COMMISSIONER OF INCOME TAX Vs. INDIAN CARD CLOTHING CO PVT LIMITED

JUDGEMENT

(1.) THE question that has been referred to us for our opinion in this reference under S. 66(1) of the Indian IT Act, 1922, at the instance of the CIT, Bombay City III, Bombay, runs thus:

(2.) THE question relates to the asst. year 1961 62, the corresponding previous year being the year ended March 31, 1961. The assessee is a private limited company. It commenced manufacturing operations on October 2, 1958. In the year in which it commenced manufacturing finished products its total block was worth Rs. 28,33,733, out of which buildings and lands accounted for Rs. 14,46,530. The plant and machinery which were without any dispute not used in any other business previously were valued at Rs. 8,69,627 while the reconditioned machinery was worth a little more than Rs. 5 lakhs. It appears that thereafter the assessee purchased new as well as reconditioned machinery the latter imported from the U.K. in the next two years. At the end of the accounting period relevant to the asst. year 1961 62, the machinery which was not used previously was valued at Rs. 17,22,682 while the reconditioned machinery was valued at Rs. 14,95,715. The assessee company claimed exemption before the ITO provided for in S. 15C on the ground that the company was carrying on an industrial undertaking, whose profits qualified for exemption under that provision. The ITO accepted the claim of the assessee company and allowed the exemption of profits amounting to Rs. 2,31,855.

(3.) MR . Joshi, Appearing for the Revenue, has contended before us that the Tribunal had at least recorded a finding to the effect that the reconditioned machinery which was used by the assessee company in its manufacture in the year of account relevant to the asst. year 1961 62 formed an important part of the company's block and, according to him, if the reconditioned machinery formed an important part of the company's block, it would be clear that without such reconditioned machinery, which formed an important part of the company's block, the assessee company would not have been in a position to manufacture its products and, therefore, the company should be regarded as an industrial undertaking formed by the transfer, to a new business, of building, plant or machinery previously used in any other business. In support of his contention reliance was placed by him on a decision of this Court in the case of Capsulation Services Pvt.Ltd. vs. CIT (1973) 91 ITR 566 (Bom), where this Court has taken the view that S. 15C(2)(i) applies to an industrial undertaking which is not formed by the transfer to a new business of a building used in any other business. He pointed out that this Court has taken the view that the requirement of a building, whatever may be its shape, size or form, is essential for the formation of an industrial undertaking. In view of this the industrial undertaking can never be formed unless it has a building for its factory or establishment, and though in that case the assessee had acquired an area of 2,000 sq. ft. at a monthly rent of Rs. 1,500 for the purpose of establishing its factory, since that building and the portion thereof which had been taken on a monthly rent had been previously used in any other business before it had been acquired by the assessee, the assessee, was not entitled to the relief contemplated by S. 15C of the Act. By parity of reasoning it was urged by Mr. Joshi before us that since in the instant case the Tribunal has recorded a finding that the reconditioned machinery formed an important part of the company's block, it should be held that acquisition of such reconditioned machinery was absolutely essential for the formation of an industrial undertaking without which the assessee company would not have been in a position to manufacture its products and for similar reasons the assessee company should be disqualified from getting the benefit or relief under S. 15C of the Act. It is not possible for us to accept this contention of Mr. Joshi for the reasons which we shall presently indicate.