Madras H.C : The relief claimed under s. 80J of the Act once allowed, would continue to be available to the assessee for a period of seven years

High Court Of Madras

CIT vs. Neyveli Lignite Corporation Ltd.

Sections 80J, 263

Asst. Year 1977-78

R. Jayasimha Babu & K. Gnanaprakasam, JJ.

Tax Case No. 1164 of 1986

6th November, 2000

Counsel Appeared

Mrs. Chitra Venkataraman, for the Revenue : P.P.S. Janarthana Raja, for the Assessee


R. Jayasimha Babu, J. :

The assessment year with which we are concerned in this matter is 1977-78. The assessee had set up in the year 1977, a belt reconditioning plant designed for retreading of conveyor belts. The process involved cleaning, inspection, peeling, drying, reconditioning, buffing, vulcanizing and trimming, etc. The life of the belt after such processing was 75 per cent of new belt, while the cost of reconditioning was about 50 per cent of the cost of a new belt.

2. The assessee claimed relief under s. 80J of the IT Act, as a new industrial undertaking. That relief was granted by the ITO who also found that the assessee’s taxable income for that year was “nil”. The order of the ITO was revised by the CIT is exercise of his powers under s. 263 of the Act, as he thought that the order was erroneous and was also prejudicial to the interests of the Revenue. The CIT’s order, however, was set aside in appeal by the Tribunal which held that the reconditioned belt was the result of the process of manufacture, and that the assessee was, therefore, entitled to relief under s. 80J of the Act.

3. At the instance of the Revenue, the questions as to whether the precondition regarding prejudice to the Revenue existed when the CIT exercised his revisional jurisdiction as also as to whether the Tribunal was right in taking the view that the reconditioned belt was a result of manufacture is correct, have been referred to us.

4. On the question as to whether the recondition of a conveyor belt can be regarded as the result of a process of manufacture, and as having brought into existence a new article, counsel for the Revenue referred us to the decision of this Court in the case of CIT vs. Madurai Pandian Engineering Corporation Ltd. (2001) 169 CTR (Mad) 354 : (1999) 239 ITR 375 (Mad), wherein it was held in the context of a claim for investment allowance for a unit which retreaded tyres, that a retreaded tyre was not a new article, and that the process of retreading was not manufacture. It was emphasized by the Court that for claiming relief under s. 80J of the IT Act a new article should emerge from the manufacture. Counsel submitted that reconditioning of a conveyor belt, the conveyor belt being made of rubber is qualitatively no different from the retreading of an old tyre and that the law laid down in that case would apply to the facts of this case as well.

5. Attention was also invited to the observations of the apex Court in the case of Indian Hotels Co. Ltd. vs. ITO (2000) 162 CTR (SC) 310 : (2000) 245 ITR 538 (SC), wherein the Court observed, inter alia, thus : “The word ‘manufacture’ has various shades of meaning but unless defined under the Act it is to be interpreted in the context of the object and the language used in the sections. In the context of the provisions which deal with grant of investment allowance or deduction under s. 80J it is apparent that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking.”

6. According to the assessee’s claim here what it does is to recondition the old belts. The article remains a belt before and after such reconditioning. It becomes more useful after reconditioning. The belt, however, does not change its character as a belt as a result of the reconditioning. It cannot, therefore, be said that any new article comes into existence when the old belt is reconditioned and made fit for use for some more time. The life of a reconditioned belt is not the same as that of a new belt. The purpose which a reconditioned belt is to serve is the same as the purpose that the belt before reconditioning was serving. We must, therefore, hold that the Tribunal was not right in taking the view that a new article came into existence as a result of reconditioning of the old belt.

7. As regards the other question, the relief claimed under s. 80J of the Act once allowed, would continue to be available to the assessee for a period of seven years. The fact that as on the date of the ITO’s order, the taxleviable was “nil” does not mean that the assessee was incapable of making profits in future years on which tax could have been levied. The CIT is not expected to be an astrologer being capable of foretelling future events to note as to what the commercial success or failure of the assessee would be at a later point of time. The CIT was, therefore, well within his jurisdiction in holding that the order of the ITO was prejudicial to the interests of the Revenue. We, therefore, answer the two questions referred to us, viz. :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the order of the CIT under s. 263, holding that the assessee is eligible for deduction under s. 80J ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the ITO’s order cannot be said to be prejudicial to the Revenue for the asst. yr. 1977-78 as there is no tax effect ?” in favour of the Revenue and against the assessee. The Revenue will be entitled to costs in the sum of Rs. 1,500.

[Citation : 248 ITR 611]

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