Purchase of second-hand machinery in the open market does not disentitle assessee to exemption under clause (i) of sub-section (2) of Section 15C of the Indian Income Tax Act, 1922.

SABYASACHI MUKHARJI, J.

1. THIS reference arises out of the assessment for the asst. yr. 1960-61. The assessee is a registered firm owning rice and oil mills at Sainthia in the district of Birbhum of the State of West Bengal. The corresponding previous year relevant for the present assessment is 2015-16 Diwali Samvat. In the course of assessment proceeding for this year the assessee had claimed exemption from tax under S. 15C of the Indian IT Act, 1922, which is allowable to a newly established industrial undertaking. The same claim had also been made by the assessee in respect of the assessment of the immediately precding year, 1959-60, and such claim had been refused originally by the ITO on the ground that rice milling is not an industrial undertaking within the meaning of s. 15C of the said Act. The assessee had preferred an appeal against the said order to the AAC in respect of the said assessment for 1959-60. The AAC had directed that the ITO should allow the benefit under s. 15C to the assessee provide the requisite conditions as laid down in that section were fulfilled. In the revised assessment as made under the directions of the AAC's order passed under s. 31 for the year 1959-60, the ITO again disallowed the claim under s. 15C of the said Act on the ground that some of the machinery utilised for the newly started mill were old and second-hand. The ITO had observed :

"It appears from the above provisions of the section (meaning S. 15C (2) (i)) that this section will not apply to an industrial undertaking which is formed by the transfer to a new business of building, machinery or plant previously used in any other business. It appears from the details of machinery account filed by the assessee for the accounting year 2013-4 S. corresponding to this assessment that one second-hand steam engine was purchased from M/s Ballav Karar and Sons, Howrah. So it is not evident that the second-hand steam engine was not previously used in any other business. Hence, it is held that the requisite condition under S.15C (2)(i) is not satisfied. Therefore, the benefit contemplated under s. 15C is not allowable in this case. As such, the claim under S. 15C is rejected."

2. FOR the asst. yr. 1960-61, the ITO apparently disallowed the claim of the assessee on the same grounds mentioned herein- before, although the assessment order itself does not mention either any claim under s. 15C or the grounds of rejection of such claim.

There was an appeal before the AAC who upheld the order of the ITO. The assessee preferred an appeal before the Tribunal. The Tribunal accepted the position that under s. 15C(2) of the IT Act of 1922, if an industrial undertaking had been formed by the transfer to the new business of such machinery or plant which had already been used in a business which was being carried on before the 1st April, 1948, the exemption would not be applicable, but at he same time the Tribunal interpreted the word "transfer" to be a transfer of a going concern by one to the other and not purchase in the open market. The Tribunal was., therefore, of the opinion that the assessee was entitled to the benefit under S. 15C of the IT Act, 1922. On an application being made, the Tribunal has referred to this court under S. 66(1) of the Indian IT Act, 1922, the following question :.

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in interpreting the meaning of the word 'transfer' as appearing in clause (i) of sub-s. (2) of s. 15C, to mean only transfer of used machinery in the assessee's own business to the new industrial undertaking and not to purchase of second-hand machinery in the open market and in directing the ITO to grant relief to the assessee under s. 15C of the IT Act, 1922 ?"

Sub-s.(2) of s.15C of the Indian IT Act, 1922, without the proviso, is in the following terms :

"This section applies to any industrial undertaking which-

(i) is not formed by the splitting up, or the reconstruction of, b