Thanikkachalam, J. - (1.) AT the instance of the assessee the Tribunal referred the following question for the opinion of this Court under s. 256(1) of the IT Act, 1961, hereinafter referred to as the 'Act' : "Whether, on the facts of the case, the Tribunal was justified in holding that the assessee was not entitled to the relief under s. 80J of the Act ?"
(2.) THERE was an industrial undertaking owned by a partnership firm by name Arasan Splints & Veneers Factory, Sivakasi. The said partnership firm was allowed deduction under s. 80J of the Act for the three preceding years. The assessment year with which we are concerned in this tax case is 1980-81. In the relevant previous year the assessee-company under an agreement, dt. 2nd April, 1979, took on lease the land and buildings and the entire plant and machinery of the said industrial undertaking previously run by Arasan Splints & Veneers Factory and carried on manufacturing of splints and veneers. The assessee claimed continuation of relief under s. 80J of the Act for the fourth year, which was rejected by the ITO on the ground that the assessee could not be said to be the owner of the industrial undertaking and had not invested any capital, and, therefore, it is not entitled to the said relief. However, on appeal the CIT(A) accepted the claim made by the assessee on the basis of a circular issued by the CBDT [Circular Letter F. No. 15/5/63-IT(AI), dt. 13th December, 1963] wherein the benefits under s. 84 of the Act, which corresponds to s. 80J of the Act was granted even to a successor to the business for the unexpired period of five years. The CIT(A) also relied upon a decision of the Madras High Court in Madras Machine Tools Manufacturers Ltd. vs. CIT (1975) 98 ITR 119 (Mad) : TC 25R.649 wherein distinction between a company and an undertaking was made. Aggrieved by the order passed by the CIT(A), the Department preferred a second appeal before the Tribunal. On a plain reading of the agreement between the assessee and the successor-in-interest, the Tribunal came to the conclusion that the assessee is only a lessee of the industrial undertaking, which was previously run by Arasan Splints & Veneers Factory, Sivakasi, and, therefore, according to the Tribunal, the assessee is not a successor to claim the benefit under s. 80J of the Act for the unexpired period of two years. The Tribunal further held that in order to claim benefit under s. 80J of the Act, the assessee must be the owner of the industrial undertaking and the assessee should employ its capital for running the new industrial undertaking. Since the assessee failed to fulfil both these conditions, the Tribunal came to the conclusion that the assessee is not entitled to the benefit under s. 80J of the Act for the balance period. The Tribunal was also of the view that the decision of the Madras High Court in (1975) 98 ITR 119 (Mad) cited supra and the circular issued by the Board will not come to the aid of the assessee in granting relief under s. 80J of the Act for the balance period. Accordingly, the appeal filed by the Revenue was allowed. Before us the learned counsel appearing for the assessee submitted that a plain reading of s. 80J of the Act would go to show that the assessee need not prove the ownership over the new industrial undertaking and employment of capital is not a condition on precedent for getting benefit under s. 80J of the Act it was stated that a transferee is not entitled to the benefit under s. 80J of the Act for the balance period. The learned counsel further relying upon the circular issued by the CBDT submitted that when the benefit is available to a successor, there is no impediment in extending such benefit to the lessee also. According to the learned counsel wherever it is necessary in the Act the legislature insisted that the assessee should be the owner of the new industrial undertaking for the purpose of obtaining benefit under that particular provision. Significantly such conditions precedent were not stipulated in s. 80J of the Act for obtaining the benefit under that section. The learned counsel further submitted that s. 80J, cl. 4 sub-cl. (ii) of the Act will be applicable to the facts of this case. It was, therefore, pleaded that the Tribunal was not correct in denying the benefit under s. 80J of the Act for the balance period to the assessee. On the other hand, the learned standing counsel appearing for the Department, submitted that the assessee is not the owner of the new industrial undertaking. The assessee has not employed the capital for establishing the new industrial undertaking. The assessee is not a successor. Therefore, the assessee cannot claim the benefit under s. 80J of the Act for the balance period. According to the learned standing counsel in view of the provisions contained in s. 80J(4)(ii) of the Act, inasmuch as the assessee claimed benefit under s. 80J of the Act on the transferred asset, the assessee is not entitled to the benefit under s. 80J of the Act for the unexpired period. According to the standing counsel that since the assessee is not the successor, it cannot claim the benefit of the circular issued by the CBDT. It was further submitted that if the benefit under s. 80J of the Act is granted to the assessee for the balance period, that would complicate the matter in adjusting deficiency or any part thereof, to be carried forward relating to different assessment year. For these reasons, the learned standing counsel submitted that the Tribunal was correct in refusing to grant the benefit under s. 80J of the Act for the balance period. We have heard the learned counsel appearing for the assessee as well as the learned standing counsel appearing for the Department. In order to support his contention, the learned counsel appearing for the assessee relied upon the decision of the Kerala High Court in Kerala State Cashew Development Corporation vs. CIT . The assessee therein which is a wholly owned undertaking of the Government of Kerala, formed in the year 1970 for the purpose of taking over and running sick cashew factories. The assessee took over five factories in the year 1970-71 and twenty-two factories in the year 1971-72 of which two were purchased outright and the rest taken on a lease from the owners for periods ranging from two to five years. The balance sheet of the assessee showed as its assets only the buildings, sheds and machinery in the two concerns purchased, besides addition made by way of new machinery. The substantial part of the assets by way of buildings and machinery taken on lease was not reflected in the balance sheet.
(3.) IN the asst. yr. 1972-73 the assessee claimed deduction under s. 80J as if it were a newly established undertaking. The ITO declined to grant deduction on two grounds; firstly on the ground that it was not an industrial undertaking manufacturing or producing articles; secondly on the ground that the assessee was using only buildings, machinery and plant, which had been previously used by others. No new machinery of plant had been set up nor were any buildings put up, attracting the application of s. 80J. IN the asst. yr. 1973-74 the claim was negatived stating that the assessee had not earned any positive income during the period and, therefore, no deduction could be allowed. IN the subsequent years, it was held that the assessee had only reconstructed a business already in existence by way of transfer of building and machinery, previously used, and was, therefore, not entitled to any relief under s. 80J. On these facts, a question arose, whether the Tribunal was justified in holding that the assessee is not entitled to get the benefit under s. 80J(4) of the IT Act, 1961 ? While answering this question, the Kerala High Court held that the fact that the assessee was a new company was irrelevant. The cashew factories which were taken over by the assessee existed as the undertakings of businesses were already in existence. The change of hands of the industrial undertaking did not make it a newly established one for purposes of s. 80J. It was further held that the benefit of s. 80J is allowed only for the first five years after the industrial undertaking begins to manufacture or produce articles. What is important is the beginning of manufacture or production of articles in the industrial undertaking and not by a particular assessee. IN the case of old units taken over by an assessee as in this case where the cashew factories in question had been in existence for decades, the manufacture or production of articles by the industrial undertaking had begun long back and, therefore, the five year period mentioned in sub-s. (2) had also expired long ago. Such an undertaking could not avail of the deduction under s. 80J as the period of five years has to be reckoned from the date of commencement of manufacture or production and not from the date on which the undertaking comes into the hands of the new management. The assessee was not entitled to the special deduction under s. 80J. A plain reading of the abovesaid decision would go to show that the assessee has not claimed the benefit under s. 80J for the unexpired period. After availing the benefit under s. 80J of the Act for a period of five years, the assets were transferred to the assessee and the assessee claimed benefit under s. 80J of the Act though it is a newly established undertaking. Therefore, the benefit under s. 80J of the Act was denied. The Kerala High Court also pointed out in that decision the benefit under s. 80J is linked with the newly established undertaking and not with the assessee. On the other hand, according to the facts arising in the present case, the assessee who is a lessee, is claiming the benefit under s. 80J for the unexpired period or two years. Therefore, the abovesaid decision would render no assistance to the assessee. The learned counsel appearing for the assessee also relied upon the decision in Madras Machine Tools Manufacturers Ltd. vs. CIT (supra) wherein this Court has drawn a distinction between the company and its undertaking, in the following manner : A company may own or run many undertakings, some of which may be entitled to the benefit of s. 84 and others may not be so entitled. It is not, therefore, possible to equate the undertaking with the company. When a company owns more than one undertaking, the application of s. 84 has to be with respect to the particular undertaking and not to the company in general when we apply s. 84 to a particular undertaking, it has to be seen when that undertaking commenced the manufacture or production of articles. It is true that the word "undertaking" has not been defined in the IT Act, but in common parlance, it is taken as a concern started or formed for a specific purpose or a project engaged in. ;