Gujarat Alkalies & Chemicals Ltd vs. CIT (Gujarat High Court)

S. 80-I: Despite “Dependence” on Old Unit, Unit Can Be “New Industrial Undertaking”

The assessee had a plant to produce caustic soda. It increased capacity from 37425 MT to 70425 MT by installing “12 new cells” and incurred expenditure of Rs.7.5 crore towards new machinery and plant added to the existing plant. The assessee claimed that a “new industrial undertaking” had come into being which was eligible for relief u/s 80-I. The AO, CIT (A) & Tribunal disallowed the claim on the ground that it was a case of substantial expansion and not a “new industrial undertaking” on the ground that though new plant and machinery by investing substantial funds had been installed, the undertaking was not an “integral unit by itself” but was dependent on the old undertaking for its functioning. On appeal by the assessee to the High Court, HELD reversing the lower authorities:

The principal object of s. 80-I is to encourage setting up of new industrial undertakings by offering tax incentives. A reasonable and purposive construction should be adopted. There is no logic in the argument of the department that the true test would be as to whether a new industrial undertaking can function independently of the existing industrial undertaking. If this argument is accepted, it will amount to adding a new clause in s. 80-I of the Act. The fact that the new unit is not capable of independently producing the goods without taking the assistance of the existing plant and machinery of the old unit is no ground to reject the claim u/s 80-I. The test laid down in Textile Machinery Corporation 107 ITR 195 (SC), namely that the new unit should have a “separate and distinct identity” is not violated only because the new undertaking is to a certain extent dependent on the existing unit. It all depends on the nature of the technology and the mechanism of production. One cannot ignore the fact that new machinery and new plant have been installed at an investment of Rs.7 crore and the fact that production has gone from 34000 MT to 75000 MT (Associated Cement Company 118 ITR 406 & other judgements distinguished /explained)