JUDGMENT

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 assessee was entitled to 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 a building taken on lease used previously for other business.

2. M/s. Bachhraj Trading Corporation (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 a foreign collaborator, who agreed to grant the licencee the 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 (in short Company) was, formed, for exploiting the manufacturing licence issued by the Government 32% of the share 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 transferee, that is, the company shall be in possession of the premises 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 Company.

3. 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 appellate 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 the assets installed, the assessee 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