9911796707
TMI Blog1972 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at Muri and also there were additional extensions to the existing factories at Belur and Alupuram. In connection with the assessment year 1960-61 the assessee company had claimed relief under section 15C before the Income-tax Officer in respect of fresh capital outlay at Muri as well as additional investment in the form of extension to the existing factory premises, installation of new plants and machineries, etc., at Alupuram and Belur. The Income-tax Officer discussed the relief under section 15C in respect of the unit at Hirakud but lid not deal with the other three units in dispute. He has, however, refused to grant any relief to the assessee-company in respect of all the said four units. In the appeal before the Appellate Assistant Commissioner the company claimed relief under section 15C in respect of only three units at Alupuram, Belur and Muri. On the basis of the records in the earlier years the Commissioner disallowed the relief under section 15C in respect of Alupuram and Belur units. With respect to the unit at Muri the Commissioner has found that the assessee has already a manufacturing unit at Muri which was only expanded in the accounting year. In the premises he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction " of the assessee-company's earlier business within the meaning of section 15C(2)(i). Exemption under section 15C of the Act, Mr. Pal has therefore argued, cannot be granted to the extensions of original business of the assessee at Belur, Alupuram and Muri. Mr. Banerjee, on behalf of the assessee, has however, argued that the proposition of law laid down in Commissioner of Income-tax v. Textile Machinery Corporation is a judgment of a court of co-ordinate jurisdiction and, as such, not binding upon this court. He has submitted that if this court feels that we are bound by the law laid down in the said decision then the present reference should be referred to a larger Bench. Alternatively, he has argued that, in any event, the facts of the present case can be distinguished on material points. He has also laid great emphasis on the main ground that the Tribunal has not erred in arriving at the conclusion inferred from certain basic or primary facts as found by the Tribunal. Reference has been made to the judgment, Commissioner of Income-tax v. Textile Machinery Corporation, by the counsel for both the parties and I have no hesitation in stating that Mukharji C.J. has discusse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is spread out. (d) An extension of business transactions, an increase of the circulating medium. According to Mr. Pal the word " reconstruction " includes expansion of the original existing business. He concedes that a new industrial undertaking cannot be called a " reconstruction of business already in existence ", within the meaning of section 15C(2)(i). He has relied upon the observations of the learned Chief Justice in Commissioner of Income-tax v. Textile Machinery Corporation where, after discussing the difference between reconstruction of a company and reconstruction of a business, the learned Chief Justice has stated at page 448 : " Here, the commercial content of reconstruction is much wider when we are considering the reconstruction of a business. Such reconstruction need not be occasioned by any embarrassment with a company's creditors or members but may involve, as a matter of commercial development or commercial expediency, many considerations as of improvement, rationalization. prevention of waste or delay in the work of the business itself, or automation or mechanisation." The learned Chief Justice has made the said observations in connection with his discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt separate entity or one which is formed by the splitting up or the reconstruction of the assessee's original business or by the transfer of building, machinery or plant to such new business. Thus, for the purpose of getting advantage of section 15C the sine qua non is that there must be the assessee's original business and that the assessee has established or commenced a new undertaking, which may take the shape of reconstitution, re-formation, reincorporation on the one hand or new production unit or separate business, on the other. The separate business need not be a different kind of business. The commodity, which the original business produces or manufactures or sells may be a relevant factor in finding out whether the subsequent business is the expanded business or an independent business. But, such factor by itself cannot be the determining factor. In a wide sense, the expanded business and the separate business are both cases of expansion inasmuch as the assessee-company controls both such undertakings. But if we accept the narrow meaning of " expansion " obviously " expansion " means improvements of or additions to or extensions of the original business. It may be added h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. The juridical meaning of the said word will be spelt out from the dictionary meaning if however the dictionary meaning is not inconsistent with other legal principles. The additional reasons why dictionary meaning should be accepted may now be discussed. Section 15C provides for a statutory relief to an assessee who has an original business but establishes an industrial undertaking which is not formed by the splitting up or the reconstruction of business already in existence or by the transfer to a new business of building, machinery or plant used in the original business. All the three cases contemplated under section 15C(2)(i) lay emphasis on the fact that the subsequent industrial undertaking is substantially the continuation or reorientation or rationalization of the original business in different shape or form. The new, form or shape must be an industrial undertaking inasmuch as the relief in section 15C has been granted only to an industrial undertaking. It may be added here that unlike in Commissioner of Income-tax v. Textile Machinery Corporations Ltd. in the present case, the counsel for the revenue does not argue that the new units are not " industrial undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units of similar or different nature as a result of which the original business of the assessee does not intrinsically alter its original character or continues to produce, manufacture or carry on the original activity in the same way even after the establishment of subsequent undertakings, the latter may be called extensions of such a nature which may be called a kind of new industrial undertaking which is entitled to get tax relief. Thus whether the term " reconstruction " would include the case of substantial extensions or expansions of the assessee's original business so :as to invoke the benefit or mischief under section 15C would depend upon the facts of each case. Exemption under section 15C would only be available to those industrial undertakings which are not established by division or reorientation of the assessee's original business or which has not been formed by the transfer to it of building, machinery or plant used in the assessee's original business. The emphasis should be laid on the words " is formed by " and not the form of subsequent undertaking. To obtain relief under section 15C, the subsequent undertaking must not be formed or constituted by remodelling or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of an existing industrial undertaking which substantially increases the productive capacity of the undertaking, or which is of such a nature as to amount virtually to a new industrial undertaking but does not include any such expansion as is normal to the undertaking having regard to its nature and the circumstances relating to such expansion. Similarly in 1957 the Wealth-tax Act came into effect and under section 5(1)(xxi) of the Act, the taxpayer was granted tax relief in cases of "' 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 section 45(d), as is employed by it in a new and separate unit set up after the commencement of the Act by way of substantial expansion of its undertaking ". But the assessee is debarred from this relief if the case of the assessee comes within the mischief of the said Explanation which is in pari materia with the exceptions mentioned in section 15C(2)(i) of the Indian Income-tax Act, 1922. Thus, though the concept of " substantial expansion " has been put in the statute book in 1951 and 1957, the legislature did not choose to mention the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new undertaking under section 15C of the Indian Income-tax Act, 1922. For the reasons stated above I hold that substantial expansion of an assessee's original business cannot be called " reconstruction " within the meaning of section 15C(2)(i), unless there is a finding of fact that the subsequent industrial undertaking is really a fresh formation, resuscitation, reorganization, revival of or resumption to the assessee's earlier business, or that the expansions are of normal and minor nature. It is now for me to discuss how far the principles laid down above apply to the facts of the present case. Commissioner of Income-taz v. Textile Machinery Corporation is clearly distinguishable. In the said case the assessee, Textile Machinery Corporation, was a heavy engineering industry manufacturing boilers, machinery parts, wagons, etc. The said company had its steel foundry division and jute mill division. For the assessment years 1958-59 and 1959-60 the assessee claimed exemption from tax under section 15C in respect of the profits derived from the steel foundry division and for the year 1959-60 for its jute mills division also. The Income-tax Officer came to the conclusion that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot by itself lead to the conclusion that they are extensions of such a nature which can be called a new industrial undertaking. But, taking into consideration all the facts together the extensions are of a very substantial nature which lead me to come to no other conclusion than to hold that they are new industrial undertakings of the assessee. Secondly, unlike the case of Commissioner of Income tax v. Textile Machinery Corporation , the undertakings at Belur, Alupuram and Muri were not set up with a view to manufacture parts for being used in the original business of the assessee. In fact, the manufacturing plants at Belur, Alupuram and Muri were working since before 1948. Thirdly, the learned judges of the said case took into consideration the fact that a licence was required under the Industries (Development and Regulation) Act, 1951, and the Registration and Licensing of Industrial Undertakings Rules, 1952, framed under the Act. Under rule 15 of the said rules a licence has to be obtained from the Central Government for effecting a substantial expansion of the undertaking. Section 15C of the Income-tax Act, 1922, came into the statute book in 1949, whereas the Industries (Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision accepted the finding of the Appellate Assistant Commissioner there and has made the following observations at page 438: " Now, reconstruction is again a very general and wide term. The fact here is that the goods which this jute mill division and the steel foundry division are producing now for the assessee were also previously used by the assessee in its business but they were purchased from outside and what has happened now is that this purchase from outside is replaced by production or manufacture from within their own business. The question then is, is it or is it not a reconstruction of the existing business. The expression, ' business already in existence ', in this context, must necessarily mean and include the purchase of goods in the outside market for the simple reason that they were used for the business of the assessee. It was a part of the business of the assessee to run its business and, for that purpose, if necessary, to get its goods even from outside. The business therefore, remained the same. The method of procurement of the goods has changed. Instead of procuring from outside, they were being manufactured from within by the assessee itself under these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 434: " ... The assessee is a heavy engineering concern manufacturing boilers, etc. The parts manufactured by the steel foundry division and the jute mill division being essential for the boiler division, these two divisions, viz., the steel foundry and the jute mill divisions, were set up by the assessee so as to avoid purchasing such parts from outside ... these two units of steel foundry and jute mill divisions were set up with a view to manufacturing parts for being used in the manufacture of boilers, etc., which was the existing business of the appellant the business remained the same and all that had happened was reconstruction as mentioned above." The Tribunal, however, decided against the decision of the income-tax authorities by relying on the following facts at page 434: " The machinery was new, housed in a separate building and that industrial licences had to be obtained for manufacturing the parts in question. New machinery, housed in a separate building and industrial licence were the three reasons shown by the Tribunal to come to the conclusion that they were separate business. The Tribunal was of the opinion that these two divisions were not reconstructions of exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applied to the facts of the present case. Here the additions or extensions in the subsequent undertakings at Belur, Alupuram and Muri are not establishments for the purpose of running the assessee's original business and, as such, it cannot be said that they are not new industrial undertakings. It is true that in a sense it cannot be said to be an absolutely independent industrial undertaking nor can it be urged that the said subsequent extensions at Belur, Alupuram and Muri are only formed by way of reconstruction of the assessee's original business. As already stated, a decision as to the connotation of the term " reconstruction " is a mixed question of law and fact; the findings of fact in the present case are of such a nature that, in my opinion, the Tribunal has come to the right conclusion. In this connection, reference may be made to the observations of Mukherji J., as he then was, in Ganga Metal Refining Co. v. Commissioner of Income-tax , where the learned judge has relied on Lord Halsbury's dictum in (Quinn v. Leathem that a case is an authority for the proposition it decides and not for the proposition that was either assumed or seemed to follow from such decision. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and in the appeal also this disallowance was upheld. In this year for the same reasons relief under section 15C in respect of the Alupuram and Belur units will not be allowed. As regards Muri unit the matter was not argued in detail. Here also I find that the assessee has already a manufacturing unit at Muri . This unit was expanded in the accounting year. Therefore, section 15C relief is not admissible on the expansion made in an existing unit. Therefore, the Income-tax Officer was justified in not allowing section 15C relief in respect of the throw units claimed." The assessee preferred a further appeal to the Income-tax Appellate Tribunal. The Tribunal following its own decision in respect of the assessment years 1956-57 to 1959-60 (I.T.As. Nos. 10183 to 10186 of 1960-61) allowed the assessee's claim in respect of the additional investments at Belur and Alupuram. It appears from the said earlier order of the Tribunal, a copy whereof has been made a part of the case and included in the annexure " B " at pages 11 to 15 of the paper book, that the Tribunal had asked the assessee to present before the Tribunal a complete statement regarding the various units and full details ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or less of the same nature as has been mentioned in our order relating to the preceding years mentioned above. The facts and circumstances relating to the assessment year in question being the same as that prevailing during those years, which came in appeal before the Tribunal, the decision arrived at by the Tribunal then must prevail even now for this unit. In the result we order that the capital employed now in the units at the three places have to be computed in accordance with the law and the statutory percentage of tax exemption admissible in question shall be grant ed to the assessee." The Commissioner applied before the Tribunal for a reference to this court and the application of the Commissioner was rejected by the Tribunal. The Commissioner, thereafter, moved this court and directed by this court the Tribunal has referred the following question: " Whether, on the facts found by the Tribunal or on record and in the circumstances of the case, the Tribunal was justified in holding that section 15C of the Indian Income-tax Act, 1922, was applicable to the new production units added to the existing production units of the assessee at Belur, Alupuram and Muri in respect of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banerjee has pointed out that the Tribunal in its order has recorded the following findings: A-In respect of undertaking at Belur- (i) There are six different buildings (ii) Total accommodation is 27,560 sq. ft. (iii) 12 different categories of machinery (iv) Capital employed over Rs. 50,00,000 (v) Production went up by double (vi) Government of India granted import licence and released foreign exchange. B--In respect of undertaking at Alupuram- (i) 4 different buildings (ii) Total accommodation 21,360 sq. fit (iii) 10 categories of machinery (iv) Capital employed little over Rs. 50,00,000 (v) Production went up by double (vi) Government of India granted import licence and released foreign exchange. C--In respect of undertaking at Muri- (i) Three different buildings (ii) Total accommodation 19,000 sq. ft. (iii) Six different categories of machinery (iv) Total quantity of production went up by 6,000 to 8,000 tonnes. (v) Government of India granted import licence and released foreign exchange. (vi) Capital employed Rs. 55,70,000. Mr. Banerjee has argued that on a consideration of the above facts the Tribunal rightly felt convinced that the assessee had fulfil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units and even after formation the said business had continued to remain. It is the argument of Mr. Banerjee that before the formation of these units in question at Belur, Alupuram and Muri, the assessee was carrying on its business of manufacturing aluminium ingots from ores in the other units of production which were already in existence then and the said old units of production remained the same and were not in any way affected and the new units were not formed by any re-construction of the old existing units. As the old units of production remained unaffected and the new units were not set up by any reconstruction of the old existing units, the new units, argues the learned counsel, can never be said to have been formed by reconstruction of the business in existence. Mr. Banerjee has referred to the dictionary meaning of the word " reconstruction ". In Webster's New Twentieth Century Dictionary of the English Language, 2nd edition, the meaning attributed to the word " reconstruction " is " the act of constructing again ". In The Shorter Oxford English Dictionary, 3rd edition, the meaning given is " the action or process of reconstructing instance or example of re-constructing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute and it has not been disputed before us that the new units which have been set up by the assessee constitute industrial undertakings within the meaning of section 15C of the Act. It has been contended before us that these undertakings which have. been set up by the assessee are not entitled to any benefit under section 15C of the Act, as these undertakings of the assessee, though they are industrial undertakings, have been formed by the reconstruction of business of the assessee already in existence. This is the only contention which has been raised on behalf of the department. In support of this contention, the argument has been that these undertakings constitute and are in the nature of substantial expansion or extension of the existing business of the assessee and must, therefore, be considered to be industrial undertakings formed by the reconstruction of business already in existence by virtue of the decision of the Division Bench in the case of Commissioner of Income-tax v. Textile Machinery Corporation. It has been submitted on behalf of the department that the said decision of the Division Bench concludes the matter. Before considering the said decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and the only contention is that these industrial undertakings of the assessee are not entitled to the benefit of section 15C as these undertakings have been formed by the reconstruction of business already in existence and section 15C has, therefore, no application to these undertakings of the assesme. I now proceed to consider the decision of the Division Bench in the case of Commissioner of Income-tax v. Textile Machinery Corporation. As the learned counsel for the department has made his submissions entirely on the basis of this decision and rested his case thereon, it becomes necessary to consider the said decision in some detail. The material facts of the case as recorded in the judgment appear to be as follows: Textile Machinery Corporation Ltd., the assessee, was a heavy engineering concern manufacturing boilers, machinery parts, wagons, etc. In the assessment years 1958-59 and 1959-60, the assessee claimed exemption from tax under section 15C in respect of profits and gains derived from its steel foundry division, and for the year 1959-60, for its jute mill division also. The Income-tax Officer found that the castings made by the steel foundry division were being used m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal came to the conclusion that the assessee had established that the steel foundry division was a new industrial undertaking, not formed by the splitting up or reconstruction of an already existing business. The Tribunal also held that profits could be earned by the steel foundry division even though its manufacturing products were mostly utilised in the assessee's other business of manufacturing wagons, boilers, etc. The Tribunal held that the assessee was entitled to exemption under section 15C of the Indian Income-tax Act, 1922, both in respect of its steel foundry division and the jute mill division. The Tribunal referred three questions to this court under section 66(1) of the Indian Income-tax Act, 1922. Of the three questions the following first two questions are relevant. "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the steel foundry division was an industrial undertaking to which section 15C of the Indian Income-tax Act, 1922, applied ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of jute mill division and amounting to Rs. 1,13,697. It is recorded that the assessee admitted that, so far as the products of the jute mill parts were concerned, the company was in an initial and an experimental stage only and whatever profit was earned under the jute mill division is in respect of the work done on behalf of the boiler division. The Appellate Assistant Commissioner found the following facts. The assessee is a heavy engineering concern manufacturing boilers etc. The parts manufactured by the steel foundry division and the jute mill division being essential for the boiler division, these two divisions, viz., the steel foundry division and the jute mill division, were set up by the assessee so as to avoid purchasing such parts from outside. He, therefore, records the fact that these two units of steel foundry division and jute mill division were set up with a view to manufacturing parts for being used in the manufacture of boilers, etc., which was the existing business of the appellant. His conclusion, therefore, was that the business remained the same and all that had happened was reconstruction as mentioned above. The Tribunal in coming to this conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rements are complied with. The learned Chief Justice observed at pages 438-440 : " The next step in the interpretation is of the word reconstruction and of the expression business already in existence used in section 15C(2)(i) of the Income-tax Act, 1922. Now, reconstruction is again a very general and wide term. The fact here is that the goods which this jute mill division and the steel foundry division are producing now for the assessee were also previously used by the assessee in its business but they were purchased from outside and what has happened now is that this purchase from outside is replaced by production or manufacture from within their own business. The question then is, is it or is it not a reconstruction of the existing business. The expression ' business already in existence ', in this context, must necessarily mean and include the Purchase of goods in the outside market for the simple reason that they were used for the business of the assessee. It was a part of the business of the assessee to run its business and, for that purpose, if necessary, to get its goods even from outside. The business, therefore, remained the same. The method of procurement of the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business only in one or two or even more objects of the company and not in other objects stated in the memorandum or articles. Therefore, if it starts an industrial undertaking, no doubt within its objects and charter, their it can, in an appropriate case, claim exemption under section 15C of the Indian Income-tax Act and say that it is not business already in existence but it is permitted by the charter but which had not been undertaken so far but is now being undertaken. For instance, in this very case in the memorandum of objects and articles of association clause 3(1) describes a number of objects by which the company is authorised to carry on business, namely, ' to carry on the business of manufacturing machinery, engines, turbines, tanks, ships, bodies, tools, implements, accessories, equipments and other materials and products in India and elsewhere '. Now, this assessee, the Textile Machinery Corporation, is not manufacturing ships at the moment. Suppose it does, it will be within its objects and in that event if it otherwise satisfies the requirements of the statute then such a new industrial undertaking of shipbuilding, within the charter of objects, will be entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness. Such reconstruction need not be occasioned by any embarrassment with a company's creditors or members but may involve, as a matter of commercial development or commercial expediency, many considerations as of improvement, rationalization, prevention of waste or delay in the work of the business itself, or automation on mechanisation." Dealing with the provisions of the Industries (Development and Regulation) Act, 1951, the Wealth-tax Act, 1957, and the Indian Income tax Act, 1922, at page 453, the learned Chief Justice has observed : " The conclusion is irresistible, therefore, that under the Indian Income-tax Act, 1922, and the Wealth-tax Act, 1957, the concept of substantial business expansion under the Industries (Development and Regulation) Act, 1951, is not recognised. We are, therefore, bound to hold that these statutes do not help the assessee in this case for relief under section 15C of the Indian Income-tax Act, 1922." I have quoted in extenso the above observations of the learned Chief Justice, as it has been contended on behalf of the revenue that the aforesaid observations of the learned Chief Justice clearly establish that any substantial expansion of the exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking started by a company carrying on its existing business could at all claim exemption because it would be only carrying on business within its charter of incorporation and would, therefore, be a " business already in existence ". The example of Textile Machinery Corporation starting the business of manufacturing ships was given by the learned Chief Justice to meet the argument of the revenue and cannot, in my opinion, be construed to suggest that unless an entirely different kind of business from the one already carried on by the assessee is done by the newly established undertaking of the assessee, the newly established undertaking of the assessee will not be entitled to claim the benefit of section 15C. It is of interest to note that the learned Chief Justice was not considering the question of any expansion of the existing business of the assessee by the establishment of any new, separate and independent production units of manufacture and production of the same commodity. The learned Chief Justice was considering the case where industrial undertakings have been started by the assessee for manufacture of goods which the assessee needed in the manufacture and production o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(xxi) of the Wealth-tax Act excludes ' 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 clause (d)section 45, as is employed by it in a new and seperate unit set up after the commencement of this Act by way of substantial expansion of its undertaking. " I have earlier noted the observations made by the learned Chief Justice at page 448 on the aspect of commercial content of reconstruction in course of which the learned Chief Justice has mentioned that it " may involve, as a matter of commercial development or commercial expediency, many considerations as of improvement, rationalisation, prevention of waste or delay in work of the business itself or automation or mechanization ". Judged by any of the aforesaid tests laid down by the learned Chief Justice, the industrial undertakings in the shape of new and independent units of production, set up by the assessee cannot, in my opinion, be said to have been formed by reconstruction of business already in existence. The decision of the Division Bench in the case of Commissioner of Income-tax v. Textile Machinery Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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