MADON, J. - (1.) THIS statement of the case has been stated under S. 256(1) of the IT Act, 1961, by the Tribunal at the instance of the Department and relates to the asst. yrs. 1962 63, 1963 64 and 1964 65.
(2.) ONE of the questions which arose for determination in the assessments of the respondent company in respect of the above assessment years was whether the respondent company was entitled to relief under the old S. 84 of the IT Act, 1961, which has now been omitted and replaced by S. 80J w.e.f. April 1, 1968. This question arose because the factory which the respondent company had set up was located in a portion of the building belonging to the Structural Engineering Works Ltd., which the said company had given on a lease to the respondent company at an annual rent of Rs. 17,520. Under the said S. 84, subject as otherwise provided in the said section, income tax was not payable by an assessee on so much of the profits or gains, derived from any industrial undertaking or hotel to which the said section applied, as did not exceed 6 per cent. per annum on the capital employed in the undertaking or hotel, computed in the prescribed manner. The respondent company was admittedly an industrial undertaking. But under Sub S. (2) of the said S. 84, for an industrial undertaking, to become eligible for the relief under the said s. 84, certain conditions had to be fulfilled. One of these conditions which was contained in cl. (ii) of that sub section was that the industrial undertaking was "not formed by the transfer to a new business of building, machinery or plant previously used for any purpose". The Explanation to the said section provided as follows : "84. Income of newly established industrial undertakings or hotels. ... Explanation. Where any building, machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the building, machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the building, machinery or plant used in the business, then, for the purposes of cl. (ii) of Sub S. (2) and cl. (a) of Sub S. (3), the industrial undertaking or hotel to which the transfer has been made shall be deemed to have complied with the condition specified therein and the total value of the building, machinery or plant or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking or hotel." The ITO in his order for the asst. year 1962 63 held that the condition contained in the said cl. (ii) was not fulfilled. He further held that the value of the portion of the building taken on lease by the respondent company from the said Structural Engineering Works Ltd. was more than twenty per cent. of the total value of the respondent company's assets. The ITO gave no reasons as to why, according to him, the condition contained in the said cl. (ii) had not been complied with. It, however, appears from the order of the AAC that in the course of the hearing of the appeal filed by the respondent company the ITO had succeeded in showing to the appellate authority that this was "not a new building previously unused by the Structural Engineering Works Ltd., but a building that has been used by them and depreciation claimed by them on that building". The AAC thereupon rejected a contention which had been raised by the respondent company in the appeal that this was a new building. The AAC, however, following the decisions of the Tribunal, held that the word "transfer" in the said cl. (ii) did not cover a lease and, therefore, the respondent company was not disentitled to relief on the ground that it bad not complied with the condition contained in the said clause. On an appeal by the department to the Tribunal, the Tribunal held, following its earlier decisions, that the lease was not a transfer within the meaning of the said expression under the said cl. (ii). It also observed that the Explanation to the said S. 84 showed that the asset transferred would form part of the total block of fixed assets and that under the lease the respondent company had not acquired any fixed asset but it merely got leasehold rights and it would be contrary to the principles of accountancy to show the value of such leasehold rights as an asset in the balance sheet. It also observed that ascribing a value of Rs. 1,50,000 to the leasehold rights, which the ITO had done, was excessive and that even if the leasehold rights had to be valued, it would be wrong to equate their value with the cost of construction of the rented premises as had been done by the ITO. The orders for the two subsequent years merely followed suit.
(3.) ON an application made by the Department, this case was stated by the Tribunal and the following question referred to us: "Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under S. 84 of the IT Act ?" ;