Vildirect: IncomeTax-caselaws-1979-VIL-634-BOM-DT

1979-VIL-634-BOM-DT

Equivalent Citation: [1979] 118 ITR 45, 1 TAXMANN 294

BOMBAY HIGH COURT

Date: 11.01.1979

COMMISSIONER OF INCOME-TAX, BOMBAY I

SUESSIN TEXTILES, BALL BEARING AND PRODUCTS PVT. LIMITED

BENCH

Judge(s) : CHANDURKAR., DESAI

JUDGMENT

The judgment of the court was delivered by

CHANDURKAR J.--The assessee had for the purpose of his business taken on lease a portion of the Bank of Baroda buildings and a portion of the Laxmi Woollen Mills Estate. Both these premises were used earlier by other persons for the purposes of business. In the assessment proceedings for the assessment year 1961-62, the assessee claimed partial exemption from income-tax under s. 15C of the Indian I.T. Act, 1922. The ITO rejected this claim on the ground that the new industrial undertaking was formed by transfer to the new business of buildings which were used in any other business.

In appeal the order of the ITO was set aside by the AAC and, therefore, the revenue challenged the order of the AAC before the Income-tax Appellate Tribunal. The Tribunal took the view that two requirements had to be satisfied before an assessee could claim partial exemption under s. 15C of the Act. The first requirement, according to the Tribunal, was that the building used by the assessee had to be shown to have been previously used by the assessee himself. The other requirement, according to the Tribunal, was that the building should have been transferred to the newly established industrial undertaking, and the word " transferred " in s. 15C(2)(i), read in its proper context, did not cover the case of a building taken on lease. Thus, according to the Tribunal, both the conditions having been satisfied in the case of the assessee (sic), the assessee was entitled to the exemption claimed under s. 15C(2)(i). The revenue being aggrieved by the view taken by the Tribunal with regard to the construction of the provisions of s. 15C(2)(i) asked for a reference and, accordingly, the Tribunal has referred the following question to this court under s. 66(1) of the Indian I.T. Act, 1922 :

" Whether, on the facts and in the circumstances of the case, the assessee-company was not entitled to the benefit of section 15C as it had taken on lease a portion of the Bank of Baroda building and a portion of the Laxmi Woollen Mills estate for setting up its factory? "

It may be stated at this stage that one of the questions argued before the Tribunal appears to be that the value of the transferred asset was so negligible that it did not affect the claim of the assessee under s. 15C(1) of the Indian I.T. Act, 1922. While considering this contention the Tribunal observed :

" The question of determining the ratio of value of the building previously used in business cannot arise in the case of a building taken on lease. "

Arguing on behalf of the revenue. Mr. Joshi has relied on the decision of this court in Capsulation Services Pvt. Ltd. v. CIT [1973] 91 ITR 566 (Bom). In order to avail of the exemption provided for under s. 15C(1), one of the conditions which has to be satisfied is the one prescribed in cl. (i) of sub-s. (2) of s. 15C which refers to the industrial undertaking to which s. 15C applies and the relevant part thereof reads as follows :

" (2) This section applies to any industrial undertaking which-

(i) is not formed by the splitting up, or the reconstruction of, business already in existence or by the transfer to a new business of building, machinery or plant previously used in any other business."

We are not concerned with the first part of clause (i) in this case. The Tribunal has taken the view that the building of which a transfer is contemplated to the new business must be the building of the assessee himself and, secondly, that the transfer referred to in clause (i) will not take within it the case of a lease. Now, the content of clause (i) has been fully considered by this court in the Capsulation Services Pvt. Ltd.'s case [1973] 91 ITR 566 (Bom). In that case, this court has taken the view that the provision in s. 15C(2)(i) does not make any reference to the ownership of the undertaking which is formed by the splitting up or reconstruction or by transfer to any new business of building, machinery or plant previously used in any other business and that there was nothing in cl. (i) of s. 15C(2) to indicate that the building, machinery or plant which were previously used in another business must be that of the assessee. It was held that the provision applies also to a case where an old business was carried on by a person other than the assessee arid the building, machinery or plant previously used in such a business is transferred to a new business carried on by the assessee while forming an industrial undertaking.

Construing the words " transfer to a new business of building ", this court has held that these words cannot be restricted to a case where full rights of ownership are transferred and the word " transfer " should be accorded its normal meaning. Therefore, the view taken was that s. 15C(2)(i) includes a case where the lease of a building is created in favour of the new business or the person carrying on the new business. In view of this authoritative pronouncement of this court, it must be held that the view taken by the Tribunal that the transfer of the building must be of the building used by the assessee and that the lease was not covered by the word " transfer " was clearly erroneous in law.

Mr, Mehta appearing on behalf of the assessee, however, contended that having regard to the fact that the interest transferred in the form of a lease was so insignificant as compared with the other assets of the company that the assessee could not be deprived of the benefit of the provisions of s. 15C(1) of the Indian I.T. Act, 1922.

Obviously this contention is founded on the view taken in a decision of this court in CIT v. Asbestos, Magnesia & Friction Materials Ltd. [1977] 106 ITR 286 (Bom), where this court has held that the relief under s. 15C of the Indian I.T. Act, 1922, cannot be denied to an assessee merely because some existing building, plant or machinery is transferred to and utilised in the formation of the new undertaking irrespective of the importance and essentiality of the building, machinery or plant transferred to the new undertaking. It was pointed out in that case that one of the very important aspects to be considered must be the monetary value of the old assets transferred to and utilised in the new undertaking and where the old machinery utilised cannot be regarded as important or essential to the new undertaking and where its value is comparatively very small, the assessee should not be denied relief under s. 15C if it is otherwise entitled to the same on account of such utilisation.

We are not called upon to go into this in the question which is now sought to be raised on behalf of the assessee. The Tribunal itself has not gone into the merits of this contention probably because of the view which was taken of the provisions of s. 15C. Having regard to the contention which is now sought to be raised, we have reframed the questions with the consent of the parties :

" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the transfer of the building previously used in any other business to the newly established undertaking refers to a building previously used by the assessee himself in any other business and not to a building earlier used for business by a stranger ?

(2) Whether, on the facts and in the circumstances of the case, the lease taken by the assessee of the portion of the Bank of Baroda building and portion of the Laxmi Woollen Mills Estate for setting up its factory amounted to transfer to the assessee-company within the meaning of the words " transfer to a. new business of building previously used in any other business " occurring in section 15C(2)(i) ? "

Having regard to the discussion made earlier, we answer the questions reframed as follows :

Question No. 1 :

For the purposes of s. 15C(2)(i) of the Indian I.T. Act, 1922, it is not necessary that the building transferred to the newly started undertaking must have been previously used by the assessee himself in any other business and that a building earlier used for business by a stranger is included.

Question No. 2 is answered in the affirmative and in favour of the revenue.

Parties to bear their own costs.

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