A. Kalyanasundharam, Accountant Member - (1.)THE revenue has preferred this appeal, objecting to the order of the CIT(A) dt. 30-9-86 on two grounds. THE first relates to the allowing of relief Under Section 80J in respect of a printing machine, which was added in the previous year relevant to the assessment year under appeal, treating it as an independent industrial unit and the second relates to allowing of deduction of foreign travel expenses of Sh. Vishwanath and the local travel of Sh. Vishwanath and his wife, who are neither directors nor employees of the company.
(2.)The ld. DR Sh. Jain submitted the following facts of the case in connection with the first ground, as are relevant to the appeal before us. The assessee, a limited company had been carrying on the business of publishing of magazines by use of different kinds of machines. In the previous year relevant to the assessment year under appeal, it had added a new printing machine, which was imported from U.S. A. The assessee company installed the machine in a newly constructed building and had also obtained a separate power connection. This imported machine was also used for the purpose of printing and publishing of magazines. The assessee maintained only one set of account books for its business carried on with the use of the old and the imported machine. The assessee had claimed that the imported machine was a separate and independent unit and therefore it was eligible for deduction at 71/2 % of the capital employed on this machine, the electric installation etc.
The IAC(Asst.) after examination of the facts had rejected the claim on the reasonings:- (a) separate sets of accounts are not maintained; (b) it was just another printing machine; (c) by its addition, the existing production facility had only been enlarged, for there were several other machines also installed in the same hall; and (d) the machine was used for the same business of publishing, as was carried on earlier.

The CIT(A) had allowed the relief on the reasoning that :-

(a) separate set of accounts was not a necessary condition and (b) the construction of a separate hall, obtaining of a separate power connection and the machine being of a new and modern technology clearly go to establish the setting up of an independent unit.

The ld. DR's pleasure, that, the factor of the same business being carried on by the machines as it existed prior to the import and after cannot be overlooked; the necessity of separate set of accounts should not have been brushed aside; and enlarging of production capacity cannot be termed as an independent unit.

The ld. Counsel Sh. Pradeep Dinodia supporting the order of the CIT(A) submitted, that the machines which were used in the publication of magazines prior to the import were of a totally different technology. He further submitted, that, the imported machine is the latest of the kind in the field of publication and is a complete printing press in itself. The machine, he submitted manufactured in U.S.A. known as Colour King Web Offset Press, prints on eight different colours simultaneously, cuts the printed material to size and folds it too, i.e., it comprises of several machines, all put together. Earlier machines were based on letter press printing and could print only one page at a time and colour printing was not possible. He further pleaded that the imported offset press is a technological marvel, which has given a totally new picture to the publishing industry. He pleaded that the section requires that the unit in order to be eligible to the deduction Under Section 80J must manufacture or produce articles. The offset press was a complete and independent unit in itself, for it carries out all production processes that are needed right from the input stage to the final output stage. He pleaded that the section does not specify that separate set of accounts are needed, but the figures relating to the new unit must be capable of identification. He also pleaded that, carrying on of the same line of production or manufacture does not disentitle the claim of a separate unit. He pointed out that, the inspection of the hall was carried out a few years after the installation of this offset press, by which time some more machines were added and installed in the hall and therefore, the subsequent addition of machines cannot have the effect of diluting the claim that the press is an independent unit by itself. He finally pleaded that the working of the capital employed as well as the quantum of relief claimed at Rs. 62,220 was not disputed by the revenue.

(3.)WE have given our very careful consideration to the rival submissions. The revenue's objection is on three factors, viz. (i) separate set of accounts not maintained; (ii) the imported machine has only enlarged the production capacity; and(iii) the same business of publishing was carried on with the help of the imported machine. The assessee's claim is based on a few factors, such as, a new and separate building was constructed for the installation and use of the imported machine, separate power connection was taken, the imported offset press was a complete press in itself and that there is no restriction in the Act that the new unit must carry on a totally different business.
4.1 The undisputed facts of the case are briefly recapitulated for the sake of facility. The imported item Colour King WEb Offset Press is a combination of several of the printing unit rolled into one, as from the input stage till the output stage it manages and carries on the operations all by itself and does not require any additional machinery. This press is of the latest of the technology which was introduced very recently in the world market, is fully automated and is based on a technology very different from the earlier letter press printing technology. The assessee uses this press in the printing and publishing of magazines and also continues to use the letter press printing machines. The assessee had constructed a separate hall for the press and obtained separate power connection of 50 H.P.

The question that has been raised is whether with the induction of this press in the publishing business, can the assessee be said to have established a separate and independent industrial unit and thus entitled to claim it as an industrial unit within the meaning of Section 80J or it has just expanded its production capabilities.

To find the answer to this question, it would be necessary to examine the requirements as prescribed in Section 80J.

4.2 Sub-section (4) of Section 80J prescribes four conditions, all of which need to be satisfied by a unit in order to be recognised as an industrial unit and for the claim of deduction at 7 1/2% of the capital employed in the undertaking. The four conditions are: (1) the unit must not be formed by splitting up or reconstruction of the existing business; (2) the unit must not contain any machinery transferred from the existing unit; (3) the unit must manufacture or produce articles, etc.; and (4) the unit, it run on power must employ ten or more workers ana, it run without the aid of power, then, it must employ twenty or more workers. The sub-section also has three provisos. The first proviso states that the first of the conditions shall not apply in cases of revival etc., as referred to in Section 33B. The second proviso talks of the exclusion of the value of any building used for any purpose and transferred to the unit. The third proviso indicates the reduction in the No. of years from 33 to 31 from the year 1948, in cases where the articles manufactured are covered by the Eleventh Schedule. Explanation 1 to this sub-section states that, if the machinery or plant, if imported from outside India, and used there prior to its import into India, then, it would not be treated as "used" within the meaning of this section.

4.3 Sub-section (1 A) provides the method of computation of the capital employed in the undertaking, as on the first day of the computation period. As per this subsection, the assets of the undertaking shall be taken at cost less depreciation wherever admissible, nominal value of debts owing to the undertaking and the balances of cash in hand and at banks are to be aggregated. The liabilities that need to be deducted from the aggregate value of the assets are the borrowings and debts owed and any element of tax. From the net value of the assets so arrived at, the further amounts to be deducted are the investment incomes which are not taken into account while computing the profits of the business and in cases where the investments so made exceed the borrowed funds. The resultant figure would be the capital employed in the undertaking on which the assessee shall have to be allowed the deduction at 7 1/2%. The computing period has been defined to mean the period for which the profits of the undertaking are computed as per Sections 28 to 43A of the Act.

4.4 The heading nor any part of the section state that, a separate set of accounts should be maintained for each industrial unit so as to be eligible for making the claim under this section and therefore, the primary objection of the revenue in refusing the claim is totally baseless and is not in accordance with law.

The conditions (1), (2) and (4), i.e., the unit should not have been formed by splitting up etc.; machinery used in other units should not have been transferred to it; and the unit should employ the required No. of employees, are also satisfied, as the revenue had not refused the claim on these grounds.

This leaves us with the third of the conditions, i.e., the unit must manufacture or produce articles. The term "industrial undertaking" would mean any venture or enterprise which a person undertakes to do, which has relation to some industry. The person may carry out his venture or enterprise with one or more units. The person may also carry out several ventures at the same time. The person may manufacture identical articles from more than one unit and by the use of two totally different processes of manufacture. The term "expansion of an unit" would mean enlarging of the production capacity by adding one or more machines to an existing unit, which machines by themselves are incapable of producing the final product. As per condition (3) above, an independent unit would mean an integrated unit, comprising of plant and machinery, which by itself is capable of producing articles or things. The condition does not prescribe that the unit would be termed as an independent unit only if it produces articles or things different from the one manufactured by the existing unit. Therefore, when there is no such requirement prescribed by the section, infusing of any such requirement for the claim by the administrators of the tax, is obviously, against the provisions of law and only needs to be struck down.

In the instant case, the fact that the web offset press is a combination of several machines all rolled into one is not in dispute. It is also not in dispute that the press which is fully automated one, produces the publication by itself. The offset press is of a technology which is totally different from the existing ones and had effected faster production combined with better productivity as well as it improved the quality of the magazines. WE have observed above that, the section does not restrict the allowance of the claim for the reason that a new unit of industry manufactures the same item as was being produced by the existing unit. Therefore, the objection of the revenue on the basis that the same item is being produced, is clearly extraneous to the requirements of the section and is accordingly rejected. On these facts, the offset press decidedly satisfies the third of the conditions of manufacture or production of articles. WE are therefore of the view that the assessee had clearly satisfied all the four conditions prescribed by the Act, and is thus fully justified in making its claim that the offset press is a separate and independent industrial unit. Since the revenue has not argued on the working of the capital employed as also on the quantum of relief under this section amounting to Rs. 62,220, we direct the Assessing Officer to allow the deduction of Rs. 62,220.