1. This is a reference under s. 66(1) of the Indian I.T. Act, 1922 (hereinafter referred to as 'the said Act'), made at the instance of the applicant-assessee.
2. The assessee is a private limited company, and it claimed relief under s. 15C of the said Act in respect of the assessment year 1957-58. The accounting year followed by the assessee was the calendar year, with the result that the relevant previous year for the assessment year 1957-58 would be from January 1, 1956, to December 31, 1956. The assessee manufactures spring and spring leaves of various sizes and dimensions for use in commercial and passenger motor vehicles and also manufactures certain accessories. The records of the ITO showed that the assessee started production in the year 1951 which was the relevant previous year to the assessment year 1952-53. The ITO declined to give to the assessee the benefit of the exemption under s. 15C of the said Act on the ground that under sub-s. (6) thereof the said relief was admissible only for five successive assessment years commencing with the assessment year in the previous year relevant to which the assessee commenced production. It was held by him that as the assessee commenced production in the year 1951, the assessee was not entitled to the benefit of the exemption under s. 15C beyond the assessment year 1956-57. In the appeal preferred by the assessee, the AAC found that in the assessee's balance-sheet as on December 31, 1951, certain amount was shown as the value of certain finished goods, which showed that the assessee had gone into production in 1951. In view of this, the appeal preferred by the assessee was dismissed by the AAC. The assessee then preferred an appeal to the Income-tax Appellate Tribunal and sought to contend before the Tribunal that the assessee could be said to have begun to manufacture or produce articles within the meaning of sub-s. (6) of 15C of the said Act only when it started commercial manufacture and not merely on the basis of articles being manufactured by trial production. The Tribunal expressed surprise that the assessee should have taken the stand that it had not started production in the year 1951, when it had actually got depreciation in that year. Further, the Tribunal took the view that even experimental production was nothing but the beginning of the manufacture of goods. The Tribunal, inter alia, observed as follows :
'... A plain reading of the section in question (s. 15C), in our opinion, shows that once the materials are fed into the machine, whether for trail production or for commercial production, it would amount to manufacture.'
3. From this decision of the Tribunal, the following question has been referred to us for our determination :
'Whether, on the facts and in the circumstances of the case, the assessee-company was entitled to the relief under section 15C for the assessment year 1957-58 ?'
4. Mr. Mehta, the learned counsel for the assessee, has strongly disputed the view of the Tribunal that even the commencing of trial production amounts to manufacture for the purpose of sub-s. (6) of s. 15C of the said Act, and has relied upon the decision of a Division bench of this court in CIT v. Hindustan Antibiotics Ltd. : 93ITR548(Bom) . In that case, the assessee-company undertook a project for the manufacture of penicillin. It started actual operation for the manufacture of crude penicillin in December, 1954. The first samples of crude penicillin were required to be sent to the U.S.A. and U.K. for obtaining certificates as to their quality. The certificates were obtained in June, 1955, and the assessee started regular production of sterile penicillin, the only product that could be sold in the market, in August, 1955. It was held by the Division Bench that, on the facts, the production of articles by the assessee had begun only in August, 1955. The benefit of the exemption under s. 15C arose to the assessee for the first time in the assessment year 1956-57, and, therefore, it was entitled to the exemption under s. 15C for the assessment year 1960-61 also. In view of this decision, Mr. Mehta is right when he contends that the view of the Tribunal that once the materials are fed into the machine, whether for trial production or commercial production, it would amount to a manufacture for the purpose of the said sub-section, is incorrect, as being inconsistent with the view expressed by this court in the aforesaid decision. In the present case, however, we find that no material whatsoever has been produced by the assessee before any of the income-tax authorities, including the Tribunal, to show that the production made by the assessee in the calendar year 1951 was merely a trial production and that the goods produced were not for commercial sale but were merely for testing or sampling purposes, as in the case before the Division Bench of this court referred to above. As the Tribunal has pointed out, it was admitted by the assessee that it had commenced production in 1951, the contention of the assessee merely being that the said production in 1951, the contention of the assessee merely being that the said production was a trial production. As no material has been produced by the assessee at any stage to justify that contention, it must be taken as established that the assessee did not prove that the said production in 1951 was merely a trial production. The assessee must, therefore, be held to have commenced production in 1951 and was not entitled to the benefit of the exemption under s. 15C of the said Act in respect of newly established industrial undertakings, beyond the assessment year 1956-57.
5. In the result, the question referred to us is answered in the negative. In the facts and circumstances of the case, there will be no order as to costs of this reference.