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PETITIONER: BAJAJ TEMPO LTD. BOMBAY

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX,BOMBAY  CITY-IIIBOMBAY

DATE OF JUDGMENT24/04/1992

BENCH: SAHAI, R.M. (J) BENCH: SAHAI, R.M. (J) ANAND, A.S. (J)

CITATION:  1992 AIR 1622            1992 SCR  (2) 765  1992 SCC  (3)  79        JT 1992 (3)   185  1992 SCALE  (1)912

ACT:                     INCOME TAX ACT, 1922      Section  15  C-Industrial  undertaking  established  by taking   on  lease  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 Statute:      Taxing  statute-  provision  granting  incentives   for promoting , economic growth and development-to be  liberally construed.

HEADNOTE:      The appellant-company, which was formed for  exploiting the  manufacturing  licence  issued  by  the  Government  in favour of its  promoter Corporation, entered into an  agree- ment 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,  quotas etc.Clause 10 of the agreement provided  that the transferee, the appellant company, should be in  posses- sion  of  the premises of the factory  and the  building  on payment  of monthly rent as a lessee. tools  and  implements valued  at Rs. 3500 of the promoter corporation,  were  also transferred to the company. After the take-over, the licence was endorsed by the appropriate authority of the  Government of India in favour of the assessee company.      In  assessment  proceedings for the year  1960-61,  the appellant  company, the assessee claimed benefit of  partial exemption  from payment of tax under section 15C of the  Act of 1972 as the company was a new undertaking. the Income Tax Officer  rejected  the claim on the ground that  though  the undertaking was new, it was not entitled to the benefit,  as it                                                  766 was formed by splitting up of business already in  existence and  also by transfer to the new business  of  the  building and machinery previously used in the other business.  Howev- er,  the Income Tax Officer   observed that it could not  be held, on the facts of the case, that it was a case of recon-

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struction of the business already in existence.      On  appeal by the assessee-company, the  appellate  As- sistant  commissioner  held that taking  premises  on  lease could not be held to amount transfer of the building as  the building  in which the undertaking was set up was  not  pur- chased but taken onlease only and that since, admittedly,the value  of the building could not be included in the  capital computation  for the purposes of section 15 C, the value  of which  would be negligible as compared to the value  of  the assets  installed,  the assessee was entitled to  claim  the benefit. In further appeal, the Income Tax Appellate  Tribu- nal  agreed  with the order of the Appellate  Authority  and rejected  revenue’s  contention that since the  premises  in question were earlier used for the purpose of business,  the assessee  was disentitled from claiming the benefit  as  the ’newly established undertaking must also refer to a building previously  used by the assessee himself in any other  busi- ness’. It held that lease could not be held to be  transfer, and  that  an industrial undertaking to be  covered  in  the mischief  of  clause  (i)of sub-section(2)  of  section  15C should have been ’formed’ by transfer of building, plant  or machinery,which was substantial and prominent in the  forma- tion of the undertaking ;in other words, the part played  by such transfer should have been such that the industry  with- out it could not have come into being, and that it could not stand to reason that a big industrial undertaking should  be denied the benefit of Section 15C, only because it took  the business premises on lease or used its implements and  tools worth  a small amount previously used  for the  purposes  of business.      On  a reference made by the department, the High  Court answered  the question of law raised by  the  department  in its  favour and against the assessee. Hence the  appeals  by the assessee.      On  the question whether the assessee was  entitled  to claim  partial exemption from payment of tax  under  section 15C of Income Tax Act,1922 on profit and gains derived  from an industrial undertaking established in a building taken on lease  used  for other business, and whether  the  assessee- company, which had been found by the tribunal, to be a new                                                     767 Company,  could be denied the benefit as visualised in  Sec- tion  15C(1) because of operation of clause (i) of  sub_sec- tion (2).   Allowing the appeals by the assessee-Company, this Court,      HELD:1.1. Section 15 C of the Income Tax Act, 1922 read as  a whole, was a provision, directed  towards  encouraging industrialisation by permitting an assessee setting up a new undertaking to claim benefit of not paying tax to the extent of  six per cent in a year on the capital employed. But  the legislature took care to restrict such benefit only to those undertakings  which were new in form and substance, by  pro- viding  that  the undertaking should not be  ’formed’in  any manner provided in clause (i)of  sub-section (2) of  Section 15C.  Each of these requirements, namely, formation  of  the undertaking by splitting up or reconstruction of an existing business  or transfer to the undertaking of  buildings,  raw material or plant used in any previous business results   in denial  of  the benefit contemplated under  sub-section  (1) clause(i)of  sub  -section (2) is a restrictive  clause.  By this clause, the legislature intended to control any attempt or effort to abuse the benefit intended for new  undertaking by change of label. The intention was not to deny benefit to genuine  new industrial undertaking but to control the  mis- chief  which might have otherwise taken place. Therefore,  a

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provision in taxing state granting incentives for  promoting growth  and  development  should   be  construed  liberally. Consequently,  the  restriction on it, too, has to  be  con- strued  so as to advance  the objective of the  section  and not to frustrate it. Adopting a literal interpretation would result  in defeating the purpose of section 15C.  Therefore, it  becomes necessary to resort to a construction  which  is reasonable    and   purposive   to   make   the    provision meaningful[773D-F,774B,774D]       Broach  Distt. Co-operative Cotton sales  Ginning  and Pressing Society Ltd. Commissioner of Income Tax, Ahmedabad, 177 ITR [1989] 418 SC and commissioner of Income Tax, Amrit- sar  v. Strawboard Manufacturing Company  Ltd;  177ITR[1989] 431 SC, relied on.      1.2 Initial exercise, therefore, should be to find  out if  the  undertaking was new. Once this  test  is  satisfied then clause(i) should be applied reasonably and liberally in keeping   with  spirit of Section 15C (1)of the  Act.  While doing  so, various situations may arise. For  instance,  the formation  may be without  anything  to do with any  earlier business.  That is, the undertaking may be  formed   without splitting up or reconstructing                                                    768 any  existing business or without transfer of  any  building material or plant of any previous  business. Such an  under- taking undoubtedly would be eligible to benefit without  any difficulty . On the other extreme may be an undertaking  new in  its  form but not in substance. It may be  new  in  name only. Such an undertaking would obviously not be entitled to the benefit. In between the two, there may be various  other situations,  for instance, a new company may be  formed,  as was  in  the instant case, but tools  and  implements  worth Rs.3500 were transferred to  it of previous firm. Technical- ly  speaking  it was transfer of material used  in  previous business.                                               [777 C-F]    1.3   World of a statute are undoubtedly the best  guide. But  if their meaning gets clouded then the courts  are  re- quired   to  clear the haze. Sub-section  (2)  advances  the objective of sub-section (1)by  including in it every under- taking except if it is covered by clause (i) for which it is necessary that it should not be formed by transfer of build- ing  or  machinery. The restrictions are denial  of  benefit arises  not by transfer of building or material to  the  new company but that it should not be formed by  such  transfer. This is the key  to the interpretation. The formation should not  be by such  transfer. The emphasis is on formation  not on use. Therefore, it is not every  transfer of building  or material  but the one which can be held to have resulted  in formation  of the undertaking . Even if the  undertaking  is established by transfer of building, plant or machinery  but it  is not formed as a result of such transfer the  assessee could not be denied the benefit.[777G-H,778A]     Commissioner of Income Tax, West Bengal-II  v.  Sainthia Rice  and  Oil Mills,  82ITR[1971]778(cal.);Commissioner  of Income  Tax v. Ganga Sugar Corporation  Ltd;92  ITR[1973]173 (DELHI);Commissioner  of  Income  Tax , West  Bengal  -I  v. Electric  Construction  and Equipment Company  Ltd  ;(Cal.)1 04ITR  [1976]  101;Commissioner of Income tax,  Bombay  city -I,v. Kopran Chemical Co. Ltd; 112ITR [1978]893;Commissioner of  Income tax, Bombay City -II v. Sawyer’s Asia  Ltd;   122 ITR [1980] 259 and L.G. Balakrishan & Bros. Ltd. v.  Commis- sioner of Income Tax, Madras 151 ITR [1985] 270, approved.      1.4  The words ’previously used in any other  business’ cannot be construed so narrowly as to confine it to building

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of  the  assessee only . but it cannot be said that  if  new undertaking was established in a premises                                                        769 taken on lease then it, always, amounted to formation of the undertaking  by  transfer of the building  previously  used. [779 B]      Capsulation  Services  Pvt.  Ltd.  v.  Commissioner  of Income  Tax, Bombay, 91[’1973] ITR 566; Phagoo Mal Sant  Ram v.Commissioner of Income Tax Patiala, 74 ITR [1969] 734  and Commissioner of Income Tax, Bombay City-II v. Fordham Press- ing (INDIA) Pvt. Ltd., 121 ITR 426, partly approved.      Commissioner  of Income Tax v. Ganga Sugar  Corporation Ltd.,  92  ITR [1973] 173 Delhi and Commissioner  of  Income Tax,  Gujarat-IV  v. Suessin Textile Beraing Ltd.,  135  ITR [1982] 443, approved.      Textile  Machinery Corporation Ltd. v. Commissioner  of Income Tax, West Bengal, 107 [1977] 195 SC, affirmed.      1.5.  ‘Form’ according to the dictionary has  different meanings.  In the context in which it has been used  it  was intended  to  connote that the body of the  company  or  its shape  did not come up in consequence of transfer of  build- ing,  machinery or plant used previously for  business  pur- pose.  Use  of  the negative before  word  ’formed’  further strengthens it. In other words, building, machinery or plant used  previously in other business should not result in  the undertaking being formed by it. The transfer to take out the new  undertaking out of purview of sub-section (1)  must  be such  that  but for transfer the new undertaking  could  not have come into being. [779 C-D]      1.6 In the instant case, the part played by taking  the building  on  lease  was not dominant in  formation  of  the company.  The  High  Court was therefore  not  justified  in answering the question in favour of the revenue. The assesse was  entitled to partial exemption under Section 15C of  the Income Tax Act, 1922. [799 E]

JUDGMENT:      CIVIL   APPELLATE  JURISDICTION  :  Civil  Appeal   No. 1211(NT) Of 1982.      From  the  Judgment and order dated  25.8.1981  of  the Bombay High Court in Income Reference No. 154 of 1971.                       WITH      Civil Appeal No. 1258 to 1260 (NT) of 1982                       AND                                                        770      Civil  Appeal No. 1257(NT) of 1982 P.H. Parekh for the Appellant J. Ramamurthy, P. Parameswaran for the Respondents. The Judgment of the Court was delivered by      R.M.  SAHAI,  J. The question of law  that  arises  for consideration in these appeals directed against order of the Bombay  High Court, in an Income Tax reference  relating  to assessment  year 1960-61, is if the assesse was entitled  do claim  partial exemption from payment of tax  under  section 15C  of Income Tax Act of 1922 on Profits and gains  derived from an industrial undertaking established in building taken on lease used previously for other business.      M/s    Bechhraj    Trading   Corporaion    (in    brief ’Corporation’), incorporated on 29th September 1945. carried on  business of import-export in various items. In  1957  it was  granted  licence for manufacturing  tempo  400cc  three wheeled  transporters.  It entered into  an  agreement  with foreign  collaborator, who agreed to grant the licensee  the

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know-how  rights  for  the manufacture, in  India  of  tempo commercial three wheeler vehicles, against payment of German marks.  Accordingly  the assessee company  M/s  Bajaj  Tempo Ltd., Bombay (inshort ’Company’) was, formed, for exploiting the  manufacturing licence issued by the Government  32%  of the  shares capital of which was subscribed by  the  foreign collaborators and remaining 68% share capital was issued  to the  shareholders of the Corporation. The  assessee  company entered  into an agreement with the Corporation,  which  was the  promoter  company,  to secure and take  over  from  the promoter company the rights under the licence to manufacture tempo vehicles and to take over the factory registered under the  name  of Auto Rickshaw Engineering Factory as  a  going concern with its assets liabilities machinery, power, quotas etc. Clause 10 of the agreement provided that the  transfer- ee, that is, the company shall be in possession of the prem- ises of the factory and the buildings on payment of  monthly rent  as a lessee. Tools and implements, valued at  Rs.3,500 of  the Corporation, were also transferred to  the  company. After take over the licence was endorsed by the  appropriate authority of the Government of India in favour of the compa- ny                                                        771      In assessment proceedings the assessee claimed  benefit of partial exemption from payment of tax as the company  was a new undertaking. The Income Tax Officer rejected the claim as  even though the undertaking was new it was not  entitled to the benefit as it was formed by splitting up of  business already  in existence and also it was formed by transfer  to the  new business of the building and  machinery  previously used  in other business. But while rejecting the  claim  the Income  Tax officer observed that on facts furnished it  was difficult  to hold that it was a case of  reconstruction  of the  business  already in existence. He did  not  find  much merit  even  in  transfer  of  tools  and  implements  worth Rs.3,500. In fact the main ground for rejection of the claim was  establishing of business in a building which  was  used previously for business. The Appellate Commissioner did  not agree with the Income Tax Officer as according to him taking premises on lease could not be held to amount to transfer of the  building as the building in which the  undertaking  was set up was not purchased but taken on lease only. The appel- late  authority  held that since it was  admitted  that  the value  of the building could not be included in the  capital computation  for the purposes of Section 15C the   value  of which  would  be negligible as compared to the value  of  he assets  installed,  the assesee was entitled  to  claim  the benefit. In further appeal the Income Tax Appellate Tribunal agreed with the order of the appellate authority it rejected the contention, advanced on behalf of the revenue that since the  premises in question were earlier used for the  purpose of  business the assessee was disentitled from claiming  the benefit  as  the, ’newly established undertaking  must  also refer to a building previously used by the assessee  himself in any other business’. It was further of opinion that lease could not be held to be transfer. The tribunal held that  an industrial  undertaking  to be covered in  the  mischief  of clause  (i)  of sub-section (2) of section 15C  should  have been  ’formed’ by transfer of building, plant or  machinery, which was substantial and prominent in the formation of  the undertaking. In other words the part played by such transfer should have been such that the industry without it could not have  come  into being. According to tribunal it  could  not stand to reason that a big industrial undertaking should  be denied  the benefit of Section 15C only because it took  the

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business premises on lease or used its implements and  tools worth  a  small amount previously used for the  purposes  of business. On further reference made by the department in the High  Court  the question of law raised  by  department  was answered in its favour and against the assessee without any                                                        772 discussion,  only,  in view of the decision  in  Capsulation Services Pvt. Ltd. v. Commissioner of Income Tax, Bombay, 91 [1973] ITR 566. The finding of the tribunal, thus, that  the assessee  company cannot be said to have been formed by  the reconstruction of promoter company as, ’the business of  the new  industrial  undertaking  established  by  the  assessee company  did  not exit prior to  its incorporation  and  was neither carried on by the promoter company nor by any  other company’ has become final. The dispute centres round if  the company was formed by transfer of building or material  used in  previous  business.  It had two aspects  one  taking  of building on lease and other transfer of tools and implements valued at Rs.3,500.      Section  15C of the Income Tax Act, 1922  is  extracted below :          "15C  (1) Save as otherwise  hereinafter  provided,          the  tax shall not be payable by an assessee on  so          much  of  the  profits or gains  derived  from  any          industrial  undertaking to which this  section  ap-          plies as do not exceed six percent per annum on the          capital  employed in the undertaking,  computed  in          accordance with such rules as may be made in    the          behalf by the Central Board of Revenue.           (2) This section applies to any industrial  under-          taking which          (i) is not formed by the splitting up or the recon-          struction  of business already in existence  or  by          the transfer to a new business of building, machin-          ery   or  plant  previously  used  in   any   other          business....."      The  limited question is whether the asessee which  has been  found by tribunal to be a new company could be  denied the  benefit  as  visualised in section  15C(1)  because  of operation  of  the  clause (i) of Sub-section (2)  It  is  a restrictive  clause.  It denies benefit which  is  otherwise available in sub-section (1) A provision in a taxing statute granting  incentives  for promoting growth  and  development should  be  construed  liberally  !  In  Broach  Distt.  Co- Operative Cotton Sales Ginning and Pressing Society Ltd.  v. Commissioner of Income Tax Ahmedabad, 177 ITR [1989] 418  SC the assessee a cooperative society claimed that the receipts from  the ginning and pressing activities was exempt  under- Section 81 of the Income tax Act. The question for interpre- tation was whether the cooperative society which carried  on the business of ginning and pressing was society engaged in                                                        773 ‘marketing’ of the agricultural produce of the its  members. The Court held that object of section 81(1) was to encourage and  promote the growth of cooperative societies and  conse- quently a liberal constuction must be given to the operation of that provision. And since ginning and pressing was  inci- dental  or ancillary to the activities menioned  in  Section 81(1) the assessee was entitled to exemption and the proviso did not stand in way. In Commissioner of Income Tax,  Amrit- sar v. Strawboard Manufacturing Company Ltd., 177 ITR [1989] 431  SC was held that the law providing for  concession  for tax  purposes  to encourage industrial  activity  should  be liberally  construed.  The  question before  the  Court  was whether Straw Board could be said to fall within the expres-

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sion "paper and pulp" mentioned in the Schedule relevant  to the  respective assessment years. The Court held that  since word  "paper  and pulp" was mentioned in  the  Schedule  the intention  was to refer to the paper and pulp  industry  and since  Straw  Board Industry could be described  as  forming part  of  the  paper and pulp industry it  was  entitled  to benefit.      The section, read as a whole, was a provision, directed towards  encouraging  industrialisation  by  permitting   an assesse setting up a new undertaking to claim benefit to the extent of six percent in a year on the capital employed. But the  legislature took care to restrict such benefit only  to those undertakings which were new in form and substance,  by providing  that  undertaking should not be  ’formed’ in  any manner provided in Clause (i) of sub-section (2) of  Section 15C.  Each of these requirements, namely, formation  of  the undertaking by splitting up or reconstruction of an existing business  or  tansfer to the undertaking  of  building,  raw material  or plant used in any previous business results  in denial  of  the benefit contempleted under  sub-section  (1) Since a provision intended for promoting economic growth has to  be interpreted libeally the restriction on it, too,  has to  be  construed so as to advance  the  objective   of  the section  and not to frustrate it. But that turned out to  be the, unintended, consequence of construing the clause liter- ally,  as was done by the High Court for which it cannot  be blamed, as the provision is susceptible of such construction if the purpose behind its enactment, the objective it sought to  achieve and the mischief it intended to control is  lost sight of. One way of reading it is that the clause  excludes any  undertaking formed by transfer to it of  any  building, plant or machinery used previously in any other business. No objection could have been taken to such reading but when the result of reading in such place and simple manner is  analy- sed                                                        774 then  it  appears  that literal construction  would  not  be proper.  Taking  facts  of this  case  as  illustration  the inherent fallacy surfaces. The Income Tax Officer found that tools and implements worth Rs.3,500 used in earlier business were  transferred  to it. They comprised of  machines  which were  of very minor nature. But for one spotwelling  machine the  cost of which was Rs.1500, the other 13 items  were  of value of Rs.100, Rs.200, Rs.300 or at most Rs.400. On  plain reading  the  effect of such transfer was operation  of  the clause and denial of benefit to the assessee. But that would be  denial  of  very  purpose for which  the  provision  was enacted. The Legislature by clause (1) of sub-section (2) of Section  15C  intended to control an attempt  or  effort  to abuse the benefit intended for new undertaking by change  of label.The  intention was not to deny benefit to genuine  new industrial  undertaking  but to control the  mischief  which might  have  otherwise taken place. The result  was  however just the contrary. Any use of building or plant or machinery howsoever nominal either because of compulsion  or inadvert- ence or sheer necessity fell in the mischief and the depart- mental authorities, bound as they were with the provision of the  section, refused to grant exemption. High  Courts  also differed  in  their approach. Various decisions  which  were placed before us leave no room. Some related to transfer  of machinery to the new business and others to the building. In respect  of  machinery the High Courts appear to  be  nearly unanimous that where the value of transferred machinery  was low or meagre the assessee should not be denied the benefit. For  instance  the Calcutta High Court  in  Commissioner  of

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Income Tax, West Bengal- II v. Sainthia Rice and Oil  Mills, 82 ITR [1971] 778 (Cal.) did not find any reason to deny the benefit to the assessee where the undertaking was formed  by acquisition  of part of machinery in second hand  from  open market.  But the decision which became the leading  decision on transfer of machinery was rendered by Delhi High Court in Commisioner  of Income Tax v. Ganga Sugar Corporation  Ltd., 92 ITR [1973] 173 (Delhi.) It has been follwed in nearly all the decisions, given subsequently as it was approved by this Court.  It  was held that use of scrap and material  of  the unit  of  the value of a small fraction of  the  expenditure involved  in the setting up of the new unit did not  attract the  concluding  words of clause (i) of Section  15(2).  The Calcutta  High  Court in Commissioner of  Income  Tax,  West Bengal-I v. Electric Construction and Equipment Company Ltd. (Cal.), 104 ITR [1976] 101, was of view that where machinery previously used was ‘very small compared to the value of the machinery   installed’  the assessee was  well  within  sub- section                                                         775 (1) of Section 15C. Same view was taken by the Bombay  High Court  in  Commissioner  of Income Tax, Bombay  City  -I  v. Asbsestos,  Magnesia  &  Friction Materials Ltd.,  106  ITR [1977] 286 and it was observed, that the important aspect to be ‘considered must be the monetary value of the old  assets transferred  to  and utilised in the  new  undertaking’.  In Commissioner  of  Income  Tax, Bombay  City-  I,  v.  Kopran Chemical Co. Ltd., 112 ITR [1978] 893 the Court answered the question in favour of assessee as the machinery  transferred to the new business was of ‘insignificant value’. In another decision  the  Bombay High Court in Commissioner  of  Income Tax,  Bombay City-II v. Sawyer’s Asia Ltd., 122  ITR  [1980] 259  while construing analogous provision, Section 84(2)  of 1961  Act, opined that where machinery taken on hire  formed ‘insignificant  part of the total value’ the assessee  could not be denied the benefit. In the case of L.G.  Balakrishnan & Bros. Ltd. v Commissioner of Income-Tax, Mardras, 151  ITR [1985] 270 the Madras High Court decided against the  asses- see not on proportion or value of the machinery  transferred but because lease of machinery amounted to transfer.      On transfer of building the decision of the Bombay High Court  on  which reliance was placed by the High  Court  for deciding  the  case against assessee shall  be  adverted  to later.  But  this  was  relied by the  same  High  Court  in Commissioner  of  Income  Tax,  Bombay  City-II  v.  Fordham Pressing  (India) Pvt.Ltd., 121 ITR 462 in a case where  the assessee took land with superstructure on lease, removed the tin roofing  extended  the height of wall  and  covered  the ceiling  with  new  roof. It was held  that  since  the  new structure  used  by  the  assessee was  not  a  totally  new structure  the  undertaking was formed by  transfer  of  the building  used previously for business. In  Commissioner  of Income  Tax, Gujarat-IV v. Suessin Textile Bearing Ltd,  135 ITR  [1982] 443, Gujarat High Court while deciding claim  of assessee  under  1961 Act struck a dissenting note  and  ob- served,  ‘Practical common sense and  commercial  expediency would  necessitate  the conclusion that in so far as  a  new undertaking  is  being carried on in a  building  which  was previously being used by someone else or which was rented by someone else other than the assessee and the new undertaking being  started  for the first time by the  assessee  in  the newly  rented premises, then, the third  negative  condition cannot be said to be violated;      Thus  so  far transfer of machinery  is  concerned  the High  Courts  have consistently taken the view that  if  the

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value of transferred machinery was                                                         776 nominal  it  could not result in denial of  benefit  to  the assessee.  This  conclusion was reached  by  construing  the provision  either on principle of commercial  expediency  or practical  common sense or to avoid unjust hardship  to  the assessee.  This was legislatively recoginsed by  Explanation (2) to sub-section (4) of Section 80J of 1961 Act. Similarly the ineligibility due to transfer of building was toned down in the first instance by amending the provision in 1967  and providing  that  any building used previously  for  business purposes  taken  on lease by the new company  would  not  be covered in the mischief of clause (ii) of sub-section (4) of Section  80J  of  1961 Act. Later in 1976  it  was  deleted, altogether, thus the restriction of the new undertaking  not being formed by transfer to a new business of building  used previously  for  any order business did  not  disentitle  an assessee from claiming the benefit for partial exemption.      Sri  Ramamurthy the learned counsel for the  department urged  that even though from analogous provision in  Section 80J  (4)(ii) in the Act of 1961 the restriction of  transfer of new business to the building used previously for business has  been omitted but that would not reflect favourably  for assessee   in  1960-61.  Rather  it  would  show  that   the legislature  which  is  the best Judge of  need  of  people, manifests its intention from time to time through amendment, substitution   and  omission  considering  the  social   and economic conditions in view. Since during operation of  1921 Act it intended that an undertaking established in  building used  earlier for business could not claim the  benefit  the Court  should restrain its hands  and may not interpret  the provision  by  1967  amendment in the  1961  Act,  when  the restriction  was  lifted from leased or rented  building  or 1976  or  when  the transfer of business  to  building  used previously  for  business  no  more  remained  one  of   the conditions  for  disentitling  the  assessee  from  claiming benefit. Subsequently amendments in 1961 Act may or may  not be  taken as clarificatory but if a provision  for  checking abuse  is  found  to have resulted in  nullifying  the  very purpose of its enactment and Legislature intervenes then  it can  be assumed  that the Legislature having been  satisfied of  failure  of  the purpose for which  the  provisions  was inserted proceeded to cure the defect by suitably   amending the provision or removing it. But for purposes of construing the  proviso in Section 15C it is not necessary to  go  that far  as there can be no doubt that literal  construction  of clause  (1)  of sub-section (2) was amenable  to  denial  of benefit to the assessee even in genuine cases. For  instance an  undertaking  otherwise entitled to  benefit  would  fall within mischief of the sub-clause if it was                                                         777 established  in  a  building which  was  used  for  business purposes  at any time in the remote past. Or it  might  have been  established  in  part of building,  earlier  used  for business  purposes due to paucity of accommodation.  Denying benefit  to  such undertaking could not have  been  intended when the very purpose of Section 15C was to encourage indus- trialisation.  It  was  for this reason  that  various  High Courts evolved the test of commercial expediency or substan- tial involvement valued in terms of money etc. to  interpret this  clause.  Adopting literal construction in  such  cases would have resulted in defeating the very purpose of Section 15C. Therefore it becomes necessary to resort to a construc- tion which is reasonable and purposive to make the provision meaningful.

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    Initial  exercise, therefore, should be to find out  if the  undertaking was new. Once this test is  satisfied  then clause  (1)  should be applied reasonably and  liberally  in keeping  with  spirit of Section 15C(1) of  the  Act.  While doing  so  various  situations may arise  for  instance  the formation  may  be without anything to do with  any  earlier business.  That  is the undertaking may  be  formed  without splitting  up  or reconstructing any  existing  business  or without  transfer of any building material or plant  of  any previous business. Such an undertaking undoubtedly would  be eligible  to  benefit without any difficulty. On  the  other extreme  may  be an undertaking new in its form but  not  in substance.  It may be new in name only. Such an  undertaking would  obviously not be entitled to the benefit. In  between the   two  there  may  be  various  other  situations.   The difficulty arises in such cases. For instance a new  company may be formed, as was in this case a fact which could not be disputed,  even  by the Income Tax Officer.  But  tools  and implements worth Rs.3,500 were transferred to it of previous firm. Technically speaking it was transfer of material  used in previous business. One could say as that vehemently urged by  the  learned counsel for the department that  where  the language  of  statute  was  clear there  was  no  scope  for interpretation. If the submission of the learned counsel  is accepted then once it is found that the material used in the undertaking  was of a previous business there was an end  of enquiry  and  the assessee was precluded from  claiming  any benefit. Words of a statute are undoubtedly the best  guide. But  if their meaning gets clouded then the courts  required to clear the haze. Sub-section (2) advances the objective of sub-section (1) by including in it every undertaking  except if  it  is covered by clause (i) for which it  is  necessary that  it  should not be formed by transfer  of  building  or machinery.  The restriction or denial of benefit arises  not by transfer of building or                                                         778 material to the new company but that it should not be formed by such transfer. This is the sky to the interpretation. The formation should not be by such transfer. The emphasis is on formation not on use. Therefore it is not every  transfer of building  or material but the one which can be held to  have resulted in formation of the undertaking. In Textile Machin- ery  Corporation  Ltd. v. Commissioner of Income  Tax,  West Bengal,  107  [1977] 195 SC this  Court  while  interpreting Section 15C observed:           "The true test, is not whether the new  industrial           undertaking  connoted  expansion of  the  existing           business of the assessee but whether it is all the           same  a new and identifiable undertaking  separate           and  distinct  from  the  existing  business.   No           particular  decision in one 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 physically separate  industrial           unit 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."      Even though this decision was concerned with the clause dealing  with  reconstruction of existing business  but  the expression  ‘not  formed’  was construed to  mean  that  the undertaking  should  not be a continuation of  the  old  but emergence  of a new unit. Therefore even if the  undertaking

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is  established by transfer of building, plant or  machinery but it is not formed as a result of such transfer the asses- see could not be denied the benefit.      Reverting  to  the Bombay decision on  which  the  High Court relied for answering the question against the assessee we would assume for purposes of this case that lease of  the building  amounted to transfer. Yet what is  significant  is that  the  High  Court did not examine the  impact  of  word ‘formed’. It proceeded on basis that once lease amounted  to transfer the  assessee became ineligible from  claiming  any exemption.   The  Court  further  repelled  the   contention advanced  on  behalf  of assessee on  strength  of  Caluctta decision  in Commissioner of Income Tax, West  Bengal-II  v. Sainthia  Rice  &  Oil Mills, 82 ITR [1971]  778  Cal.  that transfer  of building to the new business to disentitle  the undertaking should have been of the assessee himself. In our opinion this aspect of the Bombay  decision was                                                         779 correctly  decided  and the tribunal was  not  justified  in deciding in favour of assessee on this ground. We  therefore endorse the view of Bombay High Court and Punjab and Haryana High Court in Phagoo Mal Sant Ram v. Commissioner of  Income Tax,  Patiala  ,  74 ITR [1969] 734  of  this  extent  that, ‘previously  used in any other business’ cannot be construed so  narrowly  as to confine it to building of  the  assessee only. But we do not approve of the Bombay view that if a new undertaking is established in a premises taken on lease then it,  always,  amounts  to formation of  the  undertaking  by transfer of the building previously used as the decision was given without examining the scope of the word ‘formed’ which as  we have indicated above, was construed by this Court  in Textile Machinery Corporation Ltd which approved a  decision of Delhi High Court  in Commissioner of Income Tax v.  Ganga Sugar  Corporation Ltd. ‘Form’ according to  the  dictionary has different meanings. In the context in which it has  been used it was intended to connote that the body of the company or  its shape did not come up in consequence of transfer  of building,  machinery or plant used previously  for  business purpose.  Use  of the negative before  word  ‘formed’further strengthens it. In other words building,  machinery or plant used  previously in other business should not result in  the undertaking being formed by it. The transfer to take out the new  undertaking out of purview of sub-section (1)  must  be such  that  but for transfer the new undertaking  could  not have come into being. In our opinion, on facts found by  the tribunal,  the part played by taking the building  on  lease was not dominant in formation of the company. The High Court was  therefore  not justified in answering the  question  in favour of the revenue.      The  appeals accordingly succeed and are  allowed.  The order  of the High Court is set aside. The question  of  law raised  by  the  department in the High  Court  is  answered against   it  and  it  is  held  that  in  the   facts   and circumstances  of  the  case the assessee  was  entitled  to partial  exemption under Section 15C of the Act.   Reference before  the High Court shall accordingly stand  answered  in favour of the assessee and against the revenue.      The assessee shall be entitled to its costs. N.P.V.                                      Appeals allowed.