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PETITIONER: COMMISSIONER OF WEALTH TAX, MADRAS

       Vs.

RESPONDENT: RAMARAJU SURGICAL COTTON MILLS, LTD.

DATE OF JUDGMENT: 05/10/1966

BENCH: BHARGAVA, VISHISHTHA BENCH: BHARGAVA, VISHISHTHA SHAH, J.C. RAMASWAMI, V.

CITATION:  1967 AIR  509            1967 SCR  (1) 761  CITATOR INFO :  R          1967 SC1534  (7)  RF         1971 SC2447  (1)

ACT: Wealth     Tax    Act    (27    of    1957),     s.     5(1) (xxi)-Exemiption--Criteria    for   period-"Set   up"    and "established", meaning-Question not raised before  Tribunal, if could be raised in the Supreme Court.

HEADNOTE: The  respondent--Company was assessed to wealth-tax for  the assessment year 1957-58 and the respondent claimed deduction of  -an  amount  laid out for setting up a  new  unit.   The licence for setting up the new unit was granted in 1955; the construction  of  the  factory  building  was  completed  by December  1957; the erection of the machinery and plant  was completed  in several stages commencing from June 1957;  the licence  for working the factory was obtained in June  1958; and time given to complete the project also was extended  by Government  up  to March 17, 1959.  The Wealth  Tax  Officer disallowed the claim on the ground that the unit was, set up prior  to  the date on which the Wealth Tax  Act  came  into force,  ie.,  April  1,  1957.  This  order  was  upheld  in appeals.   But  in reference, the High  Court  answered  the question in favour of the assessee, for, it proceeded on the basis  that  the unit was completed and became ready  to  go into business after the Act had come into force. HELD  :  The  assessee  was entitled  to  the  claim  as  it satisfied the condition laid down in cl. (xxi) of s. 5(1) of the Act. The  criterion  for determining the period of  exemption  is based   on   the   commencement  of   the   operations   for establishment   of   the   unit.    These   operations   for establishment  of the unit cannot be simultaneous  with  the setting up of the unit, but must precede the actual  setting up of the unit. [1764 G-H] The word "set up" in clause (xxi) of s. 5(1) of the Act,  is equivalent  to  the word "established"  but  operations  for establishment  cannot be equated with the  establishment  of the  unit  itself or its setting up.  The  applicability  of the,  proviso has, therefore, to be decided by finding  -out

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when  the company commenced operations for establishment  of the unit, which operations must be antecedent to the  actual date  on which the company is held to have been set  up  for purposes of the principal clause.[1764 D-E] Western India Vegetable Products, Limited v. Commissioner of Income-tax, Bombay City, 26 I.T.R. 151 referred to. In  the  present case, the Tribunal proceeded on  the  basis that  whatever  be  the exact date of  commencement  of  the operations for establishment of Ibis unit,, it was certainly before  April 1, 1957 and that fact by itself is  sufficient to  entitle  the  assessee  to  claim  the  exemption.   The Commissioner  cannot be allowed to raise a new question  and ask  this Court to decide that the date of  commencement  of the   operation  for  establishment  of  the  unit  by   the respondent was different from that accepted by the Tribunal. That question was not raised and dealt with by the Tribunal, [766 E] Commissioner   of  Income-tax,  Bombay  v.   Scindia   Steam Navigation Co., Ltd., 42 I.T.R. 589 relied on.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 674 of  1965. Ml 7 Sup.  C. I/66 761 762 Appeal  by special leave from the judgment and  order  dated March 14, 1962 of the Madras High Court in T. C. No. 209  of 1959. B.   Sen and R. N. Sachthey, for the appellant. A.   K. Sen, and R. Ganapathy Iyer, for the respondent. The Judgment of the Court was delivered by Bhargava.   J.  The respondent is a public  limited  company incorporated  under the Indian Companies, Act, 1913  in  the year 1939 and was carrying on the business of manufacture of absorbent  cotton  wool.   In  March  1955,  the  Board   of Directors  resolved to establish a new spinning  unit  under the  name of Sudarsanan Spinning Mills for which  a  licence was  obtained  from  the  Government  of  India  under   the Industries (Development and Regulation) Act, 1951 in  August 1955.    The  respondent  placed  orders  for  purchase   of necessary  spinning  machinery and plant in  the  months  of January  and  February, 1956.  The construction  of  factory buildings  was  taken  in hand in  March,  1956,  and  these constructions   were  completed  by  December,  1957.    The erection  of  the spinning machinery and the  plant  in  the buildings  was completed in several stages  commencing  from June,  1957.  A licence from the Inspector of Factories  for working  the  factory  was  obtained  in  June,  1958.   The statement of the case further mentioned that the time  given to complete the project was extended by the Government up to 17th March, 1959.  The respondent was assessed to wealth tax for  the  assessment  year 1957-58, and  in  that  year  the respondent  claimed  that, in computing the  wealth  on  the valuation date which was 30th September, 1956, an amount  of Rs. 1,43,727 should be deducted as being the amount laid out in  setting  up  this  new unit.   The  Wealth  Tax  Officer disallowed the claim on the ground that the unit was set  up prior  to the date on which the Wealth Tax Act  (hereinafter referred  to as "the Act") came into force, i.e., 1st  April 1957.    On   the  same  basis,  the   Appellate   Assistant Commissioner  and the Income-tax Appellate  Tribunal  upheld that  order.  Thereupon, at the request of  the  respondent, the  following question of law was referred for  opinion  of the High Court of Madras:-

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"Whether the aforesaid asset of Rs. 1,43,727 is exempt under               section 5(1)(xxi) read with the second proviso               thereunder of the Wealth-tax Act?" The  High  Court  answered the question  in  favour  of  the respondent,  and consequently, this appeal has been  brought up to this Court by the Commissioner of Wealth Tax,  Madras, by special leave. The  question  that fell for determination depended  on  the interpretation of section 5(1)(xxi) of the Act read with the second proviso to that clause which are reproduced below: 763 .lm15 "5(1)(xxi)  that  portion  of the net wealth  of  a  company established  with  the object of carrying on  an  industrial undertaking  in India within the meaning of the  Explanation to  clause (d) of section 45, as is employed by it in a  new and separate unit set up after the commencement of this  Act by way of substantial expansion of its undertaking:- Provided that- (a) (b) Provided further that this exemption shall apply to any such company  only  for a period of  five  successive  assessment years commencing with the assessment year next following the date  on  which  the company commences  operations  for  the establishment of such unit." It  has  been  urged before us by learned  counsel  for  the Commissioner that the main provision of clause (xxi)  should be interpreted in conjunction with the second proviso so  as to  give  a  harmonious construction to both  parts  of  the provision  with  which we are concerned.   Relying  on  this principle,  he  urged  that we should hold that  a  new  and separate  unit  is set up only when  the  company  commences operations for the establishment of such unit.  He relied on the  principle  stated  by Maxwell in his  book  ’On  Inter- pretation of Statutes’ 11th Edn. at P. 155 that there is  no rule  that  the first or enacting part is  to  be  construed without reference to the proviso.  "The proper course is  to apply the broad general rule of construction, which is  that a  section or enactment must be construed as a  whole,  each portion throwing light, if need be, on the rest." "The  true principle  undoubtedly is that the sound interpretation  and meaning  of the statute, on a view of the  enacting  clause, saving clause, and proviso, taken and construed together  is to prevail." The view taken by the High Court was challenged on  the  ground  that the High  Court  had  interpreted  the principal clause without giving full effect to the  language of the proviso. The High Court held that unless a factory is erected and the plants and machinery installed therein, it cannot be said to have been set up.  The resolution of the Board of Directors, the orders placed for purchasing machinery, licence obtained from  the  Government for constructing  the  machinery,  are merely initial stages towards setting up, however  necessary and essential they may be to further the achievement of  the end.   It  is not, however, the actual  functioning  of  the factory  or  its  going into production that  can  alone  be called setting up of the factory.  The setting up is perhaps a  stage  anterior  to  the  commencement  of  the  factory. Thereafter, 764 the  High  Court referred to a decision of the  Bombay  High Court  in  Western  India  Vegetable  Products,  Limited  v. Commissioner  of  Income-tax,  Bombay City,(’)  and  on  its basis,  concluded that the proper meaning to be assigned  to

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the expression "set up" in section 5(1)(xxi) would be "ready to  commence  business."  We are unable to  agree  with  the learned  counsel  for the Commissioner that in  arriving  at this  view,  the  High Court committed any  error.   A  unit cannot  be  said to have been set up unless it is  ready  to discharge the function for which it is being set up.  It  is only  when the unit has been put into such a shape  that  it can  start  functioning  as a business  or  a  manufacturing Organisation that it can be said that the unit has been  set up.   The  expression used in the proviso, under  which  the period for which the exemption is available is to be  deter- mined, is not the same as used in the principal clause.   In the  proviso,  the  period  of  five  successive  years   of exemption  has  to commence with the  assessment  year  next following the date on which the company commences operations for  the  establishment  of the unit.   Operations  for  the establishment  of  a  unit, from the  very  nature  of  that expression, can only signify steps that have to be taken  to establish  the  unit.  The word "set up"  in  the  principal clause,   in  our  opinion,  is  equivalent  to   the   word "established",  but operations for establishment  cannot  be equated  with  the establishment of the unit itself  or  its setting   up.   The  applicability  of  the   proviso   has, therefore,  to  be decided by finding out when  the  company commenced  operations for establishment of the  unit,  which operations  must be antecedent to the actual date  on  which the company is held to have been set up for purposes of  the principal clause.  This is also the meaning that the  Bombay High  Court derived in the case of Western  India  Vegetable Products  Ltd.(,)  where that Court was concerned  with  the interpretation of the expression "set up" as used in section 2(l1) of the Income-tax Act.  That Court held: "It seems  to us that the expression ’settling up’ means, as is defined in the  Oxford  English Dictionary, ’to place on foot"  or  ’to establish’,  and  is contradistinction  to  ’commence.’  The distinction is this that when a business is established  and is  ready to commence business, then it can be said of  that business  that  it  is set up.  But before it  is  ready  to commence  business  it  is  not  set  tip."  This  view  was expressed  when  that Court was considering  the  difference between  the  meaning  of  the  expression  "setting  up   a business"  and   " commencing of a  business."  In  the case before  us, the proviso does not even refer to  commencement of  the unit.. The criterion for determining the  period  of exemption is based on the commencement of the operations for the  establishment  of  the  unit.   These  operations   for establishment  of the unit cannot be simultaneous  with  the setting  up of the unit, as urged on behalf of  the  Commis- sioner, but must precede the actual setting up of the  unit. In fact, (1)26 I.T.R 15 1.  765 it  is  the  operations for establishment of  a  unit  which ultimately culminate in the setting up of the unit. On  this interpretation, it is clear that in this case,  the claim  put forward by the respondent for exemption has  been rightly  held  to be allowable by the High  Court.   In  the statement  of  the case and in its appellate  judgment,  the Tribunal  did not specifically record any finding as to  the date  when  the unit was ready to go into  business  and  to start production.  In the appellate order, it was  mentioned that  according to the respondent, the unit was set up  only when  the  Inspector of Factories issued a  licence  to  the respondent for working the factory, which was in June, 1958. In  the, statement of the case, the facts recited show  that

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the  construction of the factory buildings was completed  by December,  1957 and the erection of the  spinning  machinery and  plant was completed in several stages  commencing  from June, 1957.  On these facts, the High Court, and we consider rightly, proceeded on the basis that the unit was  completed and  became ready to go into business only after 1st  April, 1957,   when   the  Act  had  already   come   into   force. Consequently,  the  condition  laid down  in  the  principal clause of s. 5(1)(xxi) was satisfied, and the company became entitled to exemption in respect of the value of the  assets used up in setting up this unit. Learned  counsel for the Commissioner,  however,  challenged the  right  of  the respondent to claim  this  exemption  on another  ground,  viz., that the exemption  was  claimed  in respect of money laid out in a period which was not  covered by the period envisaged in the second proviso.  It was urged that  if it be held that the unit was set up after  the  Act had come into force on the 1 st April, 1957, it must also be held  that the operations for the establishment of the  unit had been commenced by the company almost simultaneously with the unit having been set up, and that date would, therefore, be a date subsequent to the assessment year 1957-58 in which year the exemption was claimed.  This is a question which we do  not  think can be legitimately raised on behalf  of  the Commissioner at this stage.  The only contention before  the Tribunal  on  behalf  of  the  Commissioner  was  that   the operations  for  the  establishment of  the  unit  had  been commenced by the respondent before the Act came into  force, and that it should be held that the unit was also set ;up at the  same time when those operations were commenced.   There was  no contention at any stage that the operations for  the establishment  of  the unit were commenced at  a  subsequent stage.  In fact, it was only for the purpose of urging  that the  principal clause was not applicable to the case of  the respondent  that the position was taken up on behalf of  the Commissioner  that the operations for establishment  of  the unit had been commenced before 1st April, 1957, and the unit must be held to have been set up at the same time 766 when  those operations were commenced.  That submission,  as we have indicated above, has no force. In  any  case, the judgments passed by  all  the  Wealth-tax Authorities show that it was at no stage in dispute that the operations for establishment of the unit had been  commenced by the respondent prior to 1 st April, 1957.  Para 5 of  the statement  of  the  case mentions that  the  the  wealth-tax officer disallowed the claim on the ground that unit was set up  prior  to  1st April,  1957.   The  Appellate  Assistant Commissioner also in his judgment said: "In this view of the matter,  the appellant set up the undertaking even prior  to 1st April, 1957 as operations were carried out prior to that date   for  the  establishment  of  the  undertaking.    The operations  consisted of the seeking of permission from  the Government  to install the unit, and placing of orders  with manufacturers  of machinery and advancing of moneys  towards the purchase of machinery." The Tribunal also disallowed the claim on the basis that the respondent commenced  operations for  setting up the unit earlier than 1st April,  1957.   It does  not  appear  to be necessary for  us  to  express  any opinion  as to the particular stage at which it can be  said that a company commences operations for the establishment of a unit.  In the present case, the Tribunal proceeded on  the basis  that, whatever be the exact date of  commencement  of the  operations  for  establishment  of  this  unit  by  the respondent, it was certainly before 1st April, 1957; and  we

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consider that that fact, by itself, is sufficient to entitle the  respondent  to claim the exemption.   The  Commissioner cannot,  at this stage, be allowed to raise a  new  question and  ask this Court to decide that the date of  commencement of  the  operations  for establishment of the  unit  by  the respondent was different from that accepted by the Tribunal. That question was not raised and dealt with by the Tribunal. It is not even a question that might have been raised before the  Tribunal  and the Tribunal might have  failed  to  deal with,  nor is it a question which may not have  been  raised before the Tribunal and, yet, was dealt with by it.  On  the principle laid down by this Court in Commissioner of Income- tax, Bombay v. Scindia Steam Navigation Co., Ltd.,(’) such a question  could not be canvassed before the High  Court  and cannot be allowed to- be raised in this Court.  The question referred  to the High Court had to be answered on the  basis that the respondent did commence operations for establishing this unit before 1st April, 1957; and the further finding of fact  recorded  by  the  Tribunal  is  that  a  sum  of  Rs. 1,43,727/- had been invested in setting up the unit by  30th September,  1956,  which  was the  valuation  date  for  the assessment  year  1957-58.  The very first  assessment  year after  the commencement of the operations for  establishment of the unit was this assessment year 1957-58, In the  Wealth Tax Act, assessment (1)  [1962] 1 S.C.R 788:42 I.T.R. 589.  767 year  has  been defined to mean the year for  which  tax  is chargeable under s. 3 of that Act.  Since the Act came  into force on the 1st April, 1957, the financial year 1957-58 was the  first assessment year for which tax became  chargeable, and  consequently,  for purposes of the  second  proviso  to section   5(1)(xxi),  the  assessment  year  following   the commencement of operations for establishment of the unit  in the  case of any company which commenced the operations  any time before the 1st April, 1957, will be the assessment year 1957-58.  Prior to the year 1957-58, there was no assessment year  as defined under the Act, and consequently, the  first assessment  year  for which exemption could be  claimed  was this  assessment  year 1957-58.  The  respondent  which  had commenced operations for establishment of its new unit prior to 1st April, 1957, was rightly allowed exemption in respect of the amount that had been invested by it upto the relevant valuation date.  The answer returned by the High Court  was, therefore, correct.  The appeal fails and is Appeal dismissed. dismissed with costs. Y.P. 768