Desai J.

1. The question referred to us in this reference is as follows :

"Whether, on the facts and in the circumstances of the case, it was rightly held that the assessee was entitled to relief provided by section 15C(2)(i) of the Indian Income Tax Act, 1922, for the assessment years 1960-61 and 1961-62 "

2. The assessee is a private limited company which carries on the business of manufacturing flush cisterns and sanitarywares. It was incorporated in the year 1957 though the production commenced in 1959. It had a collaboration with Fordham Pressing Ltd., London. In this reference, we are concerned with two assessment years, 1960-61 and 1961-62. For both these years, the assessee-company had claimed relief under s. 15C of the Indian I.T. Act, 1922. The relief was initially allowed. It was subsequently found by the ITO that the company had taken land together with superstructure on lease for its business which superstructure had been previously used by M/s. Stewart Laboratories for their factory buildings. The ITO, therefore, took proceedings under s. 148 (of the Act of 1961) and held that relief under s. 15C (of the Act of 1922) was not permissible for both the years. The ITO had found that after taking the lease the assessee-company had removed the tin roofing of the structure, extended the height of the walls and once again covered the same with a new roof. Despite this he held that this was transfer to the assessee of the previous structure, which previous structure was substantially being used by the assessee in its new undertaking. According to the ITO, this was sufficient to disentitle the assessee from relief under s. 15C. Thus, for both the assessment years relief was denied.

3. The assessee carried the matter in further appeal to the AAC. It was urged initially before the AAC that the action of the ITO in reopening the assessment under s. 147 was invalid, but this point was ultimately not pressed and it was conceded that the action was valid in law. The AAC also agreed with the ITO that the taking on lease of the previously used structure amounted to transfer and that this transferred structure having been used by the assessee in its new undertaking, disentitled the assessee from claiming relief under s. 15C. The assessee carried the matter in further appeal to the Tribunal. The Tribunal disposed of the two appeals by its common order dated February 22, 1968. The Tribunal considered the lease between the assessee and the landlord. It applied its mind to what the assessee had done. The Tribunal was of the opinion that the assessee had constructed a substantially new structure retaining only the old walls. However, the Tribunal based its decision, which was in favour of the assessee principally on the footing that taking the structure on lease would not constitute a transfer within the meaning of s. 15C.

4. Now, Mr. Joshi who appeared on behalf of the revenue pointed out that the view taken by the Tribunal as to what was the precise connotation of the word "transfer", is contrary to the decision of the Division Bench of this High Court in Capsulation Services P. Ltd. v. CIT : [1973]91ITR566(Bom) . As a matter of fact, it may be stated that the view that even a lease will constitute a transfer, had been taken by the Tribunal in the very appeal from which the reference arose in the aforesaid decision. In the reference before us, the Tribunal in its appellate order refused to follow its earlier appellate decision in the case of Capsulation Services P. Ltd. : [1973]91ITR566(Bom) and held that leasing out of premises including a structure was not transfer. In Capsulation Services case : [1973]91ITR566(Bom) it has been held that a normal meaning had to be ascribed to the word "transfer" which would include transfer by lease. Thus, in view of this decision, it would be clear that the view taken by the Tribunal in the reference with which we are concerned, viz., that lease of a building would not constitute a transfer, was erroneous and would require to be corrected. Equally unsatisfactory is the view that what the assessee had done with the existing structure which had been taken on lease and which had been previously used would amount to demolishing of the structure and constructing a substantially new structure. The structure used by the assessee in its undertaking is not a totally new structure, nor is it identical with the structure taken on lease. The existing roofing was taken off, but the foundation and walls remained. The height of these walls appears to have been increased, but we are not told of the extent of the increase. Since the walls had been raised, a new roof was required to be put which was done. We do not know whether the roof was a tin roof or asbestos roof or any other type of roof.

5. Mr. Mehta on behalf of the assessee urged that it should be open for the assessee to urge before the Tribunal when the matter goes back that although lease to it of the previous structure may amount to a transfer, the portion of the previously existing superstructure utilised by the assessee constituted a very small part of the new undertaking and the utilisation of the structure which may be strictly regarded as transfer in the legal sense, will not amount to the assessee having "formed" its new undertaking by utilisation of the old structure. In other words, it was submitted to us that before finally deciding the question whether or not relief under s. 15C(2) was required to be allowed or denied, this aspect of the matter will be required to be considered by the Tribunal and the assessee should be left free to agitate the same before the Tribunal.

6. It was pointed out that although s. 15C did not include an Explanation as was expressly added to s. 84, similar considerations have been accepted and applied by several courts including our own. It appears to us that this contention should be open to the assessee and would be required to be considered on such material as may be available to the Tribunal. Accordingly, the question referred to us will be required to be answered as follows :

The Tribunal was in error in holding that lease of the building which had been previously used by M/s. Stewart Laboratories did not constitute a transfer within the meaning of s. 15C(2). In our opinion, further, the Tribunal does not appear to be right in observing that the previous structure was demolished (suggesting that it was substantially demolished) or holding that the assessee had constructed a substantially new structure. However, the Tribunal will consider for itself the question whether the assessee is still entitled to relief under s. 15C(2) bearing in mind what has been earlier stated in this judgment which point it is unnecessary to mention once again but which point is kept open for urging by the assessee.

7. The parties will bear their own costs of the reference.