COMMR. OF INCOME TAX-I, LDH. V. M/S JAIN UDHAY HOSIERY

ITA/87/2005

AI Insights

The case involves the Commissioner of Income Tax-I, Ludhiana as the appellant and M/s Jain Udhay Hosiery (P) Ltd. as the respondent. The core issue was whether the assessee was entitled to a deduction under Section 80-IA of the Income Tax Act, 1961 for the assessment year 1996-97, despite the value of the old machinery used in forming the new industrial undertaking exceeding 20% of the total value of the machinery. The Income Tax Appellate Tribunal had previously allowed the deduction, which was contested by the revenue in the High Court. The High Court, after reviewing the submissions and relevant legal provisions, concluded that the Tribunal erred in allowing the deduction, as the statutory requirement of the old machinery not exceeding 20% was not met.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 739253 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 01-05-2012
• Assessment Year: misc
• Other Referred Cases: CIT v. Satellite Engineering Ltd. (1978) 113 ITR 208 (Guj.), CIT v. Gopal Plastics Pvt. Ltd. (1995) 215 ITR 136 (Mad), CIT v. Metalways Pvt. Ltd. (2007) 290 ITR 548 (P&H)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: PANKAJ JAIN
• Assessee Lawyers: RAJESH KATOCH
• Keywords: Assessment Year 1996-97; Deduction under section 80-IA; Industrial Undertaking; Transfer of old machinery
• Section: 143(3); 260A; 143(1)(a); 80-IA; 80-IA; 80B(5); 80-IA(2)(ii)

Judgement Text

"ITA No. 87 of 2005 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 87 of 2005 Date of Decision: 1.5.2012 Commissioner of Income Tax-I, Ludhiana ....Appellant. Versus M/s Jain Udhay Hosiery (P) Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE G.S. SANDHAWALIA. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. Mr. Pankaj Jain, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 87 and 88 of 2005 filed by the revenue as substantial question of law claimed therein is identical in both the appeals. For brevity, the facts are extracted from ITA No. 87 of 2005. 2. ITA No. 87 of 2005 has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 17.8.2004 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 337/CHANDI/1999 relating to the assessment year 1996-97. 3. This Court vide order dated 27.7.2006 had admitted the ITA No. 87 of 2005 -2- appeal for determination of the following substantial question of law:- “Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in allowing deduction u/s 80-IA for the assessment year 1996-97 to the industrial undertaking which has been “formed” by transfer of old machinery, the value of which exceeded 20% of the total value of the machinery?” 4. Briefly stated, the facts necessary for the disposal of the present appeal are that the assessee filed its return at a total income of Rs.13,42,900/- for the assessment year 1996-97. The said return was processed on 31.3.1997 under Section 143(1)(a) of the Act. The assessment under Section 143(3) of the Act was completed vide order dated 30.12.1998 at an income of Rs.20,65,560/-. Deductions of Rs.5,72,656/- under Section 80-IA of the Act and Rs.1,50,000/- on account of inadmissible expenses debited to P&L Account on agreed basis were disallowed by the Assessing Officer. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (Central), Ludhiana [in short “the CIT(A)”] who vide order dated 25.3.1999 upheld the deduction claimed by the assessee under Section 80-IA of the Act. Still feeling aggrieved, the assessee approached the Tribunal by filing an appeal. The Tribunal vide order dated 17.8.2004 directing the Assessing Officer to grant deduction to the assessee under Section 80-IA of the Act while setting aside the order of the CIT(A). Hence, the present appeal by the revenue. 5. We have heard learned counsel for the parties. ITA No. 87 of 2005 -3- 6. Learned counsel for the revenue submitted that the assessee for the assessment year 1996-97 had formed the industrial undertaking by transferring old machinery, value whereof exceeded 20% of the total value of the machinery and, therefore, no deduction under Section 80-IA of the Act could be allowed. He relied upon Section 80-IA(2)(ii) of the Act to contend that the benefit of the aforesaid provision was not admissible to the new business where the industrial undertaking was formed by the transfer of machinery or plant previously used for any purpose. Attention of this Court was also drawn to Explanation (2) to the aforesaid provision, wherein, it was specified that where the total value of the old machinery or plant or any part so transferred does not exceed 20% of the total value of the plant or machinery used in the business, then the assessee would be entitled to the benefit. 7. It was urged that the Tribunal had specifically noticed that the value of the old machinery exceeded 20% though marginally and in the light of the aforesaid finding by virtue of Explanation 2, the assessee was not entitled to the benefit under Section 80-IA of the Act for the assessment year in question. 8. Controverting the aforesaid submission, learned counsel for the respondent supported the order passed by the Tribunal. He further contended that the provisions of Section 80-IA being benevolent provisions, therefore, required liberal approach as has been adopted by the Tribunal. With reference to Section 80B(5) of the Act, it was submitted that there was no difference in the gross total income of the assessee and in any case, the benefit up to 20% should have been ITA No. 87 of 2005 -4- allowed to the assessee even where the value of the old plant and machinery exceeded 20%. Reliance was placed upon the judgments in CIT v. Satellite Engineering Ltd. (1978) 113 ITR 208 (Guj.), CIT v. Gopal Plastics Pvt. Ltd., (1995) 215 ITR 136 (Mad) and CIT v. Metalways Pvt. Ltd. (2007) 290 ITR 548 (P&H) in support of his submissions. 9. After giving our thoughtful consideration to the respective submissions of the learned counsel for the parties, we find force in the submission of the learned counsel for the revenue. 10. It would be advantageous to reproduce the relevant provision of Section 80-IA which reads as under:- “80-IA(2) – This section applies to an industrial undertaking which fulfills all the following conditions, namely, (i) XX XX XX (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.” 11. Explanation (2) is also relevant for the purpose of present controversy which is reproduced hereunder:- “Explanation (2) – Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the ITA No. 87 of 2005 -5- machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.” 12. A bare reading of the provision of Section 80-IA of the Act spells out that the benefit of deduction is not available to an assessee where new industrial undertaking is constituted by utilizing the old plant and machinery which had been used for any purpose. However, Explanation 2 to the aforesaid provision provides that where the value of the old plant and machinery does not exceed 20%, in that situation, the benefit is admissible. In other words, where the value of the old plant and machinery exceeds 20%, the new industrial undertaking is not entitled to the benefit of deduction under Section 80-IA of the Act. It has been recorded concurrently by the authorities that the value of the old plant and machinery did exceed 20% though the Tribunal noted that it exceeded marginally. Under the circumstances, once the value of old plant and machinery used by the assessee exceeded 20% in value, though marginally, the assessee was not entitled to the claim of deduction under Section 80-IA of the Act. The Tribunal was, thus, under the circumstances not justified in allowing the claim of deduction under Section 80-IA of the Act to the assessee. 13. Adverting to the judgments relied upon by the learned counsel for the respondent, it may be noticed that Satellite Engineering Ltd. and Gopal Plastics Pvt. Ltd's cases (supra), were the cases where the revenue had declined the benefit of the deduction to the assessee on the ground that the company did not fulfil the ITA No. 87 of 2005 -6- requirements in the earlier years though it was fulfilling the same in the subsequent years. It was held that the assessee would be entitled to the benefit from the subsequent year it fulfilled the condition for the remaining period as prescribed under the provision. That is not the situation here. The assessee as noticed above does not fulfill the requirement as envisaged under the provision. 14. The issue before this Court in Metalways Pvt. Ltd's case (supra) was where the value of the machinery transferred to the new entity was less than 20% of the capital employed during the years in question. This Court came to the conclusion that the assessee was eligible for benefit under the said provision. The said judgment also does not advance the case of the assessee being different on facts. 15. Accordingly, the appeals are allowed and the question of law is answered in favour of the revenue and against the assessee. (AJAY KUMAR MITTAL) JUDGE May 1, 2012 (G.S. SANDHAWALIA) gbs JUDGE ITA No. 87 of 2005 -7- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 88 of 2005 Date of Decision: 1.5.2012 Commissioner of Income Tax-I, Ludhiana ....Appellant. Versus M/s Jain Udhay Hosiery (P) Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE G.S. SANDHAWALIA. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. Mr. Pankaj Jain, Advocate for the respondent. AJAY KUMAR MITTAL, J. For orders, see ITA No. 87 of 2005 [Commissioner of Income Tax-I, Ludhiana v. M/s Jain Udhay Hosiery (P) Ltd]. (AJAY KUMAR MITTAL) JUDGE May 1, 2012 (G.S. SANDHAWALIA) gbs JUDGE "