Bombay H.C : Whether, on the facts and in the circumstances of the case, the introduction of new kilns in the existing factories creates a new industrial undertaking entitled to relief under s. 5(1)(xxi) of the WT Act, 1957 ?

Counsel Appeared

G. S. Jetly with S. V. Naik, for the Revenue : R. J. Kolah i/b M/s Payne & Co., for the Assessee

BHARUCHA, J.:

This reference is made at the instance of the Revenue and raises the following two questions:

“(1) Whether, on the facts and in the circumstances of the case, the introduction of new kilns in the existing factories creates a new industrial undertaking entitled to relief under s. 5(1)(xxi) of the WT Act, 1957 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing relief under s. 5(1)(xxi) of the WT Act, 1957, on the ground that in the assessee’s case, the words ‘after the commencement of the Act’ occurring in the said s. 5(1)(xxi) can only mean after the commencement of the operation of the said Act in respect of the assessee- company, namely, 31st July, 1956, being the first valuation date, and not after 1st April, 1957, when the said Act came into force ? “

So far as the first question is concerned, counsel are agreed that in view of the judgment of this Court in the assessee’s own case, CIT vs. Associated Cement Companies Ltd. (1979) 118 ITR 406 (Bom), it must be held that the introduction of new kilns in the existing factories created a new industrial undertaking and that these would be entitled to relief under s. 5(1)(xxi) of the WT Act, 1957, if the conditions of that provision were satisfied. The question is so answered.

As regards the second question, the Tribunal, relying, apparently, upon the headnote of the judgment of the Supreme Court in CWT vs. Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC), accepted the contention that “so far as the assessee is concerned, the WT Act, though it came into force from 1st April, 1957, it is the specific net wealth on the valuation date that was computed and taxed”. It is apparent that there are some words missing in this sentence in the Tribunal’s judgment. In the statement of the case, it is stated that “the Tribunal had interpreted the particular requirements, viz.. ‘after the commencement of the WT Act’ (in s. 5(1)(xxi)) as meaning after the commencement of the operation of the WT Act in respect of the company, as on the valuation date, viz., 31st July, 1956, and not as on the date of 1st April, 1957, when the WT Act came into force.” We shall proceed upon the basis of what is stated as aforesaid in the statement of the case.

It is necessary, first, to set out the provisions of s. 5(1)(xxi) of the WT Act, 1957, and the second proviso thereto : “5. (1) Wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee -… (xxi) that portion of the net wealth of a company established with the object of carrying on an industrial undertaking in India within the meaning of the Explanation to cl. (d) of s. 45, as is employed by it in a new and separate unit set up after the commencement of this Act by way of substantial expansion of its undertaking: …… Provided further that this exemption shall apply to any such company only for a period of five successive assessment years commencing with the assessment year next following the date on which the company commences operations for the establishment of such unit.”

It will be seen that s. 5(1)(xxi) of the WT Act, 1957, applies only if the new and separate unit has been set up by the assessee “after the commencement of this Act”. If this condition is satisfied, under the terms of the second proviso, the exemption given applies “for a period of five successive years commencing with the assessment year next following the date on which the company commences operations for the establishment of such unit.”

In the aforementioned case of Ramaraju Surgical Cotton. Mills Ltd. (supra), the Supreme Court considered the threshold requirement in the substantive portion of the said cl. (xxi) of sub-s. (1) of s. 5. It held that a unit could not have been set up, unless it was ready to discharge the function for which it was being set up. It was only when the unit had been put into such a shape that it could start functioning as a business or a manufacturing organisation that it could be said that the unit had been set up. At the same time, setting up was a stage anterior to the commencement of the factory. The Supreme Court then went on to consider the terms of the second proviso to the said cl. (xxi). It said that the applicability of the proviso had to be decided by finding out when the company commenced operations for the establishment of the unit, which operations had to be antecedent to the actual date on which the unit was held to have been set up for the purpose of the principal clause. It was in the context of the second proviso that the Supreme Court said thus : “Since the Act (that is, the WT Act, 1957), came into force on 1st April, 1957, the financial year 1957-58 was the first assessment year for which tax became chargeable, and, consequently, for the purposes of the second proviso to s. 5(1)(xxi), the assessment year following the commencement of operations for establishment of the unit in the case of any company which commenced the operations any time before the 1st day of April, 1957, will be the asst. yr. 195758. Prior to the year 1957-58, there was no assessment year as defined under the Act and, consequently, the first assessment year for which exemption could be claimed was this asst. yr. 1957-58.” This judgment of the Supreme Court is, therefore, not an authority for the proposition that the words “after the commencement of the WT Act” in the said cl. (xxi) of sub-s. (1) of s. 5 mean after the commencement of the operation of the WT Act, 1957, in respect of the company as on the valuation date, namely, 31st July, 1956, and not on the date 1st April, 1957, when the said Act came into force. There was no dispute before the Supreme Court that the words “after the commencement of this Act” in the said cl. (xxi) mean anything other than what they ordinarily mean, namely, that this date was 1st April, 1957.

We have, in this view of the matter, to answer the second question in the negative and in favour of the Revenue.

We express the hope that the Tribunal, shall apply to the facts that it finds the position in law stated above and shall then decide whether the assessee is entitled to relief under s. 5(1)(xxi) of the WT Act, 1957.

No order as to costs.

[Citation : 169 ITR 294]