1964 (3) TMI 3 - HC - Wealth-tax

Setting up of plant - Whether the assessee is entitled to exemption under s. 5(1) of the WT Act for the three asst. yrs. 1957-58, 1958-59 and 1959-60 - Held, Yes

Summary

Issues:
Interpretation of section 5(xx1) of the Wealth-tax Act for exemption eligibility based on the establishment of a new unit after the Act came into force.

Analysis:
The judgment of the Andhra Pradesh High Court addressed the issue of whether an assessee was entitled to exemption under section 5(1) of the Wealth-tax Act for the assessment years 1957-58, 1958-59, and 1959-60. The assessee, a public limited company engaged in sugar manufacturing, set up a cement factory as a separate unit named Messrs. Ramakrishna Cements, Macherla, purchasing machinery in 1954-55 and completing the factory in February 1958 after the Act came into force on April 1, 1957. The department opposed the exemption claim, arguing that the unit was set up before the Act's commencement. The Income-tax Appellate Tribunal disagreed, allowing exemption for 1959-60 but not for the previous years without specifying reasons. Both the department and the assessee appealed to the High Court under section 27 of the Act.

The key issue revolved around the interpretation of the second proviso to section 5(xx1) of the Act, which stated that exemption applied for five successive assessment years starting from the year following the commencement of operations for the new unit. The department argued that the five-year period should begin from the unit's establishment date, not exceeding five years from the commencement of operations. However, the Court rejected this interpretation, emphasizing that the exemption period starts from the commencement of operations for the new unit, not the establishment date.

The Court referred to a Madras High Court judgment supporting the calculation method based on the first assessment year under the Act, aligning with the assessee's claim from 1957-58. The Court also analyzed section 45(d) of the Act, noting that the proviso language differed from section 5(xx1), indicating the commencement of operations for the establishment of the unit as the starting point for the exemption period. Consequently, the Court ruled in favor of the assessee for all three assessment years, rejecting the department's arguments.

In conclusion, the Court held that the assessee was entitled to exemption for the assessment years 1957-58, 1958-59, and 1959-60 under section 5(xx1) of the Wealth-tax Act, determining the exemption period from the commencement of operations for the new unit. The judgment favored the assessee, awarding costs against the department.