The transfer of machinery or plant from an old business to a new business does not automatically deny the new business the concession under section 15C of the Income-tax Act, which is intended to encourage the setting up of new industrial enterprises.

FLASHAW, J.

1. This is a reference under section 66(I) of the Income-tax Act in which the following question has been referred by the Appellant Tribunal to this court :

"Whether on the facts and in the circumstances of this case the concession contained in section 15C of the Indian Income-tax Act in respect of the industrial undertaking for the manufacturer of handloom fabrics at Ghaziabad is available to the assessee ?"

2. The question arises out of the assessment of 1952-53 covering the financial year 1951-52. The assessee is a company, Webbing & Belting Factory Private Ltd., which had started as a partnership business run by two partners. They were running two factories at Delhi, one situated at Nicholson Road and the other at Bela Road, the business being the manufacture of tapes, works, webbing etc. for supply to the Government Departments during the war. After the war was over, in 1946 one of the partners conceived the idea of manufacturing handloom furnishing fabrics on the lines of manufacturers carried on in South India by a company called the Commonwealth Trust Ltd. He accordingly entered into negotiations with this company which agreed to supply technicians and technical advice and organise sales for the assessee under the label of Commonwealth Trust Ltd.

3. Accordingly in February, 1947, the partnership concern was sold to the assessee limited company which was formed for the purpose of acquiring the partnership business and also for the purpose of establishing a factory at Ghaziabad for manufacturing handloom furnishing fabrics. The company was formed on January 22, 1947.

4. For experimental and training purposes a number of handlooms were set up in the factory at Bela Road and workmen were then trained by employees of the Commonwealth Trust Ltd. It is admitted that between February and December, 1947, the total sales of grey (or unbleached) cloth so manufactured amounted to Rs. 67,085. This cloth was sold through the selling organization of the Commonwealth Trust Ltd. But without the latters label since the goods were not considered to be of the requisite quality.

5. Thereafter the factory at Bela Road was dismantled and sold and the looms were transferred to factory premises at Ghaziabad where the manufacture of furnishing fabrics began after the end of March, 1948. In these circumstances the assessee claimed the concession contained in section 15C of the Act so far as the factory at Ghaziabad is concerned. The Income-tax Officer was of the opinion that the handloom manufacture had started before March 31, 1948, at the Bela Road Factory, and that since the looms used at the factory were transferred to the factory at Ghaziabad the assessee was not entitled to claim the said concession.

6. On appeal by the assessee the case was remanded to the Income-tax Officer by the Appellate Assistant Commissioner. The Appellate Assistant Commissioner directed the Income-tax Officer to consider all the points raised on behalf of the assessee and to visit the factory at Ghaziabad in order to appreciate the situation properly. The relevant portion of the report of the Income-tax Officer after the remand reads :

"As far as power-looms are concerned enough evidence has been produced before me to show that these have never worked at Ghaziabad.... As far as cloth handlooms are concerned it has been contended that these were being used before March 31, 1948, on experimental basis to see whether the scheme conceived by Mr. Kaul could be successfully executed in this part of the country. Huge correspondence which Mr. Kaul had been carrying on with the Commonwealth Trust Ltd., Calicut, shows that the entire work was done under instructions from that Trust including the construction of looms. On visit I noticed that the size of these looms was much smaller than the size of looms now being worked at Ghaziabad factory. I am told that the looms used on experimental measure were 36" only whereas the looms presently installed vary fro