Deb, J.:— In this reference, tinder section 66(2) of the Indian Income-tax Act, 1922, the question No. 1 relates to the assessment years 1959-60, 1960-61 and 1961-62, whereas question No. 2 relates to the assessment year 1962-63, and they are as follows:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the press division set up by the assessee was an ‘industrial undertaking’ within the meaning of section 15C of the Indian Income-tax Act, 1922, and, accordingly, the assessee was entitled to exemption in respect of the profits thereof under the said provision?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the press division set up by the assessee was an ‘industrial undertaking’ within the meaning of section 84 of the Income-tax Act, 1961, and, accordingly, the assessee was entitled to exemption in respect of the profits thereof under the said provision?”
2. The assessee is a manufacturer of motor cars. In the accounting year, relevant to the assessment year 1957-58, the assessee established a new industrial unit known as “press division” in a new house for the manufacture of “body panels” for the Hindusthan Motor Cars by purchasing new plant and machinery. The assessee has also kept separate books of account for this new unit.
3. The Income-tax Officer has disallowed the assessee's claim for tax relief for this new unit under section 15C(1) of the Indian Income-tax Act, 1922, and section 84 of the Income-tax Act, 1961, respectively, for the relevant assessment years on the ground that the “body panels” manufactured by the assessee were not sold in the market, but were used as component parts of the motor cars, but the Appellate Assistant Commissioner has allowed the appeals filed by the assessee, and the Appellate Tribunal has dismissed the appeals filed by the department.
4. It has been found by all the authorities concerned that the conditions laid down in section 15C(2)(ii) and (iii) of the Indian Income-tax Act, 1922, have been fulfilled and this new undertaking was formed not by splitting up or 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.
5. It has been contended before us by Mr. Ajit Sen Gupta, the learned counsel for the revenue, that by following the Division Bench decision of this court in the case of Commissioner of Income-tax v. Textile Machinery Corporation [1971] 80 ITR 428 (Cal), we should answer the above questions in the negative and in favour of the revenue, but we are not impressed by his contention.
6. The relevant facts of that case are, briefly, as follows: The assessee used to purchase raw materials from the market for manufacturing its own goods, subsequently, a new manufacturing unit was established by the assessee for producing those raw materials; and after their production, those raw materials were used in manufacturing goods. At page, 438-439 of the report, it has been said that the expression “business already in existence” used in section 15C(2) of the Indian Income-tax Act, 1922, must necessarily mean and include the purchase of goods in the outside market, for they were used for the business of the assessee, and that it was a part of the business of the assessee to run its business and for that purpose, it was also necessary to get its goods even from outside and, therefore, the business remained the same though the method of procurement of the goods had changed. It has also been said that taking a broad view of the expression “reconstruction” used in the said proviso it is difficult to hold that the change of producing one's own goods systematically used in the existing business instead of buying from outside would not be reconstruction of a business already in existence.
7. Mr. Sengupta has also cited the case of The Commissioner Of Income-Tax, Delhi… v. Naya Sahitya, Delhi… [1972] 84 ITR 567 (Delhi), in which a similar opinion has been expressed, but this case and the case of Commissioner of Income-tax v. Textile Machinery Corporation [1971] 80 ITR 428 (Cal) were considered in Commissioner of Income-tax v. Orient Paper Mills Ltd. [1974] 94 ITR 73 (Cal), by another Division Bench of this court, and at page 85, their Lordships have said this:
“But if the principle be that production of something which was necessary for the production of the ultimate goods and the production is taken up by a separate and independent plant and unit, even then it would be reconstruction, with great respect, we are unable to agree.”
8. These two decisions of this court including other relevant decisions on the subject were considered in the case of Commissioner of Income-tax v. Electric Construction and Equipment Co. [1976] 104 ITR 101 (Cal), and it has been held that if an industrial undertaking is a new born baby it cannot be said to have been formed by the “reconstruction of a business already in existence” but the position will be converse if it is an old baby with a new jacket and that the expression “reconstruction of business already in existence” should also be understood from a broad commercial point of view as observed in the decisions cited therein.
9. It is also elementary that no motor car could be manufactured by the assessee if the “body panels” were not purchased previously because the assessee was not a manufacturer of the “body panels” and the assessee could not carry on any business as a manufacturer of motor cars as such. Therefore, instead of purchasing those materials, as the assessee had started a new manufacturing unit for the purpose of manufacturing the “body panels” and for using them as component parts of the motor cars it must be held that the new industrial undertaking is not hit by the expression “reconstruction of business already in existence” used in these two sections.
10. Hence, we overrule the contentions of Mr. Sengupta and return our answer to both the questions in the affirmative and in favour of the assessee.
11. Having regard to the facts and circumstances of the case, we do not propose to make any order as to costs.
Hazra, J.:— I agree.
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