1967 (4) TMI 5 - SC - Wealth-tax

Claim for exemption - assessee claimed before the WTO that it was not liable to pay wealth-tax during the year of account as it was exempted from wealth-tax u/s. 45(d) - WTO was not justified in rejecting the claim on the ground that the assessee was established within the meaning of s. 45(d) and the proviso thereto in November, 1951, and, consequently, the period of five years exemption was over with the assessment years 1956-57 - Assessee s appeal is allowed

Summary

Issues:
1. Interpretation of the term "established" in section 45(d) of the Wealth-tax Act, 1957.
2. Application of the exemption from tax for the assessment years 1957-58, 1958-59, and 1959-60.
3. Distinction between the terms "established," "incorporated," and "registered" in the Act.

Detailed Analysis:

1. Interpretation of the term "established":
The primary issue in this case revolved around the interpretation of the term "established" in section 45(d) of the Wealth-tax Act, 1957. The High Court held that the exemption from tax granted to the assessee was not rightly granted as it was established within the meaning of the Act in November 1951. The Income-tax Appellate Tribunal, on the other hand, interpreted "established" to mean when the company's objectives are being achieved, not merely at the time of incorporation. The Supreme Court analyzed previous judgments and concluded that the word "established" should be given the same meaning as in section 5(1)(xxi) of the Act, focusing on when the company commenced operations for the establishment of the unit.

2. Application of the exemption from tax:
The Wealth-tax Officer rejected the assessee's claim for exemption from wealth-tax for the assessment years 1957-58, 1958-59, and 1959-60, stating that the period of five years' exemption had expired. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal had differing views on the interpretation of "established." The Supreme Court ultimately held that the assessee was established in December 1953 or January 1954, and the exemption should have been granted for the assessment years 1957-58 and 1958-59, except for the year 1959-60.

3. Distinction between terms in the Act:
The Supreme Court highlighted the distinction between the terms "established," "incorporated," and "registered" in the Act. It emphasized that if the legislature intended incorporation, it would have used that term instead of "established." The Court also referred to a previous case to support its interpretation of "established" as meaning the company being ready to discharge its intended functions. The judgment clarified that "established" should be understood in the context of the company's operational readiness, not just its formal registration or incorporation.

Overall, the Supreme Court allowed the appeal, stating that the assessee was entitled to the exemption for the assessment years 1957-58 and 1958-59 but not for 1959-60. The judgment provided a detailed analysis of the term "established" in the Act, emphasizing operational readiness over mere formal establishment, and clarified the application of tax exemptions based on the company's timeline of operations.