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TMI Blog1973 (9) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... or silk and wool industry, textile machinery, printing machinery, litho-printing machines, etc. (3) to manufacture, assemble, convert, repair, renew motor cars, motor vans, motor trucks, etc. ; (4) to manufacture railway rolling stocks, railway engines, etc.; (5) to manufacture small tools, cutting tools, drills, taps from steel, mild steel or other ferrous or non-ferrous metals or valuable stores and to sell, buy, import, export and deal in the same, whether as principals or agents. An application was made on 21st December, 1956, by one D.Doraiswamy, craftsman, Machine Tools Private Ltd., to the Government of India, under the Industrial Undertakings Rules, 1952, for a licence to establish a new industrial undertaking for manufacture of centre lathes and bench grinders. The necessary licence was granted on 28th June, 1957. One of the conditions of the said licence was that the new industrial undertaking should have an installed capacity for the manufacture of, (1) Centre lathes (Conepully type), 100 numbers per annum, and (2) Bench grinders, 50 numbers per annum. Thereafter, the work of installation of the necessary machinery commenced. Two machines were installed in August ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a single assessment in respect of the above two accounting periods : " As the machinery has started functioning early and the assessee claimed development rebate in respect of the machinery previously installed even for the first period there will only be a loss and in the second period also, there is a loss in view of the development rebate claimed. In view of these circumstances, and in view of the fact that the assessee is agreeable to have the entire income from the date of commencement of the business up to March 31, 1959, assessed in 1959-60, I am not making two separate assessments for the proportionate periods as it results in loss for both the periods." In the previous year ending March 31, 1963, the assessee made a profit of Rs. 1,18,854 including interest receipts of Rs. 27,695 from call deposits. It claimed a sum of Rs. 75,649 as a deduction under section 84 of the Income-tax Act from the book profits. The Income-tax Officer rejected the assessee's claim for deduction under section 84, as, according to him, the benefit of section 84 was available only up to the assessment year 1962-63. He held that the assessee began to manufacture and produce articles as early ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the benefit under section 84 would enure to it only for a period of four years from the assessment year 1958-59, and as such it would not be available for the assessment year 1963-64. At the instance of the assessee the following questions have been referred to this court: "(1) Whether, on the facts and in the circumstances of the case, the first assessment having been made on the assessee for 1959-60, is not the assessee entitled to the relief under section 84 of the Income-tax Act in the assessment year 1963-64? (2) Whether, on the facts and in the circumstances of the case, the assessee was not entitled to the relief under section 84 of the Income-tax Act for the assessment year 1963-64? (3) Whether, on the facts and in the circumstances of the case, the interest income of Rs. 27,695 was profit of the undertaking entitled to relief under section 84 of the Income-tax Act?" So far as the third question is concerned, it is now contended by the learned counsel for the assessee that reference on that question has been sought on a mistaken impression that the assessee has failed to get relief in relation to the interest income, that it is a case of indiscretion on the part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately succeeding." While sub-section (1) gives the benefit of deduction up to 6 per cent. per annum on the capital employed by an industrial undertaking newly established, sub-section (7) provides a limitation for the grant of that benefit. Sub-section (7) limits the benefit available under sub-section (1) to four assessment years beginning from the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles. The issue in this case is as to which is the previous year in which the assessee's undertaking began to manufacture or produce articles. According to the assessee, it is only in the assessment year 1959-60 production and manufacture of articles commenced. It is also the contention of the assessee that the first assessment having been made by the Income-tax Officer for the assessment year 1959-60, covering a period from April 11, 1957, to March 31, 1959, the fourth assessment will be the assessment for the year 1963-64, and hence the benefit of section 84 cannot be denied for that year. But, according to the revenue, such manufacture and production have actually commenced even in the assessment year 1958-59, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owns more than one undertaking the application of section 84 has to be with respect to the particular undertaking and not to the company in general. When we apply section 84 to a particular undertaking it has to be seen when, that undertaking commenced the manufacture or production of articles. It is true that the word "undertaking" has not been defined under the Income-tax Act. But in common parlance it is taken as a concern started or formed for a specific purpose or a project engaged in. In this case though the objects of the company as set out in its articles of association cover a variety of objects, the object of the undertaking is only to manufacture lathes and bench grinders as is clear from the licence issued to the company under the Industries Development and Regulation Act, 1951. It is not in dispute in this case that the lathes and bench grinders were produced only subsequent to May 31, 1958, and not earlier. On the facts proved, we are not in a position to agree with the Tribunal that the articles produced by the assessee were such as to attract the provision of section 84(7). As already stated, power supply was sanctioned only on August 9, 1958, and the various machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case the assessee claimed tax concession under section 15C of the Indian Income-tax Act, 1922, in relation to machinery for the manufacture of handloom fabrics which had been functioning during February to December, 1947. The Income-tax Officer proceeded on the basis that machinery was worked as an experimental measure and, therefore, the assessee is not entitled to the benefit. The Appellate Assistant Commissioner, on appeal, held that the production of articles worth about Rs. 67,085 during the period could not be described as "pure experimental production" and that, therefore, the assessee was not entitled to the relief. The Tribunal also agreed. On a reference to the High Court, it held that the fact that the sales amounted to Rs. 67,085 in no way rebutted the contention of the assessee that the same was by way of experiment and training, and that, therefore, the assessee was not precluded from enjoying the concession. The Supreme Court, however, thought that, though the experimental production cannot be taken into account for the purpose of section 84, there was no clear finding by either the Tribunal or the Appellate Assistant Commissioner as to whether the production was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the period so determined may be more or less than 12 months." But that was not a case of first assessment and in the case of firm assessment in respect of a newly set up business the provisions of section 2(11)(i)(b) have to apply and the previous year in respect of such a business can only be 12 months or less. The first accounts of the assessee which started on April 11, 1957 to March 31, 1958, should be taken to be the first year and there is no question of the first year of business being more than 12 months either by operation of law or by option of the assessee. Therefore, the first previous year can be taken to be from April 11, 1957, to March 31, 1958. If the manufacture and production of articles have started during this period, then it may not be possible to uphold the assessee's claim for the benefit of section 84 for the assessment year 1963-64. We have to answer the first question in favour of the revenue. But as we have held that the manufacture and production of articles by the undertaking had commenced only after April 1, 1958, the benefit of section 84 will be available to the assessee for the assessment year 1963-64. The assessee will be entitled to his costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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