COMMISSIONER OF INCOME TAX Vs. METALWAYS (P) LTD

JUDGEMENT

(1.) THE following question of law has been referred for opinion of this Court, arising out of a common order passed by the Income -tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, 'the Tribunal') in ITA Nos. 1322 and 1323/Chd/1987, dt. 8th April, 1993, in respect of asst. yrs. 1979 -80 and 1980 -81: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction under Section 80J for asst. yrs. 1979 -80 and 1980 -81 when the period of five years laid down in Sub -section (2) of Section 80J had already expired ?

(2.) BRIEFLY the facts as noticed in the statement of case are as under: The assessee company is manufacturing hand -knitting machines developed by one of the directors. It was claimed that the assessee was an industrial undertaking, and, therefore entitled to deduction under Section 80J of the IT Act @ 7.5 per cent. The concern, M/s Metalways Engineering Works, was under the sole proprietorship of Sh. R.K. Mahajan and this business, as a running concern, was transferred to a limited company named M/s Metalways (P) Ltd. In the new company, Sh. Mahajan, who was earlier the sole proprietor of the business, became one of the directors. The new company, namely, the assessee, claimed deduction under Section 80J at Rs. 71,636 on the ground that the production was started after 31st March, 1976. The new company had been incorporated on 29th June, 1977 and it took over the running business from Sh. Mahajan who was earlier doing the business in his individual capacity. The assessee company claimed that it was a new industrial undertaking. The AO disallowed the claim on the ground that the business had been purchased by the assessee as a running concern already in existence and old plant and machinery had been transferred to the assessee. It was also noted that the industrial undertaking taken over by the assessee had actually commenced manufacturing activity during the year 1973 and, therefore, initial year for the purpose of Section 80J was asst. yr. 1974 -75. Therefore, in the view of the AO, deduction could be allowed upto asst. yr. 1978 -79 in the case of Sh. Mahajan.

(3.) WE have heard Shri Sanjiv Bansal, learned Counsel appearing for the Revenue, and Shri S.K. Mukhi, learned Counsel appearing for the assessee, and with their assistance perused the paper book.