By TIOL News Service

ALLAHABAD, SEPT 19, 2017: THE ISSUE BEFORE THIS COURT IS - Whether new industrial undertaking constituted by transfer of used plant & machinery, is eligible for claiming deduction u/s 80IB(2) of the Act. NO is the verdict.

Facts of the case:

The Assessee company was incorporated for running a Flour Mill. There was another company known as M/s. M.C. Roller Flour Mills Limited. It had two units known as M.C. Roller Floor Mills and Shri Ram Flour Mills. The second unit of the aforesaid company was purchased by the assessee as a whole including its plant and machinery. Accordingly, the said unit Shri Ram Flour Mills stood transferred to the assessee and came under its control and management. Thereafter, the Assessee company filed its return claiming deduction u/s 80IB, which was however denied by the AO, on the ground that the it had been formed by splitting up, or the reconstruction of a business already in existence; and it was also formed by the transfer to a new business of machinery or plant previously used for any purpose.

High Court held,

++ the transfer of the used plant and machinery may not result in splitting and reconstruction of the existing industrial undertaking, but nevertheless when an unit as a whole is transferred, it includes the transfer of plant and machinery which was in use by the existing unit of a separate legal entity for the formation of a separate industrial undertaking. This kind of transfer is clearly hit by clause (iii) of Section 10A(2) and not by clause (ii) of Section 10A(2) of the Act. At the cost of repetition, it is important to remind that clause (iii) of Section 10A(2) is identical and para-materia to clause (ii) of Section 80-IB(2). The purpose behind permitting the deduction u/s 80-IB is to promote setting up of a new industrial undertaking by purchasing new plant and machinery. In the event, setting up of an industrial unit by purchase of old/used plant and machinery is permitted, it would defeat the entire purpose of allowing deductions u/s 80-IB of the Act;

++ in the case at hand the fact remains as has been recorded by the tribunal that there is transfer of plant and machinery of the unit Shri Ram Flour Mills of M/s. M.C. Roller Flour Mills Limited to the assessee company. The plant and machinery of the said unit was in use by the previous company. Therefore, the assessee company is not an industrial undertaking formed by the purchase of a new plant and machinery rather than by the transfer of previously used plant and machinery. Thus, transfer may not have amounted to splitting or reconstruction of business already in existence. Nonetheless, it amounts to constituting a new industrial undertaking by the transfer of used plant and machinery. The conclusion of what has been discussed above is that the assessee does not satisfy the condition contained in clause (ii) of Sub-section (2) of Section 80-IB for purposes of claiming deductions under the said provision.

(See 2017-TIOL-1923-HC-ALL-IT)