1962 (3) TMI 90 - HC - Income Tax

Summary

Issues:
Interpretation of the term "set up" in section 5(1)(xxi) of the Wealth-tax Act, 1957 for exemption eligibility.

Analysis:
The case involved a reference application under section 27 of the Wealth-tax Act, 1957, questioning the exemption eligibility of an asset worth Rs. 1,43,727 under section 5(1)(xxi) of the Act. The company had established a new spinning unit with 6,000 spindles, and the main contention was whether this unit was "set up" after the commencement of the Act. The department disallowed the exemption claim, stating that the unit was set up before April 1, 1957. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this decision, emphasizing the proviso to section 5(1)(xxi) regarding the interpretation of "set up."

The court analyzed the relevant provisions of the Act, including section 2(d) defining "assessment year," section 2(q) defining "valuation date," and section 3 as the charging section. Section 5(1) provides for exemptions, including clause (xxi) related to a new unit set up after the Act's commencement. The court highlighted the importance of the second proviso to section 5(1)(xxi) in determining the period of exemption, which starts from the assessment year following the date of commencing operations for the new unit.

The court delved into the interpretation of the term "set up" in section 5(1)(xxi), drawing parallels from a Bombay High Court decision and concluded that "set up" should mean "ready to commence business." The court clarified that the actual functioning of the factory is not necessary for it to be considered set up, but rather the readiness to commence operations. The court also clarified the scope of the second proviso, emphasizing that the exemption period is tied to the assessment years following the commencement of operations for the new unit.

Ultimately, the court ruled in favor of the assessee, stating that the new spinning unit was set up after the Act's commencement, making it eligible for exemption for the first five successive assessment years from April 1, 1957. The court directed the department to pay costs to the assessee and awarded counsel's fee of Rs. 250.

In conclusion, the judgment provided a detailed analysis of the term "set up" in the context of exemption eligibility under the Wealth-tax Act, emphasizing the readiness to commence business as the defining factor. The court's interpretation of the relevant provisions and the second proviso to section 5(1)(xxi) guided the decision in favor of the assessee.