1977 (7) TMI 36 - HC - Wealth-tax

Summary

Issues:
1. Deductibility of provision for gratuity in computing net wealth under Wealth-tax Act.
2. Exemption eligibility for investment in a new unit under section 5(1)(xxi) of the Wealth-tax Act.

Analysis:

Issue 1: Deductibility of provision for gratuity
The court referred to previous Supreme Court decisions stating that estimated liability for gratuity is not deductible in computing net wealth. The assessee's claim for deduction related to provisions for gratuity was rejected based on these precedents. The court did not delve into the specifics of this issue due to the established legal position.

Issue 2: Exemption eligibility for investment in a new unit
The assessee sought exemption under section 5(1)(xxi) for an investment in a new rayon plant. The contention was that the unit was set up after the commencement of the Wealth-tax Act, making it eligible for exemption. The Wealth-tax Officer, Appellate Assistant Commissioner, and Tribunal rejected the claim, stating that the unit was established before the Act's commencement. The Tribunal also dismissed the plea for proportionate exemption for post-Act setup. The assessee argued that the unit was not set up until full production capacity was reached post-Act commencement.

The court analyzed the meaning of "set up" in the context of the Act, citing precedents from the Income-tax Act. It noted that setting up precedes commencement of business and concluded that the unit was indeed set up before the Act's commencement based on the production start date and completion of the factory. The court emphasized that the unit was considered set up when production began, even if all machines were not installed. Consequently, the assessee's claim for exemption was denied, and no proportionate exemption was granted for post-Act setup.

In conclusion, the court ruled against the assessee on the exemption claim, affirming the revenue's position. The assessee was directed to bear the costs.