1964 (3) TMI 4 - HC - Wealth-tax

Set up a cement factory as a separate unit - factory was actually set up and was ready for production in Feb., 1958 - Meanwhile, the Act came into force on April 1, 1957 - Taking advantage of the Act, the assessee claimed exemption for the three assessment years - assessee is entitled to exemption under s. 5(1)

Summary

Issues:
Interpretation of section 5, clause (xxi) of the Wealth-tax Act for exemption eligibility based on the establishment date of a new unit under the Act.

Analysis:
The case involved a public limited company engaged in the sugar manufacturing business, which later set up a cement factory as a separate unit. The company claimed exemption under section 5(1) of the Wealth-tax Act for the assessment years 1957-58, 1958-59, and 1959-60. The dispute arose as the department contended that the unit was set up before the Act came into force, thereby challenging the exemption claim. The Income-tax Appellate Tribunal disagreed with the department's stance, allowing exemption for the year 1959-60 but not for the previous assessment years.

The core issue revolved around the interpretation of section 5, clause (xxi) of the Act, which outlines assets exempt from wealth tax. The second proviso of the clause specifies that the exemption applies to a company for five successive assessment years starting from the year following the commencement of operations for setting up a new unit after the Act's commencement. The department argued that the five-year period should begin from the unit's establishment date, not exceeding five years from the operations' commencement.

The court rejected the department's interpretation, emphasizing that the five-year period should commence from the operations' initiation for establishing the unit, not the unit's setup date. The court cited a Madras High Court judgment supporting this position. Additionally, the court highlighted that the language of the Act did not support the department's argument and clarified that the exemption period should align with the commencement of operations for the new unit.

The court also addressed the relevance of section 45(d) of the Act, which excludes certain companies from wealth tax for a specified period. The court distinguished the language used in section 45(d) from that in section 5, clause (xxi), emphasizing that the latter's second proviso explicitly considers the commencement of operations for the new unit. Consequently, the court ruled in favor of the assessee, granting exemption for all three assessment years in question.

In conclusion, the court held that the assessee was entitled to exemption for the assessment years 1957-58, 1958-59, and 1959-60, rejecting the department's objections. The court awarded costs to the assessee and resolved the reference in favor of the assessee against the department.