By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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11 114 ITD 189 (Mum.)
Jt. Commissioner of Income-tax v.
Associated Capsules (P) Ltd.
A.Ys. : 1994-95 to 1997-98. Dated : 5-2-2008
S. 80-I r/w S. 80-IA — Whether where an old business is
carried on by the assessee and commensurate with the growth of the business, new
units are established, benefit of S. 80-I/80-IA will be available to a unit or
new unit, if said unit is in the nature of ‘undertaking’ — Held, Yes; Whether a
unit qualifies to be called an industrial undertaking when it undertakes
production or manufacture of articles or things in its own right and produces
such articles or things by itself as a separate and independent unit — Held,
Yes.
Facts :
The assessee had been engaged in the business of production
of empty hard gelatine capsules and their sale to pharmaceutical companies. The
manufacturing activities were carried out by the assessee with the help of
capsule manufacturing machines. In the relevant assessment year, the assessee
had seventeen capsule manufacturing machines installed in four separate
undertakings. It claimed deduction u/s.80-I and u/s.80-IA in respect of its
undertakings.
The AO noticed that the departmental authorities in a survey
u/s.133A at the factory premises of the assessee-company had found that all the
four undertakings were located in the same premises of the factory and all of
them were involved in the production of capsules; that the source of power for
all the units was one, inasmuch as there was one electricity bill for the
factory; that air-conditioning plant for all the units was common; and that
certain ancillary activities, pre and post-manufacturing were common. He held
that all the four undertakings, which were claimed by the assessee to be
separate and independent of each other were essentially one undertaking. He
therefore concluded that undertakings in question could not be regarded as
separate and independent for the purpose of deduction u/s.80-I and u/s.80-IA
and, accordingly, denied the deduction claimed by the assessee.
On appeal, the CIT(A) held that though all the machines and
undertakings involved in the manufacturing of the same article, i.e.,
capsules, were located in the same premises, yet the area of each of the four
undertakings was clearly demarcated and separated from each other; that though
the main source of power in the entire factory was common, yet the power
consumed by each machine was clearly and separately recorded; that though
centralised air-conditioning was provided to all the undertakings, it could be
shutoff for any undertaking without affecting the others; the supply of raw
materials was monitored machinewise and under-takingwise; in a nutshell, each of
the undertaking was working independently of the others. He, therefore, held
each of the undertaking to be separate and independent, and to be producing
capsules in its own right. He, therefore, allowed assessee’s claim for deduction
u/s.80-I and u/s.80-IA.
On Revenue’s appeal, the Tribunal made the following
observations :
1. A perusal of S. 80-I and S. 80-IA establishes that the
notion of ‘undertaking’ is a core jurisdictional element for the application
of S. 80-I and S. 80-IA. The other conditions stipulated can be satisfied only
when there is an ‘undertaking’. The undertaking should be new, in the sense
that it should have begun to manufacture or produce specified articles or
things after the prescribed time schedule.
2. Application of S. 80-I/S. 80-IA to new industrial
undertakings started for the first time by the assessee is usually devoid of
any difficulties. Controversies arise where the old business is being carried
out by the assessee and the new activity is launched by him establishing new
plants and machinery by investing substantial funds to produce the articles or
things which are the same as those from of the old business or to produce some
distinct marketable products
which may feed the old business. It is the general contention of the Revenue
in these cases that establishment of a new undertaking manufacturing the same
product is not a new undertaking eligible for tax incentives. Benefit under
the said Sections is available to a unit or a new unit only if it is in the
nature of an ‘undertaking’.
3. The term ‘undertaking’ has not been statutorily defined
in the Income-tax Act, and the crucial question of whether a unit is to be
considered as an undertaking is left to be decided by the Tribunals/Courts.
The Tribunal further observed that a unit qualifies to be an undertaking when
it undertakes production or manufacture of articles or things in its own right
and produces such articles or things by itself as a separate or independent
unit.
4. The CIT(A) on examination of the material on record had
held that the units in question were well-integrated units producing capsules
on their own, and had a separate and distinct identity of their own, which had
not been shown to be incorrect or based on no material. The Department had
also not rebutted the assessee’s claim that it had treated each undertaking as
separate and independent in its accounts. It was also not the case of the
Department that any of the negative tests laid down in S. 80I(2) was attracted
in this case. Therefore, the CIT(A) had decided the issue correctly.
Therefore, the appeal filed by the Revenue was liable to be dismissed.
Cases referred to :
(i) Textile Machinery Corpn. Ltd. v. CIT, (1997) 107
ITR 195 (SC) (para 7)
(ii) Periyar Chemicals Ltd. v. CIT, (1997) 226 ITR
467 (Ker.) (para 9)
