1962 (12) TMI 65 - HC - Income Tax

Summary

Issues Involved:

1. Whether the sum of Rs. 44,617 derived from the company's spinning operations is exempt from payment of tax under section 15C of the Income-tax Act for the assessment year 1956-57.
2. Whether the spinning department established by the company in the assessment year 1952-53 qualifies as a newly established industrial undertaking under section 15C.
3. Whether the spinning mill is a distinct industrial undertaking separate from the previously established silk weaving business.
4. Whether the spinning mill constitutes a reconstruction of the existing silk weaving business.

Issue-wise Detailed Analysis:

1. Exemption under Section 15C:

The primary question referred to the court was whether the sum of Rs. 44,617 derived from the company's spinning operations, which commenced on March 24, 1951, is exempt from tax under section 15C of the Income-tax Act for the assessment year 1956-57. The assessee claimed that the spinning department, established in the assessment year 1952-53, was a newly established industrial undertaking and thus entitled to the exemption. The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal all rejected this claim, viewing the spinning operations as part of the textile mill started in 1949, thereby disqualifying it from the exemption for the year in question.

2. Qualification as a Newly Established Industrial Undertaking:

The company argued that the spinning department was a distinct and newly established industrial undertaking. The Tribunal, however, held that the spinning operations were merely a continuation or reconstruction of the existing textile business, which included silk weaving. The Tribunal noted that the company had sought permission to use cotton yarn on the looms initially intended for silk weaving, and the losses from the weaving department were set off against the spinning department's income, indicating a single business entity.

3. Distinction from Silk Weaving Business:

The assessee contended that the spinning mill was entirely separate from the silk weaving business, with different machinery, separate buildings, and no interdependence. The Tribunal, however, observed that there was no separate capital allocation, and major expenses were not distinctly allocated between the two departments. The Tribunal concluded that the spinning mill was not a distinct industrial undertaking but part of the same textile business.

4. Reconstruction of Existing Business:

The Tribunal and lower authorities also considered whether the spinning mill was a reconstruction of the existing silk weaving business. They concluded that the spinning operations were a continuation or reconstruction of the textile business started in 1949. The court, however, disagreed, stating that the spinning mill was a distinct industrial undertaking, not merely a reconstruction of the existing business. The court emphasized that the spinning mill had separate buildings and machinery and operated independently from the weaving mill.

Judgment:

The court concluded that the spinning mill was a distinct industrial undertaking, separate from the silk weaving business. The court rejected the Tribunal's view that the spinning mill was a reconstruction of the existing business. The court held that the spinning mill qualified for the exemption under section 15C of the Income-tax Act for the assessment year 1956-57. The question was answered in favor of the assessee, granting the exemption and awarding costs of Rs. 250 to the assessee.