9911796707
TMI Blog1973 (5) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... c soda and the plant was housed in a separate building. In assessing the company for the relevant year the Income-tax Officer held that the plant was ancillary to the main manufacturing unit and was not, therefore, a new industrial undertaking as contemplated under section 15C of the Indian Income-tax Act, 1922. The Income-tax Officer also held that as no part of the caustic soda manufactured was sold to any outsider no profit had been derived from the said plant and, therefore, no relief under section 15C was allowable to the assessee. There was an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner observed that the business of manufacture of caustic soda was merely a process of reconstruction of the existing business of manufacture of paper. The Appellate Assistant Commissioner observed that no sale had taken place of the caustic soda to the outside market. The Appellate Assistant Commissioner observed further that the business of the appellant was manufacture of paper. Caustic soda being an essential chemical for manufacture of paper, the assessee-company had set up plant for manufacture of caustic soda so as to avoid purchasing the same fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grant requisite relief to the assessee after verifying the figures and allowed the appeal of the assessee. Upon this an application having been made, the aforesaid question has been referred to this court under section 66(2) of the Indian Income-tax Act, 1922. The facts found in this case lie in a very short compass. These are as follows: (1) Caustic soda is a chemical; (2) Such caustic soda is essential in the process of manufacturing paper; it is a raw material needed for the manufacture of paper; (3) The assessee has obtained a separate licence for the manufacture of caustic soda; (4) The plant for manufacture of caustic soda had been housed in a separate building; (5) Previously the assessee used to purchase caustic soda from the market for use in the process of manufacture; (6) Caustic soda manufactured by the assessee from the plant was used in the manufacture of the paper which is the ultimate product produced by the assessee ; and (7) From the computation placed before the Tribunal, it appears that it was possible to indicate how much capital was employed in the setting up of this plant and what would be the amount of 6 per cent. of the capital for the setting up o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of caustic soda, was formed by reconstruction of the business already in existence it was urged that the assessee's business was production of paper. In doing that business the assessee in the past was buying caustic soda from the market and instead of doing that it is now produced by the assessee in the plant or factory set up for that purpose. It was, therefore, urged that the business had remained the same and as such the only thing that had happened was that there was reconstruction of the business or different method of carrying on the same business. In support of this reliance was placed on a Division Bench decision of this court in the case of Commissioner of Income-tax v. Textile Machinery Corporation. There, it was held that the words "industrial undertaking" in the Indian Income-tax Act, 1922, should be interpreted to mean any venture or enterprise which a person undertook to do and it had relation to some industry or had some industrial consequences. The notion of an undertaking basically meant that it had got, to be a concrete and tangible venture in the path of industry to make it an industrial undertaking. In that case the assessee, Textile Machinery Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the same could be ascertained as the assessee was maintaining separate books of account. It was held by the High Court on a reference that on an interpretation of section 15C of the Act, the industrial undertaking must be such where some capital was employed and which was separate to the extent as to show how much a six per cent. return on it would be in order to merit or qualify for the exemption from tax under section 15C. In other words, this industrial undertaking should not be such where it would be difficult to find the capital employed or where it was part and parcel of the general capital employed otherwise by the assessee. This employment of the capital need not be formal in the sense of actually raising the capital and putting it into the new industrial undertaking, but, nevertheless, there should be a definite employment of capital in that undertaking and that is one of the requirements of the section. The idea of this factor of capital being employed in that undertaking to qualify for exemption under section 15C was to introduce a kind of separateness to that undertaking which could be taken by itself apart from the general context of the business or industry of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had not shown that the number of persons employed in the business or the percentage of profits fell within the limit s specified in section 15C. The newness of the machinery in the steel division and the jute mill division could not by itself make them new industrial undertakings. Separate housing of, and separate accounts for, the steel foundry division and jute mill division might be parts of reconstruction of the same business and did not necessarily indicate a new industrial undertaking. The grant of a special licence for the steel foundry division did not make it an industrial undertaking to qualify for exemption from the tax under section 15C, because the licence was for expansion of the existing industrial undertaking and the licence did not cover the jute mill division. Counsel for the revenue contended that this was an authority for the proposition that, where there was a replacement of purchase by setting up of a unit or factory, such a process of replacement would come within the meaning of reconstruction as contemplated in clause (i) of sub-section (2) of section 15C of Indian Income-tax Act, 1922. It was urged, therefore, in the facts of the instant case that it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the revenue in their extreme form. No doubt, an assessee which is a company doing its business under its memorandum of objects and articles of association has to do its busness within its charter but then the charter contains usually numerous objects in the memorandum and the articles and it is common knowledge that such a company often carries on business only in one or two or even more objects of the company and not in other objects stated in the memorandum of articles. Therefore, if it starts an industrial undertaking, no doubt within its objects and charter, then it can, in an appropriate case, claim exemption under section 15C of the Indian Income-tax Act, 1922, 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)(i) describes a number of objects by which a 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that for the purpose of getting advantage of section 15C, the sine qua non was that the assessee had established or commenced a new undertaking, which might either take the shape of reconstitution, reformation, reincorporation, on the one band, or a new production unit or separate business, on the other. It was observed that the separate business need not be a different kind of business. The commodity which the original produced, manufactured or sold might be a relevant factor in finding out whether the subsequent business was an extended business or an independent business. The court referred to the legal meaning of the term " reconstruction " and observed that it was' a mixed question of law and fact and it would be incorrect to say that reconstruction must include or exclude all kinds of expansion irrespective of the nature, constitution or character of subsequent undertaking. The Madras High Court in the case of Rajeswari Mills Ltd. v. Commissioner of Income-tax had also considered this question. There the assessee-company was incorporated in 1946 to carry on business in cotton, jute,yarn, silk, cloth etc. Machinery for the weaving of silk cloth was purchased and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of the business already in existence must be in relation to the new industrial undertaking. Further, the new industrial undertaking must not be by transferring building, plant or machinery of the existing business. Sub-section (1) requires separate capital but not new or different capital. But whether a new industrial undertaking is entitled to exemption under section 15C of the Act must depend upon the facts and circumstances of each case. We have set out the essential facts of this case. It was the case of an assessee beginning to produce raw materials of a type which was capable of being available in the market independently and which was also capable of being sold in the market and the assessee has set up a new and separate unit for the same in a separate building and has obtained a separate licence for it. It must be noted that setting up of a factory or a plant for the manufacture of caustic soda was not an essential or ingredient part for the setting up of the plant and machinery for paper manufacture. It is true that caustic soda is essential for the manufacture of paper but setting up of a plant for the manufacture of caustic soda is not an essential ingredient for pap ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
