BAJAJ TEMPO LTD., BOMBAY vs. COMMISSIONER OF INCOME TAX, BOMBAY CITY-III, BOMBAY
What did the Supreme Court hold?
The Supreme Court allowed the appeals, setting aside the High Court's order. The Court held that Section 15C of the Income Tax Act, 1922, is a provision for encouraging industrialization and should be construed liberally. Clause (i) of sub-section (2) is a restrictive clause intended to prevent abuse of the benefit for new undertakings by changing labels, not to deny benefits to genuine new undertakings. The key interpretation lies in whether the undertaking was 'formed' by the transfer of building, plant, or machinery, not merely by its use. A liberal and purposive construction is necessary to make the provision meaningful. While the Court agreed with the High Court that 'previously used in any other business' could refer to buildings not belonging to the assessee, it disagreed with the Bombay High Court's view that leasing a building always amounts to formation by transfer. The Court emphasized that the transfer must be dominant in the formation of the undertaking. On the facts, the part played by taking the building on lease was not dominant in the formation of Bajaj Tempo Ltd. Therefore, the assessee was entitled to partial exemption under Section 15C. The question of law was answered in favour of the assessee.
What were the facts?
The appellant, Bajaj Tempo Ltd., was formed to exploit a manufacturing license. It entered into an agreement to take over the promoter corporation's rights to manufacture tempo vehicles, including its factory as a going concern. The appellant leased the factory premises and acquired tools and implements valued at Rs. 3,500 from the promoter. For assessment year 1960-61, the assessee claimed exemption under Section 15C of the Income Tax Act, 1922, as a new undertaking. The Income Tax Officer rejected the claim, stating the undertaking was formed by splitting up an existing business and transferring a building and machinery. The Appellate Assistant Commissioner and the Income Tax Appellate Tribunal allowed the appeal, holding that leasing premises did not constitute a transfer and the value of transferred assets was negligible. The High Court, on reference, ruled in favour of the revenue.
What were the issues?
1. Whether the assessee was entitled to claim partial exemption from tax under Section 15C of the Income Tax Act, 1922, on profits and gains derived from an industrial undertaking established in a building taken on lease, which was previously used for another business. 2. Whether the assessee-company, found to be a new company, could be denied the benefit under Section 15C(1) due to the operation of clause (i) of sub-section (2). Assessee's Contentions: - The undertaking was new and entitled to the benefit of Section 15C. - Taking premises on lease does not amount to a transfer of the building. - The value of transferred tools and implements was nominal, and the undertaking was not 'formed' by such transfer. - The restrictive clause (i) of sub-section (2) should be interpreted liberally to advance the objective of promoting industrial growth. Revenue's Contentions: - The undertaking was not entitled to the benefit as it was formed by splitting up an existing business and by transferring a building and machinery previously used in another business. - Leasing premises should be considered a transfer of the building. - The language of the statute was clear, and once material used in the undertaking was from a previous business, the assessee was precluded from claiming the benefit.
Which sections of the Income-tax Act were involved?
Section 15C
AI-generated summary — verify with the full judgment below
- y BAJAJ TEMPO LTD., BOMBAY v. COMMISSIONER OF INCOME TAX, BOMBAY CITY-III, BOMBAY APRIL 24, 1992 [R.M. SAHAI AND A.S. ANAND, JJ .] Income Tax Act, 1922 : A B Section JSC-lndustrial undertaking established by taking on lease C building previously used for other business-Transfer of machinery or plant of very nominal value--Whether the undertaking entitled to claim benefit of exemption.
Interpretation of Statutes : Taxing statute--Provision granting incentives for promoting economic growth and development-To be liberally const1Ued.
The appellant-Company, which was formed for exploiting the manufacturing licence issued by the Government in favour of its promoter- Corporation, entered into an agreement with the promoter Corporation to secure and take over from the promoter Corporation the rights under the licence to manufacture tempo vehicles and to take over its factory as a going concern with its assets, liabilities, machinery, power, quntas etc.
Clause 10 of the agreement provided that the transferee, the appellant- Company, should be in possession of the premises of the factory and the building on payment of monthly rent as a lessee. Tools and implements
The order continues below.
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