Ajit Kumar Sengupta, J. - (1.) In this reference made at the instance of the Revenue, the Tribunal has referred the following questions, for the opinion of this court under Section 256(2) of the Income-tax Act, 1961 ("the Act") : "1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is entitled to the deduction under Section 80J of the Income-tax Act, 1961 ? 2. Whether the decision of the Tribunal that me assessee is entitled to the deduction under Section 80J is based on the materials available before the Assessing Officer and the Commissioner (Appeals) ?" This reference relates to the income-tax assessments of the assessee-company for the two previous years corresponding to the assessment years 1981-82 and 1982-83. The assessee-company claimed deduction under Section 80J of the Act in respect of its new unit at Konnagar which was set up for the manufacture of pharmaceutical formulations like tetracycline capsules, doxycycline capsules, chloramphenicol capsules and ampicillin capsules. The Income-tax Officer did not allow the claim of the assessee-company on the alleged ground that the assessee has not been able to prove that it had introduced fresh capital in its new unit, that the new unit yielded additional profit arising from manufacture and/or production of new articles that requisite labour force was employed in the new unit and that the new unit was separate and distinct from its existing industrial unit.
(2.) On appeal before the Commissioner (Appeals), it was, inter alia, submitted on behalf of the assessee-company that it had invested fresh capital of Rs. 10 lakhs by issuing new 1,00,000 equity shares of Rs. 10 each. It was also submitted that the new products like deltron, fervit, amolox, symasal, cloxacillin capsules and a metakelfic tablets are produced in the new industrial undertaking. As regards the employment of labour, it was submitted that four chemists and a number of workmen were employed in the new industrial undertaking which started production in 1978 in terms of a new licence obtained in 1977. It was also explained that the assessee-company had two units, one of which manufactured aspirin and the other new unit was engaged in manufacturing pharmaceutical products. It was also submitted that the new industrial unit at Konnagar was set up in an altogether new building which was constructed for this purpose in the year 1977 and this unit was separate and distinct from the existing unit engaged in the manufacture of aspirin ; details of plant and machinery installed in the new unit engaged in the manufacture of pharmaceutical products were also furnished before the Commissioner (Appeals). It was explained that the value of plant and machinery installed in the new unit in different years was as under : Rs. 1977 1,03,400 1978 1,03,986 1979 54,040 The Commissioner (Appeals), however, observed that in the balance-sheet, there was no bifurcation to show which plant and machinery were installed in the old unit manufacturing aspirin and which new plant and machinery were installed in the new unit engaged in the manufacture of pharmaceutical products. The Commissioner (Appeals) also referred to the notes forming part of the balance-sheet of the assessee-company drawn as at December 31, 1977, which shows that the assessee-company purchased the factory land and building from its sister concern, Martin and Harris Pvt. Ltd. The value of plant and machinery purchased from its said sister concern was to the tune of Rs. 2,95,500. The Commissioner (Appeals), therefore, held and observed that the new unit was nothing but a case of reconstruction of its existing business. Since, the cost of the newly constructed building as appearing in the balance-sheet of the assessee-company drawn as at December 31, 1978, was Rs. 36,107, the Commissioner (Appeals) felt that the new plant and machinery must have been installed in the old premises. He, therefore, observed that the assessee-company has failed to show that it had set up a new unit which was separate and distinct from its old unit. The Commissioner (Appeals), therefore, rejected the case of the assessee-company.
(3.) On further appeal before the Tribunal, it was explained on behalf of the assessee-company that in terms of an agreement dated September 22, 1976, the assessee-company had agreed to purchase the factory land and building for Rs. 4,25,000 and plant and machinery, furniture and fittings for Rs. 3 lakhs from its sister concern, Martin and Harris Pvt. Ltd. This factory was engaged in the manufacture of aspirin ; but for the manufacture of pharmaceutical products, the assessee-company had set up a separate factory in terms of licence dated October 6, 1977. This new factory was engaged in the manufacture of tetracycline capsules, doxycycline capsules, chloramphenicol capsules and ampicillin capsules. The assessee also referred to the Tribunal's earlier decision in the assessee's own case for the assessment year 1979-80, wherein the Tribunal while dealing with the disallowance of advertisement expenditure under Section 37(3A) of the Act had given a specific finding to the effect that the assessee's new industrial undertaking at Konnagar began to manufacture new pharmaceutical products like tablets, capsules and injections from the accounting year 1978. The Tribunal, therefore, held that the assessee's case fell under Section 37(3D) of the said Act and the ceiling in respect of expenditure as laid down in Section 37(3A) of the said Act, was not applicable. The assessee also referred to its printed annual report on its accounts for the year 1978. In its annual report, the directors of the assessee-company had stated that the manufacture of pharmaceutical formulations had been successfully introduced in this year and the assessee-company was able to achieve a total turnover of Rs. 1,01,38,662 as compared to the earlier turnover of Rs. 9,39,816. It was also explained before the Tribunal on behalf of the assessee-company that the bifurcation of plant and machinery with reference to different units was not required to be disclosed on the face of the balance-sheet since there was no such statutory requirement under the Companies Act, 1956. However, the complete breakup of the plant and machinery installed by the assessee-company in its different units, viz., the one already engaged in the manufacture of aspirin and the new unit engaged in the manufacture of pharmaceutical formulations, was clearly available from the books of account of the assessee-company and such details were duly furnished before the Commissioner of Income-tax (Appeals). It was also submitted that the Commissioner of Income-tax (Appeals) was confused when he made reference to the plant and machinery installed in the aspirin unit, whereas the assessee-company was referring to the new plant and machinery installed in the manufacture of pharmaceutical formulations. From the details filed by the assessee-company as to the names of the suppliers and the supply bill numbers it was clear that the plant and machinery installed in the new unit for manufacture of pharmaceutical products were purchased from various persons. The machinery purchased from Martin and Harris Pvt. Ltd. was for the manufacture of aspirin and not for the manufacture of pharmaceutical formulations, which is the only business carried on by the new unit. The Tribunal also found that the facts on record clearly showed that the new unit of the assessee was engaged in the manufacture or production of pharmaceutical formulations like tablets, capsules and injection. The machinery purchased by the assessee-company from its sister concern, Martin and Harris Pvt. Ltd., in terms of an agreement dated September 22, 1976, was in respect of the other unit already engaged in the manufacture of aspirin. The Tribunal also found that the assessee purchased new machinery from various persons for the manufacture of pharmaceutical formulations and the machinery purchased from Martin and Harris Pvt. Ltd. had nothing to do with the machinery purchased from others for manufacturing of pharmaceutical formulations. The Tribunal also noted that the Commissioner of Income-tax (Appeals) was clearly confused while referring to the machinery purchased by the assessee-company from Martin and Harris Pvt. Ltd. inasmuch as this machinery was purchased for the aspirin unit and not for the purpose of manufacturing pharmaceutical formulations like tetracycline capsules, doxycycline capsules, chloramphenicol capsules and ampicillin capsules. In this view of the matter, the Tribunal upheld the claim of the assessee-company and observed that the Commissioner of Income-tax (Appeals) was not justified in rejecting the assessee-company's claim for deduction under Section 80J.;