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TMI Blog1958 (10) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of this company, which is the assessee company before us, that the firm of Coral Co. wanted to sell its business. The assessee company took over all the assets of the business of Coral Co. including its goodwill for the consideration of Rs. 1,50,000. The payment was not made in cash but was by allotting 1,500 shares of the face value of Rs. 100 each to the three partners in the firm of Coral Co. The nominal capital of the assessee company was Rs. 5,03,000 divided into 5,000 ordinary shares of Rs. 100 each and 3,000 'B' shares of Re. 1 each. Neither the credits and outstandings nor the debts and liabilities of Coral Co. were taken over by the assessee company. We shall refer to the agreement, which is one of sale, a little later in our judgment. In respect of the assessment year 1952-53, the assessee company claimed the benefit of and exemption from tax under section 15C on the ground that it was a newly established industrial undertaking. The Income-tax Officer rejected the assessee's contention. According to him, the assessee company was formed by reconstruction of a business already in existence and, therefore, the assessee company was not entitled to the benefit of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on before the 1st day of April, 1948." In sub-section (2) there are two other clauses and there is a proviso to this sub-section. But it is not necessary to set out the same because they have little bearing on the part of section 15C which we are called upon to interpret in this reference. Clauses (ii) and (iii) relate to certain periods and to the number of workmen employed by the industrial undertaking and the proviso empowers the Central Government by a notification to direct that the exemption cannot be availed of by any particular industrial undertaking. The argument of Mr. Joshi is that an assessee who wants to avail of the benefit of the exemption must fulfil all the conditions and requirements of the section. That proposition is not disputed. Then, the argument has proceeded that in clause (i) there are three requirements or conditions. We agree with Mr. Joshi that all the three requirements or conditions specified in clause (i) of sub-section (2) must be satisfied before an assessee can claim the benefit of the exemption granted by the section and the argument in effect has been that since this is a case of reconstruction of a business already in existence the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allotment to the vendors of 1,500 fully paid up ordinary shares of the assessee company of the face value of Rs. 100 each. The price of the plant, machinery, etc., is shown as agreed upon at Rs. 1,43,758 and the goodwill at Rs. 6,242. Then there is a reference to the credits and outstandings and the debts and liabilities of the vendor firm, to which we have already made reference. Then there is stipulation about the indemnity given to the purchaser by the vendors against any proceedings, claims and demands in respect of their debts, liabilities, contracts and previous engagements and in respect of tax. As to stock-in-trade, it is mentioned that it was a matter left to the transferee company whether it should take it up or not. Lastly, there is a restrictive condition which restrains the vendors from carrying on a competing business within the area of 100 miles of Bombay. On these stipulations and conditions in the agreement of sale, it is argued by counsel for the Revenue that this is clearly a case of reconstruction of a business already in existence. Considerable emphasis has been laid by Mr. Joshi on the expression "business" and we propose to bear in mind the importance we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it is carried on after the liabilities of the business which made it difficult to carry on are removed, that is, when the burden of debts is removed and it starts with a clean slate. Then it is said that the dictionary meaning of the expression "reconstruction" is "to rebuild or to reconstitute" and, says Mr. Joshi, this is a business "which is reconstituted or rebuilt". The question before us, therefore, is : Is this a case of reconstruction of a business already in existence? Now, it is clear that all the conditions and requirements of sub-clause (i) of sub-section (2) must be satisfied before the benefit of the exemption can be claimed by a newly established industrial undertaking. The section does not apply and the exemption cannot be claimed by an assessee if the industrial undertaking is formed by splitting up of its business or by reconstruction of its business or in case of transfer to a new business of building, machinery or plant used in a business which was being carried on before the 1st of April, 1948. The expression "reconstruction" represents a legal conception. It has been used in statutes relating to company law but even there, as we shall point out, a lit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business if it is substantially the same business carried on by substantially the same persons. Now, support is to be derived for the view we take of the interpretation of the material words of clause (i) of sub-section (2) of section 15C from certain observations of Mr. Justice Buckley, as he then was, in South African Supply and Cold Storage Co., In re [1904] 2 Ch. 268. We may immediately observe that the word " reconstruction " was being considered by the court in that case in the context of company law and in referring to these observations we are conscious of the fact that the observations are not made in the self-same context, but even so they are general observations which can be of guidance and assistance if taken as no more than stating a broad general principle and coming from an authority like Lord Wrenbury we think they are entitled to be read with respect. At page 286 of the report in that case the learned Judge was considering the question of reconstruction "of an undertaking". He observes : "What does 'reconstruction' mean? To my mind it means this. An undertaking of some definite kind is being carried on, and the conclusion is arrived at that it is not de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing at the substance of the transaction, it is a sale, then the concept of reconstruction must be ruled out for in such a case there is no scope for speaking about any reconstruction of an existing business. It is not necessary to pursue the question of reconstruction in the context of the company law because in this case we are not concerned with any such question and it is not necessary, therefore, to refer to the observations on the point of the leading text-book writers on the subject of company law in England. Now, there are some other words in this clause to which also we are bound to attach some importance. The clause speaks of a newly established industrial undertaking formed by the reconstruction of its business already in existence. In the forming of this industrial undertaking, those who owned the original business must have a large say if they reconstruct it. Speaking broadly it is they who can be said to reconstruct the company in any such case and if it is floating of a new company it is they who can be said to have floated a new company for their business which was already in existence. It would be a misnomer to speak of a buyer of an undertaking reconstructing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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