84(2)(ii), the aforementioned underlined words which are not there, and find that the said ruling of the Supreme Court would not support the approach adopted by the Gujarat High Court in the cited case. The Supreme Court was not dealing with the interpretation of the condition with which we are concerned in the instant case. As already stated, we are dealing with the condition which requires negatively that in order to avail of the benefit of Section 84, the new industrial undertaking of the assessee should not be formed by the transfer to the new business of machinery previously used for any purpose. Their Lordships were dealing with a different condition which lays down negatively that in order to avail of the benefit of tax relief; the new industrial undertaking of the assessee should not be formed 'by the splitting up or the reconstruction of a business already in existence'. The assessee in the case before the Supreme Court who was a manufacturer of boilers, machinery parts and wagons, etc., set up two new units, a steel foundry division and a jute mill division. The income-tax authorities held that the two units were formed by reconstruction of the business already in existence. The Tribunal reversed that finding and held that the two units were not formed by reconstruction of the business already in existence. The High Court reversed the findings of the Tribunal and held in agreement with the income-tax authorities that the two units had been formed by re-construction of an existing business within the meaning of Section 15(2)(i) of the Indian Income-tax Act, 1922. On appeal, the Supreme Court reversed the decision of the High Court and held that the steel foundry division and the jute mill division were not formed by the assessee by the reconstruction of the business already in existence. It was in this context that their Lordships pointed out that the new, business must be 'a separate and distinct unit' and that 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 tne existing business'. The Division Bench of the Gujarat High Court seized upon the words 'of the assessee' as occurring in the above quotation in the judgment of the Supreme Court and observed that if these words could be read into the condition which was under consideration of the Supreme Court, similar words could be read into the condition under consideration of the Division Bench. This reasoning of the Division Bench is based on the erroneous assumption that in order to arrive at the conclusion whether the two units mentioned above were new and identifiable undertakings separate and distinct from the existing business, their Lordships of the Supreme Court were obliged to read into the language of the enacted condition the words 'of the assessee' which were not there. On reading the judgment of the Supreme Court, we find that the conclusion drawn by their Lordships to the effect that the two units in question were a newly established undertaking to which the provision of Section 15C(2)(i) applied, is not dependent on the reading into Section 15C(2)(i) of the words 'of the assessee' which are not there. These words were used by the Supreme Court because in the case before their Lordships, the two units were added to the existing business of the assessee. Even if the two units had not been added to the existing business of the assessee, but had been started as separate and distinct from that business, it would have made no difference to the decision made by their Lordships. Much capital cannot, therefore, be made of the use of the words 'of the assessee' in a general way by the Supreme Court while discussing the application of law to the facts of the case before their Lordships.

12. Before parting with the discussion relating to the aforementioned judgment of the Division Bench of the Gujarat High Court in the case of Suessin Textile Bearing Ltd. : [1982]135ITR443(Guj) we may point out that the Bombay High Court while dealing with the case of the same assessee for the earlier year, i.e., 1961-62, had taken a view contrary to the view of the Gujarat High Court (see CIT v. Sifessin Textiles Ball Bearing and Products (P) Ltd. : [1979]118ITR45(Bom) ). The Gujarat High Court itself referred to the Bombay view, but refused to follow it because in the opinion of the Gujarat High Court, the Bombay High Court had overlooked the decision of the Supreme Court in Textile Machinery Corporation's case : [1977]107ITR195(SC) . With great respect to the learned judges of the Division Bench of the Gujarat High Court, we do not find anything in the judgment of the Supreme Court in Textile Machinery Corporation's case : [1977]107ITR195(SC) which would have made any difference to the interpretation of law as made by the Bombay High Court.

13. For all these reasons, we answer the first question in the affirmative and, therefore, in favour of the Revenue and against the assessee.

14. Question (ii).--The statement of the case submitted by the Appellate Tribunal would show that the assessee had purchased a new polishing, machine in 1967 but the Tribunal further observed : 'Mere acquisition of the machine would not, in our opinion, constitute setting up of a new industrial undertaking in the context of these facts'. In other words, the assessee had failed to satisfy the Tribunal on facts that by adding the process of polishing of stone to his existing business, which consisted of cutting of rocks for making building stones, the assessee had started, to quote their Lordships of the Supreme Court from their judgment in Textile Machinery Corporation's case : [1977]107ITR195(SC) 'a new and identifiable undertaking separate and distinct from the existing undertaking'. The assessee had placed on record before us, after the making of this reference, a copy of the judgment of the Appellate Tribunal for the assessment years 1970-71 to 1972-73 in an attempt to show that the process Of polishing of stone started by him in 1967 is a new and identifiable undertaking separate and distinct from his undertaking as it existed before the acquisition of the polishing machine in 1967. We cannot possibly look into this material. The reference has to be answered on the facts found by the Tribunal. As already stated, the Tribunal has found that mere acquisition of the machine would not constitute setting up of a new industrial undertaking in the context of the facts brought on the record before the Tribunal. It seems that the assessee failed, to produce evidence to prove that the polishing process is a separate, distinct and integrated unit by itself fulfilling all the conditions laid down in Section 84(4) of the Act, as it stood at the relevant time. It is, therefore, not open to us to say that by the mere purchase of a new polishing machine in 1967, the assessee had, in fact, started a separate, distinct and integrated unit by itself. It must be borne in mind that we are not called upon to answer, in the absence of any reference in that behalf, as to whether the conclusion of the Tribunal that the addition of a polishing machine to the existing business of the assessee does not constitute a new undertaking is perverse on facts. We must, therefore, avoid expressing any opinion on the conclusion drawn by the Tribunal on the facts brought on the record before it.

15. For the reasons given above, we answer the second question also in the affirmative and, therefore, in favour of the Revenue and against the assessee.

16. Question (iii).--We have already held, while answering questions Nos. (i) and (ii) that the assessee is not entitled to deduction under Section 80J of the Act. We would accordingly answer this question in the affirmative and thus against the assessee.

17. Thus, the reference stands answered as stated above. The parties are left to bear their own costs.


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