1967 (4) TMI 28 - HC - Wealth-tax

New and separate unit of company formed with the object of establishing industrial undertaking in India. Company not actually engaged in industrial undertaking setting up new unit - company can not claim exemption u/s 5(1)(xxi) r/w 45(d)

Issues:
1. Interpretation of exemption under section 5(1)(xxi) read with section 45(d) of the Wealth-tax Act.
2. Whether the company was entitled to claim exemption for net wealth employed in a new unit set up for substantial expansion.
3. Determining the primary object of the company's establishment for claiming exemption.
4. Analysis of the company's memorandum and articles of association in relation to exemption eligibility.
5. Requirement of actual engagement in manufacturing processes for exemption eligibility.
6. Ultra vires acts of a company and its impact on exemption claims.

Detailed Analysis:
1. The High Court was tasked with interpreting the exemption under section 5(1)(xxi) read with section 45(d) of the Wealth-tax Act. The court emphasized that the net wealth employed in a new unit set up for substantial expansion must be of a company established with the object of carrying on an industrial undertaking as defined in the Explanation to clause (d) of section 45.

2. The court examined whether the company was entitled to claim exemption for the net wealth employed in a new unit set up for substantial expansion. The Tribunal held that the company must have the primary object of carrying on an industrial undertaking to qualify for the exemption. As the company did not meet this criterion, the exemption was denied.

3. The primary object of the company's establishment was crucial in determining exemption eligibility. The court clarified that the company must be established with the primary object of carrying on an industrial undertaking to claim exemption under the Wealth-tax Act. Without such a primary objective, the exemption cannot be granted.

4. An analysis of the company's memorandum and articles of association was conducted to assess exemption eligibility. The court noted that while the company's objects included engaging in manufacturing processes, the actual engagement in such processes was essential for exemption. Merely having the object in the memorandum was insufficient to claim exemption.

5. The court emphasized the requirement of actual engagement in manufacturing processes for exemption eligibility. It was established that the company must be actively involved in the manufacturing, production, or processing of goods specified in the Explanation to section 45(d) to qualify for the exemption under section 5(1)(xxi).

6. The concept of ultra vires acts of a company and their impact on exemption claims was discussed. The court highlighted that any act of the company outside its stated objects is ultra vires. Therefore, to claim exemption, the company must align its activities with the objects stated in its memorandum and actually engage in the specified industrial processes.

In conclusion, the court answered the reference in the negative, ruling in favor of the department, and emphasized the importance of meeting the prescribed conditions for exemption eligibility under the Wealth-tax Act.

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