Ashok Leyland Ltd. vs Commissioner of Income Tax

M.N. Rao, J.—The assessee is a limited company carrying on the business of manufacture and sale of S.G. (presumably superior grade) iron castings. In 1971, when the company was established, initially it had one furnace and two crucibles for manufacturing the castings. In the financial year 1978-79, it had undertaken an expansion scheme called "Project-III". The Government of India, when approached by the company, granted a letter of intent permitting escalation of the capacity from 1,500 M.T. to 5,000 M.T. and the letter of intent was later converted into an industrial licence. On completion of this scheme, the installed capacity was increased from 1,500 M.T. to 3,000 M.T. per annum. Commissioning of the project was done on June 29, 1979. In respect of the assessment year 1981-82, a claim was made by the assessee claiming deduction u/s 80J of the Income Tax Act and the same was allowed by the Income Tax Officer. The Commissioner of Income Tax, however, in exercise of his revisional jurisdiction u/s 263 withdrew the deduction taking the view that the expansion of the project did not result in any new industrial undertaking coming into existence and that it was merely a part of the existing business.

Aggrieved by that, the assessee carried the matter in appeal to the Income Tax Appellate Tribunal. In order to ascertain the factual position, the premises of the assessee were inspected by the learned Members of the Income Tax Appellate Tribunal and also the Departmental representative and counsel for the assessee. On inspection, it was found that in "Project-III", the assessee had added one more furnace with crucibles, one of which was a stand-by and that it upgraded electricity power supply. Based on the inspection of the premises and after considering the entire record, the Tribunal expressed the view :

"The installation of one additional furnace and two crucibles, one main and one stand-by with its accessories, do not and cannot form a separate, severable, independent, integral industrial undertaking."

On that view, the plea of the assessee was rejected by the Tribunal.

The following three questions, the assessee required the Tribunal to refer to this court u/s 256(1) :

"1. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the Project-III expansion undertaken by the assessee-company did not bring into existence a new industrial undertaking for the purpose of relief u/s 80J of the Income Tax Act, 1961 ?

Whether, on the facts and circumstances of the case, the Appellate Tribunal is correct in law in holding that the assessee is not eligible for deduction u/s 80J for the assessment year 1981-82 being second year, when in fact for the assessment year 1980-81 being first year, the deduction has been allowed ?"

Whether, on the facts and circumstances of the case, the inference drawn by the Tribunal is contrary to the facts on record and perverse ?"

The Tribunal negatived the request of the assessee taking the view that only findings and questions of fact were recorded by it to the effect that no new industrial undertaking has come into existence and, therefore, no question of law would arise for reference to this court.

Sri Kodandaram, learned counsel for the assessee, contends that when there was substantial expansion to an existing industrial unit by increasing the capacity from 1,500 to 3,000 M.T., it must be treated as a new industrial undertaking for the purpose of granting the deduction u/s 80J. We do not agree. Sub-section (4) of section 80J, which speaks of the conditions which must be complied with before the deduction mentioned in sub-section (1) can be claimed, is in the following terms :

"80J. (4) This section applies to any industrial undertaking which fulfils all the following conditions, namely :-

(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;

(iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty-three years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;...."

The finding recorded by the Tribunal is to the effect that the additions made do not result in a separate, severable, independent industrial undertaking. In our view, what the assessee did amounted to "reconstruction'' falling within the inhibition of clause (i) of sub-section (4). The unit was already in production originally and what was added was only additional machinery to the same unit and, therefore, clause (iii) of sub-section (4) also has no application. In Textile Machinery Corporation Limited, Calcutta Vs. The Commissioner of Income Tax, West Bengal, , it was held by the Supreme Court, interpreting section 15C of the Indian Income Tax Act, 1922, which is in pari materia with section 80J of the present Act (at page 203) :

"The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business."

Applying the aforesaid test, it cannot be said that the expansion made by the assessee amounts to bringing into being a new "separate and distinct" industrial undertaking.

As regards question No. 2, it does not arise from the order of the Tribunal.

No question of law, therefore, arises from the findings of fact recorded by the Tribunal. We are, therefore, of the opinion that this is not a fit case to call for the statement of case from the Tribunal. The petition is accordingly dismissed.