Income-tax---

----New industrial undertaking---Special deduction--- "Transfer", meaning of-- Assessee-company in incorporated on 30-3-1973---Manufacturing activities started on 20-6-1973---Under scheme of amalgamation, another company amalgamated with assessee-company with effect from 31-10-1973---All assets and liabilities of amalgamating company transferred to assessee-company (amalgamated company). w.e.f. 31-10-1973---Assessee-company had come into existence prior to amalgamation ---Assessee-company (amalgamated. company) not formed by splitting up or reconstruction of business already in existence ---Assessee entitled to relief under Ss.80-J & 80-HH ---Indian Income Tax Act, 1961, Ss.80 J & 80-HH.

The scheme of section 80-J of the Income Tax Act, 1961, is to encourage new industrial undertakings provided they fulfil the conditions mentioned therein. In order o be entitled to the exemption an assessee must strictly come within the terms of the provision under which such exemption is being claimed, but in constructing the provisions of the section, it must be construed reasonably in the con ext of the purpose for which the section has been introduced. The expression "transfer" is used in varying senses in different statutes, depending on the context. In a broad sense, it will include acquisition of an asset by a person from whatever source. But the scheme of the section indicates that what is being aimed at is to prevent exemption to those industrial undertakings which are formed by the splitting up or by reconstruction or by transfer to a new business, of plant or machinery of the old business. "Transfer", in this context, must mean a transfer of plant or machinery which is essential for the formation of the new industrial undertaking and that must again mean a transfer to the new business of the transferee of any machinery used by the said transferee in his old business.

The assessee-company incorporated on March 30, 1973, started its manufacturing and commercial activities from June 20, 1973. Under a scheme of amalgamation, company E (amalgamating company) was amalgamated with the assessee-company (amalgamated company) with effect from October. 31,1973. The scheme of amalgamation provided for the transfer of all the assets and liabilities of the amalgamating company to the amalgamated company with effect from October 31, 1973. In the original assessment of the amalgamated company for the assessment year 1975-76, the Income Tax Officer granted allowance under sections 80-J and 80-HH of the Income Tax Act, 1961, as claimed by it. The Commissioner, exercising the powers under section 263, vacated the assessment and directed the Income Tax Officer to make assessment afresh. The Income Tax -Officer made a fresh assessment and withdrew the relief earlier granted under sections 80-J and 80-HH on the ground that the amalgamated company was formed by the transfer to the new business of machinery or plant previously used for some other purpose, namely, the business of the amalgamating company. For the assessment year 1976-77 also the relief under sections 80-J and 80-HH was not allowed. On appeal, the Commissioner (Appeals) accepted the contention of the assessee that the mere fact that subsequent to the formation of the amalgamated company, the running business and the assets and liabilities of the amalgamating company were transferred to the amalgamated company did not detract from the amalgamated company being entitled to relief under sections 80-J and 80-HH and allowed the claim of the amalgamated company. On further appeal, the Tribunal upheld the order of the Commissioner (Appeals). On a reference:

Held, that the facts on record clearly established that the amalgamated company, was already incorporated and formed and had come into existence on March 30, 1973, and that it became an industrial undertaking carrying on industrial and commercial activities on and from June 20, 1973, i.e., prior to the amalgamation of the amalgamating company with the amalgamated company, which had become effective from October 31, 1973, The amalgamated company was not formed by the splitting up, or the reconstruction, of a business already in existence. Therefore, the Tribunal was right in holding that the assessee-company was entitled to relief under sections 80-J and 80-HH of the Act.

G.S. Jetley, Senior Advocate with P.S. Jetley instructed by Mrs. S Battacharya for the Commissioner.

JUDGMENT

S.M. JHUNJHUNUWALA, J. ---By this reference under section 256(1) of the Income Tax Act, 1961, made at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law to this Court for opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to relief under section 80-J and section 80-HH of the Income Tax Act?"

On March 30, 1973, the Dandeli Ferro Alloys Pvt. Ltd., the assessee company, was - incorporated and registered under the provisions of the Companies Act, 1956, and started manufacturing and other commercial activities on June 20, 1973. By a scheme of amalgamation sanctioned by the High Court on December 14, 1973, with effect from October 31, 1973, another company by name Electro Metallurgical Works (Pvt.) Ltd. (for short, referred to as "the amalgamating company") was amalgamated with Dandeli Ferro Alloys Pvt. Ltd. (for short, referred to as "the amalgamated company"). Clause 12 of the scheme of amalgamation provided for the transfer of all the assets and liabilities of the amalgamating company to the amalgamated company with effect from October 31, 1973. In the original assessment of the amalgamated company for the assessment year 1975-76 made on November 25, 1975, the Income Tax Officer granted allowance under sections 80-J and 80-HH of the Income Tax Act, 1961 (for short, "the Act"), as claimed by the amalgamated company. The Commissioner .of Income-tax, exercising the powers under section 263 of the Act, vacated the said assessment and directed the Income Tax Officer to make a fresh assessment after giving due opportunity to the amalgamated company. The Income Tax Officer made a fresh assessment and withdrew the relief earlier granted under sections 80-J and 80-HH of the Act mainly on the ground that the amalgamated company was formed by the transfer to the new business of machinery or plant previously used for some other purpose, namely, the business of the 'amalgamating company. For the assessment year 1976-77, in the original assessment proceedings itself, the Income Tax Officer rejected the claim of the amalgamated company for relief under sections 80-J and 80-HH. The amalgamated company appealed against the said assessment orders before the Commissioner of Income-tax (Appeals), who took the view that it could not be said that the amalgamated company was formed by the transfer to a new business of machinery or plant previously used by the amalgamating company. He accepted the argument advanced on behalf of the amalgamated company that the mere fact that subsequent to the formation of the amalgamated company, the running business and the assets and liabilities of the amalgamating company were amalgamated with the amalgamated company, did not detract from the amalgamated company being entitled to relief under sections 80-J and 86-HH and allowed the claim of the amalgamated company in respect of both the said assessment years. On a Departmental appeal before the Income Tax. Appellate Tribunal, the Tribunal on the facts of the case, concluded that it was unnecessary to enter into a discussion on the subject whether transfer of assets in favour of the amalgamated company had taken place or not and did not give a final verdict on that issue. However, as regards grant of relief under sections 80-J and 80-, HH, the Tribunal, in view of the admitted position that the amalgamated company had come into existence on March 30, 1973, and started its industrial and commercial activities on June 20, 1973, held that acquisition of the assets of the amalgamating company did not in any manner affect the eligibility of the amalgamated company to the reliefs under sections 80-J and 80-HH. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals). It is in these circumstances the question has been referred to this Court at the instance of the Revenue for opinion.

The scheme of section 80-J of the Act is to encourage new industrial undertakings provided they fulfil the conditions mentioned therein. It is true that in order to be entitled to the exemption an assessee must strictly come within the terms of the provision under which such exemption is being claimed, but in construing the provisions of this section one must construe the section reasonably in the context of the purpose for which the section has been introduced. The expression "transfer" is used in varying senses in different statutes, depending on the context. In a broad sense, it will certainly include an acquisition of an asset by one person from whatever source. But the scheme of the section indicates that what is being aimed at is to prevent exemption to those industrial undertakings which are formed by the splitting up or by reconstruction or by transfer to a new business, of plant or machinery of the old business. The transfer, in our opinion, in this context, must mean a transfer of plant of machinery which is essential for the formation of the new industrial undertaking and that must again mean a transfer to the new business of the transferee of any machinery used by the said transferee in his old business. There is nothing on record to show that the amalgamated company was formed as an industrial undertaking as a result of amalgamation with the amalgamating company. On the contrary, the facts on record clearly establish that the amalgamated company way already incorporated and formed and had come into existence on March 30, 1973, and that it became an industrial undertaking carrying on its industrial and commercial activities on and from June 20, 1973, i.e., prior to the amalgamation of the amalgamating company with the amalgamated company, which, a; aforesaid, had become effective from October 31, 1973. It is nobody's case that the amalgamated company was formed by the splitting up, or the reconstruction, of a business already in existence. Moreover, the inference drawn by the Tribunal on the proved facts was a question of fact and could not be interfere with on reference. This Court could interfere only if there was s question of law.

In this view of the matter, we find no infirmity in the order passed by the Tribunal and, as such, we answer the question referred in the affirmative, that is, in favour of the assessee and against the Revenue. There shall, however, be no order as- to costs.

M.B.A./1052/FReference answered.