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asked 2018-12-08 05:13:14 -0600

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Section 15C of the Indian Income-tax Act 1922, which deals with exemption from tax of newly established industri- al undertakings, provides in sub-s. 2(i) that the section applies, among others, to any industrial undertaking which is not formed by the splitting up, or the reconstruction of business already in existence.

The assessee (appellant) was a heavy engineering con- cern manufacturing boilers. machinery parts and wagons. In addition, it had started a Steel Foundry Division and a Jute Mill Division. The bulk of the goods produced in both the divisions was used in the various divisions of the assessee company. The assessee's claim for exemption from tax under s. 15C in respect of profits derived from both the companies was rejected by the Income-tax Officer and its appeal was rejected by the Appellate Assistant Commissioner on the ground theft the .undertakings were an expansion and recon- struction of the existing business.

On appeal, the Appellate Tribunal held that although the products manufactured in the two divisions were used in the assessee's business, the Steel Foundry and the Jute Mill Division were new industrial undertakings, in that the machinery used in them was new, they were housed in separate buildings, were: established under separate licences and that both the new divisions were maintaining separate books of account.

On reference, the High Court held that it was a case of reconstruction of the existing business because the goods produced in the two divisions were primarily used in the assessee's engineering concern.

Allowing the appeal.

HELD: The Tribunal was right in holding in favour of the assessee. Section 15C is applicable to an absolutely new undertaking for the first time started and in order to deny benefit of the section, the, new undertaking must be formed by reconstruction of the old business. [768 B-C]

1. (a) In order to be entitled to the benefit of s. 15C, the assessee has to establish:

(1) the investment of substantial fresh capital in the industrial undertaking

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