1965 (12) TMI 8 - HC - Wealth-tax

Claim for exemption of Rs. 33,01,964 under s. 5(1)(xxi) of the Act on the ground of having employed that amount in the setting up of a new and separate unit after the commencement of the Act - exemption allowed

Issues Involved:
1. Interpretation of "set up" under Section 5(1)(xxi) of the Wealth-tax Act.
2. Eligibility for exemption under Section 5(1)(xxi) for the assessment year 1957-58.
3. Commencement of the five-year exemption period under Section 5(1)(xxi).

Detailed Analysis:

1. Interpretation of "set up" under Section 5(1)(xxi) of the Wealth-tax Act:
The primary issue was whether the new unit of the assessee-company was "set up" after the commencement of the Wealth-tax Act on April 1, 1957. The Wealth-tax Officer and the Appellate Assistant Commissioner held that "set up" meant the unit must be fully established and ready to start production. Since the unit was not ready by the valuation date (December 31, 1956), they denied the exemption.

The Tribunal, however, interpreted "set up" as meaning "completed or ready to commence business." This interpretation was supported by dictionary definitions and judicial precedents, such as *Ramaraju Surgical Cotton Mills Ltd. v. Commissioner of Wealth-tax* and *Commissioner of Wealth-tax v. Travancore Cements Ltd.*, which defined "set up" as "ready to commence business." The High Court agreed with this interpretation, stating that "set up" does not cover the entire process from commencement to completion but refers to the final stage when the unit is ready to be commissioned.

2. Eligibility for exemption under Section 5(1)(xxi) for the assessment year 1957-58:
The second issue was whether the assessee-company was eligible for the exemption in the assessment year 1957-58. The Wealth-tax Officer and the Appellate Assistant Commissioner argued that the exemption period should start only if the operations for establishing the unit commenced after the valuation date (December 31, 1956).

The Tribunal and the High Court rejected this argument, stating that the exemption under Section 5(1)(xxi) applies to units set up after the commencement of the Act, regardless of when the operations to establish the unit began. The High Court emphasized that the legislative intent was to encourage future industrial expansion, and thus, the exemption was available for units set up after April 1, 1957, even if the establishment operations began earlier.

3. Commencement of the five-year exemption period under Section 5(1)(xxi):
The final issue was determining the commencement of the five-year exemption period. The Tribunal held that the exemption period should start from the assessment year 1957-58, as the unit was set up after the Act's commencement. The High Court noted that the second proviso to Section 5(1)(xxi) specifies that the exemption applies for five successive assessment years starting from the year following the commencement of operations to establish the unit.

The High Court clarified that, in this case, the exemption period could start either from May 1955 (when the operations began) or from April 1, 1957 (the first date of the assessment year 1957-58). Since the assessment year 1957-58 falls within five years of either date, the assessee-company was entitled to the exemption for that year.

Conclusion:
The High Court concluded that the assessee-company was entitled to the exemption under Section 5(1)(xxi) for the amount of Rs. 33,01,964 for the assessment year 1957-58. The interpretation of "set up" was affirmed as meaning "completed or ready to commence business," and the exemption period was confirmed to start from the assessment year 1957-58, regardless of when the operations to establish the unit began.

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