Commissioner of Income Tax-V v. Quadrant Infotech India (P) Ltd

ORDER %

26.07.2013 Having heard learned counsel for the parties,we do not think any substantialquestionof law arises for considerationin view of the factual findings recordedby the tribunal,which are not disputedand/ are accepted. The factualfindingsrecordedbythetribunalare:

(i) The respondenthad set up a new unit at Gurgaon in a technology park after making investment of Rs.1.19 —) crores towards electric installation which was also a part r - of plant and machinery.

(ii) The unit at Gurgaonwas separatelyregisteredunder the Employees'StateInsuranceActandProvidentFundAct.

(iii) It was allotteda separateTAN numberby the IncomeTax Department.

(iv) Separate Form D was obtained under Shop and Establishment Act, 1958 and a licence was obtained for providingboundedwarehouseundertheCustomsAct. Am. '

(v) The said unit was set up pursuantto Agreementwith the software technology park and was registered as 100% export oriented unit.

(vi) The new unit had 182 employeeswhereas,the unit ofthe respondent-assesseeinDelhihad 8 employees.

¶2The tribunalhas rejectedthe contentionof the Revenuethat the new unit was formed by using or utilising assets from the old undertakingto the extentof51.78%. The tribunalhas recordedthatthe AssessingOfficerwhile computingthe said percentagehad only taken writtendown valueofthe computersas on 31^'March,2000 inthe old unit and not the total value of the entire plant of the new unit. The tribunalhas recordedthat the AssessingOfficershouldhavetaken into considerationthe value of the entire plant and machineryinstalledin the Gurgaon unit. The entire value of the new plant and machinery installedin the new unit when computedand calculated,showed the correctpercentageofold plantand machineryused inthe new unitwas merely 9.87%.

¶3Further,the AssessingOfficer did not contestor deal with the contentionof the respondent-assessee,which has been accepted that the computerspurchasedearlierwere for and installedat the Gurgaon unit. TheAssessingOfficerignoredthesaid contentionofthe assessee by observingthatthe bills for the computers,whichhad been installed in the Gurgaonunit, were issued in the name of the assessee'sDelhi unit. This cannot be a justificationto ignore the factual positionas installationreports produced,stated and recordedthat the computers were installedin Gurgaon and were not installedin Delhi. Purchase bills may have been issued in the name ofthe Delhi unit for several reasons, but this does not mean that the computerswere installedin Delhi. The size and man power deployed at the Delhi unit was 8 persons. It is obvious that installationof large number of computer was not required at Delhi.

¶4The aforesaidfindings are findings of fact and in view of the factualfindings,the tribunal,we feel has reachedthe right conclusion that the unit establishedat Gurgaon-was a new unit and not a mere reconstructionor splitting up of the business in existence. The aforesaidfinding is in accordwith the decisionof the SupremeCourt in TextileMachinery CorporationLimited versus Commissionerof Income Tax, WestBengal, (1977) 107 ITR 195 whereinthe Supreme Court upheld the contention of the assessee therein that a new industrial undertakinghad been established as it was housed in a separate building, industriallicence had been obtained and new and independentplant and machineryhad been installed. It was observed as under " No hard and fast rule can be laid down. Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments. There is great scope for expansionof trade and industry. The fact that anassesseebyestablishmentofa new industrial undertaking expands his existing business, which he certainly does, would not, on that score, deprivehim of the benefitunder section 15C. Every new creation in business is some kind of expansionand advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separateand distinctfi-om the existingbusiness. No particulardecisioninone case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a phvsically • separateindustrialunit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved. This has not happened here in the case of the two undertakings which are separate and distinct. i K-l f It is clear that the principal business of the assessee is heavy engineering in the course of which it manufactures boilers, wagons, etc. If an industrial undertaking produces certain machines or parts which are, by themselves, identifiable units being marketable commodities and the undertaking can exist even after the cessation of the principal business of the assessee. it cannot be anything but a new and separate industrial undertaking to qualify V for appropriateexemptionunder section 15C. The principalbusiness of the assessee can be carried on even if the said two additional undertakings cease to function. Again, the converse is also true. The fact that the articles producedby the two undertakingsare used by the boiler division of the assessee will not weigh against holding that these are new and separateundertakings. On the other hand, the fact that a portion of the articles produced in these two new industrial undertakings had been sold in the open market to others is a circumstance in favour of the assessee that the new industrial units can function on their own. Use of the articles by the assessee is not decisiveto denythe benefitof section15C." (emphasissupplied)

¶5The SupremeCourtopinedthatwe haveto considerwhetherthe two units can be identifiedby themselvesas separateand independent units or not. This is the true test and this is satisfied in the present case.

¶6On the questionofreconstruction,the SupremeCourtin Textile Machinery Corporation Limited (supra) has observed that reconstructionof business involves an idea of substantiallythe same . -J V persons carrying on substantiallythe same business. Concept of reconstruction of business would not be attracted, when a company which is already running one industrialunit, set up a differentand separate industrial unit. The fact that an assessee is carrying on business of the same type does not prevent the said assessee from settingup a new industrialunit. When a distinctindustrialunit is set up, it is not reconstructionor splittingof the existingbusinessof the assessee. There is no finding or facts which show and establishthat the said criteria is not satisfied or is violated in the present case. The facts recorded by the tribunal and noted above, do not require any examination. The ratio expoundedin TextileMachinery Corporation Limited(supra^asbeen followedin Bajaj TempoLimited,Bombay versus Commissionerof Lncome Tax, Bombay, City-LII, (1992) 3 see 78.

¶7No substantialquestion of law arises for considerationin the presentappealandthe same is dismissed. f SANJIVKHANNA,J.

SANJEEV SACHDEVA, J. JULY 26, 2013 VKR

*IN THE HIGH COURT OF DELHI AT NEW DELHI + ITANos. 315/2013, 316/2013, 317/2013, 318/2013 & 319/2013 COMMISSIONER OF INCOME TAX-V Appellant ThroughMr. Kamal Sawhney, Sr. Standing Counsel. versus QUADRANT INFOTECHINDIA (P) LTD. Respondent ThroughCounsel(presencenot given). CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE SANJEEV SACHDEVA