COMMISSIONER OF INCOME TAX Vs. SUBRAMANIAN AND CO

JUDGEMENT

(1.) AT the instance of the Revenue, the following common questions of law have been referred to us for our consideration for the assessment years 1977-78 to 1979-80, 1981-82 and 1980-81 :

(2.) THE assessee is a partnership firm. THE assessee's business consists of tannery and export of hides and skins. THE assessee-firm was evidenced by a deed of partnership dated April 15, 1976, and it commenced its business activities on May 1, 1976. On account of death of one of the partners, a fresh partnership firm was constituted which continued up to the assessment year 1979-80. THE assessee claimed relief under Section 80J of the Income-tax Act, 1961. THE Income-tax Officer held that the assessee was not entitled to claim the relief under Section 80J of the Act, for the reasons that A. Viswanathan and A. Subramaniam, the partners of the assessee-firm were previously partners of another firm, Srinivas and Co., for a number of years and that firm was dissolved on April 30, 1976, and by a separate deed, the assets and liabilities of Srinivas and Co., were allotted and distributed amongst two groups of partners, namely, Shri Subramanian and Viswanathan, on the one hand, and the remaining partners, on the other. THE group consisting of Subramanian and Viswanathan was allotted land, buildings, machinery and plant of gross value of Rs. 11,32,005. THE firm Srinivas and Co., before dissolution were manufacturing E. I. tanned leather. THE assessee-firm with the assets obtained on the dissolution of Srinivas and Co., set up an industrial undertaking and started manufacturing fully finished leather products for export purposes. For this purpose, the sophisticated and imported machinery which were mostly in Madras and which were allotted to the share of the two partners, A. Subramanian and A. Viswanathan, were transferred to Dindigul, where the industrial undertaking was set up. THEre is no dispute that the plant and machinery were set up in the new undertaking and the assessee claimed relief under Section 80J of the Act in respect of that unit and the Income-tax Officer held that the assessee was not entitled to claim deduction under Section 80J of the Act, which was confirmed by the Appellate Assistant Commissioner. On further appeal before the Tribunal, it was contended on behalf of the assessee that for the purpose of considering the dispute even assuming that 100 per cent. plant and machinery used by the assessee was previously used by Srinivas and Co., the assessee would still be eligible for the relief under Section 80J of the Act. THE Appellate Tribunal, based on the decision of the Gujarat High Court in the case of CIT v. Suessin Textile Bearing Ltd. [1982] 135 ITR 443, held that the previous user contemplated under Section 80J(4) of the Act should be by the assessee and not by any other person and the assessee was entitled to the relief under Section 80J of the Act. THE assessee also claimed deduction under Section 80HH of the Act. THE Income-tax Officer as well as the Appellate Assistant Commissioner for the same reasons stated to deny the relief under Section 80J of the Act, denied the relief under Section 80HH of the Act. In so far as deduction under Section 80HH of the Act is concerned, the Tribunal, following its earlier order granting deduction under Section 80J of the Act, held that the assessee would be entitled to the relief under Section 80HH of the Act. THE Tribunal also held that in any event, the plant and machinery previously used were not in any backward area, as it is common ground that such plant and machinery were in Madras, which is not a backward area and, therefore, the assessee was entitled to relief under Section 80HH of the Act.