1. This reference in which certain questions have been referred under section 27(1) of the Wealth-tax Act both at the instance of the assessee and the revenue arise out of proceedings for assessment of wealth-tax in respect of three assessment years 1957-58, 1958-59, and 1959-60 in respect of the Andhra Valley Power Supply Co. Ltd. the Tata Hydroelectric Power Supply Co. Ltd. and the Tata Power Co. Ltd.
2. The relevant valuation dates for the three above-mentioned assessment years are 31st March, 1957, 31st March, 1958, and 31st March, 1959, respectively. All the three companies held licences under the Electricity Act, 1910, and since questions raised were common except that the amounts involved were different, the tribunal passed a common order in the appeals before it. All the wealth-tax assessments in respect of the three years and the three assessees were made on the basis of global method of valuation on the basis of the figures in the respective balance-sheet. It is not necessary to refer to the details of the contentions with regard to the deductibility of contingencies reserve, development reserve, and it is sufficient to state that the case of the three assessees was that the amount standing in the balance-sheet under the heads contingencies reserve, development reserve, tariffs and dividends control reserve and gratuity reserve were liable to be excluded for the purposes of computation of the net wealth of the assessee-companies. In view of the decision of the Supreme Court in Standard Mills Co. Ltd. v. Commissioner of Wealth-tax : 63ITR470(SC) , the question of deductibility of gratuity reserve, which was decided against the company. was not required to be referred. So far as the three other kinds of reserves were concerned, it was contended on behalf of the assessees before the Tribunal that these reserves, that is, contingencies reserve, development reserve and tariffs and dividends control reserve were liable to be excluded for the purposes of computation of the net wealth. These reserves were required to be created by the company in view of the specific provisions of the Sixth Schedule to the Electricity (Supply) Act, 1948 (hereinafter referred to as the 'supply Act'.) Under section 57 of the Supply Act, it is provided that the provisions of the Sixth Schedule and the Seventh Schedule shall be deemed to be incorporated in the licensee of every licensee. Under clause II of the Sixth Schedule, the licensee is required to constitute a tariffs and dividends control reserve and since a part of the clear profits is required to be dealt with in the form of rebate for the benefit of the consumers and since one question relates to the excludability of such an amount, it is necessary for us to reproduce clause II, which reads as follows :
'II. (1) If the clear profits of a licensee in any year account is in excess of the amount of reasonable return, one-third of such excess, not exceeding five per cent of the amount of reasonable return, shall be at the disposal of the undertaking. Of the balance of the excess, one-half shall be appropriated to a reserve which shall be called the Tariffs and Dividends Control Reserve and the remaining half shall either be distributed in the form of a proportional rebate on the amounts collected from the sale of electricity and meter rentals on carried forward in the accounts of the licensee for distribution to the consumers in future, in such manner as the state government may direct.
(2) The Tariffs and Dividends Control Reserve shall be available for disposal by the licensee only to the extent by which the clear profits is less than the reasonable return in any year of account.
(3) On the purchase of the undertaking under the terms of its license any balance remaining in the Tariffs and Dividends Control Reserve shall be handed over to the purchaser and maintained as such Tariffs and Dividends control Reserve : Provided that where the undertaking is purchased by the Board or State Government, the amount of the Reserve may be deducted from the price payable to the licensee.'
3. The contingencies reserve is created in accordance with clause III of the Sixth Schedule and the quantum of the revenues which is to be appropriated towards such a reserve and the manner in which it is to be dealt with is prescribed in clauses IV and V of the Sixth Schedule. Clause VA of the Sixth Schedule also requires the licensee to create a reserve to be called development reserve to which is to be appropriated in respect of each accounting year a sum equal to the amount of the income-tax and super-tax calculated at rates applicable during the assessment years for which the accounting year of the licensee is the previous year, on the amount of the development rebate to which the licensee is entitled for the accounting year under clause (vi-b) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922. The proviso to clauses VA is not material.
4. The Tribunal declined to accept the contention of the assessee that the amount standing in these reserves was liable to be excluded from the computation of net wealth. A further contention of the assessee before the Tribunal was that the amount standing in the consumers' benefit account which is created in accordance with the requirement of the latter part of clause II of the Sixth Schedule was also liable to be excluded because, according to the assessee, it was not in the nature of a reserve but that the amount represented a clear liability and it was not a part of the assessee's wealth because it was only held in trust. The Tribunal rejected this contention also. A further contention was raised by the assessees with reference to the provision for income-tax and corporation tax for the material year as reduced by the advance tax paid as also in respect of the reserve for proposed additional taxes for the assessment years 1957-58, under Finance (No. 2) Bill, 1957, and the taxes under the Wealth-tax Act. The claim in respect of these items arose in respect of the assessment year 1957-58, in the case of three companies and further for 1959-60, in the case of Tata Hydroelectric Power Supply Co. The next contention of the assessee before the Tribunal related to exemption from payment of wealth-tax for the material years in respect of certain assets which, according to the assessees had to be excluded for the purpose of computation of wealth in view of the provisions of section 5(1)(xxi) of the wealth-tax Act. It was the case of the assessee, that the three companies together had a generating station at Trombay and that station had three units known as unit No. 1, No. 2 and No. 3. There was also a receiving station at Carnac. Units Nos. 1,2 and 3 were, according to the assessees, set up on 15th March, 1956, 15th April, 1957, and 17th June, 1960, respectively, and that unit No. 3, had started functioning on 7th July, 1960. With regard to the receiving station at Carnac, the asessee's case was that it was set up on 7th April, 1957, and it had started working on 15th April, 1957. The claim for exemption in respect of these units was disputed on behalf of the revenue on the ground that all the three units really formed a part of the Trombay project and that the Trombay project as a whole had to be considered for the purpose of exemption under section 5(1)(xvi) and that when section 5(1)(xxi) refers to the setting up of a new and separate unit, whether a new and separate unit had been set up for the purposes of that clause had to be determined with reference to the date on which the assessees had commenced operations for the establishment of the unit and not the date on which the units had started functioning. Further, it was the contention of the department that, in any case, unit No. 1 had commenced production prior to 1st April, 1957, and even if the three units are treated as separate units, the process of setting up of the second unit must have commenced prior to 1st April, 1957, and, therefore, units Nos. 1 and 2 were not eligible for exemption on that ground and unit No. 3. was also not eligible for exemption since the work commenced after the relevant valuation dates, Further, it was contended before the Tribunal on behalf of the revenue that no separate accounts had been maintained in respect of each of the four units and actually one single account was maintained for all the three units of Trombay project and at the end of the relevant accounting year only separate trial balances were drawn up by apportioning the expenses and the receipts on a proportionate basis. The case of the revenue appeared to be that each of the three companies should have maintained separate accounts in respect of, that part of unit or units as is attributable to it. The Tribunal after referring to the provisions in section 5(1)(xxi) took the view they the three units at Trombay were independent of one another and that they were all new and separate units and so also was the Carnac receiving station which was situated at some miles away from the Trombay unit. The Tribunal further held that the expression 'set up' must mean 'ready to commence' and, in taking this view, the Tribunal relied upon a decision of the Madras High Court in Ramaraju Surgical Cotton Mills Ltd. v. Commissioner of Wealth-tax : 46ITR820(Mad) . The Tribunal, therefore, took the view that Trombay units Nos. 2 and 3, the Carnac receiving station must be taken to have been set up on 15th April, 1957, 17th June, 1960, and 7th April, 1957, respectively. According to the Tribunal, there was no difficulty in holding that the setting up of these units was by way of a substantial expansion. With regard to the contention that there separate accounts had not been maintained, the Tribunal took the view that the purpose of being required to maintain separate accounts was to distinguish the new unit from the existing undertaking and to distinguish the accounts if the new unit from the accounts of the existing undertaking, The Tribunal on a persual of the accounts recorded a finding that the accounts maintained by the assesse are sufficient to show what account exactly has to be exempted in the case of each of the Trombay units and in the case of each of the three companies. The Tribunal further found that so far as the Carnac receiving station was concerned, the accounts were clearly separate. With regard to unit No. 3 which was set up long after any of the three valuation dates in question, the Tribunal took the view that once it is found that the unit is set up after the commencement of the Act, the exemption was available from the assessment year next following the date on which the company commenced operations for the establishment of the unit and that the fact that the unit was set up after some valuation date was not relevant. As a result of these findings, the Tribunal came to the conclusion that in respect of units Nos. 2 and 3 and the Carnac receiving station, the company was entitled to have them excluded for the purposes of computation of wealth-tax.
5. On the findings regarding the excludability of the amount of the different reserves and the consumers' benefit account, at the instance of the asessee, the following questions have now been referred by the Tribunal :
'(1) Whether, on the facts and in the circumstances of the case, in computing the net wealth of the company, the amounts in the contingency reserve, development reserve and tariffs and dividends control reserve are liable to be deducted
(2) Whether in computing the net wealth of the assesees, the amount credited to the consumers benefit account is liable to be deducted ?'
6. With regard to the deductibility of income-tax and corporation tax and the additional taxes the questions referred were :
'(3) Whether in computing the net wealth of the company the provision for payment of income-tax and super-tax in respect of the year of account as reduced by the advance tax paid is liable to be deducted
(4) Whether in computing the net wealth of the company the provisions for payment of additional taxes according to Finance (No. 2) Bill, 1957, and the tax under the wealth-tax Bill, 1957, is liable to be deducted ?'
7. The last question which is referred at the instance of the revenue is :
'(5) Whether, on the facts and in the circumstances of the case, th e portion of the net wealth of, the companies employed in the Trombay Units Nos. 2 and 3 and the Carnac receiving station was exempt under section 5(1)(xxi) of the Act ?'
8. It is not disputed both on behalf of the assessees and the revenue, that so far as the controversy relating to contingencies reserve and development reserve is concerned, the matter is expressly concluded by a Division Bench decision of this court in Commissioner of Wealth-tax v. Bombay Suburban Electric Supply Ltd. : 103ITR384(Bom) . In this decision, which dead with the computation of wealth of an electricity supply company, this court has taken the view that the amount standing in the contingencies reserve and the development reserve an asset belonging to the company and was, therefore, includible in the net wealth of the assessees. The question as to whether tariffs and dividends control reserve was also includible in the net wealth of the assessee has been recently dealt with by us in wealth-tax Reference No. 2 of 1968 Amalgamated Electricity Co. Ltd. v. Commissioner of Wealth-tax - [Since reported in : 114ITR732(Bom) (Supra)] and we gave taken the view that even the tariffs and dividends control reserve would have to be included for the purposes of computation of net wealth. Consequently, question No. 1 must be answered in the negative and against the assessees.
9. So far as question No. 2 is concerned, it is vehemently argued by Mr. Dastur appearing on behalf of the assessees that the ratio of the decisions in the case of Bombay Suburban Electric Supply Ltd. : 103ITR384(Bom) will not be attracted. It is contended that the amount which is required to be set apart in the form of consumers' benefit account as required by the Sixth Schedule is not the property of the assessee and it is in effect liability which is require to be discharged by the assessees. It is contended that the amount which is set apart for the benefit of the consumers is not utilisable at all by the assessee and this amount must, therefore, be treated differently from the amount of the contingencies reserve which is available to the assessee though with some restrictions. It has been argued that Clause II of the Sixth Schedule sets out the purpose for which this amount is required to be set apart and it is contended that the amount has to be distributed in the form of a proportional rebate on the amounts collected from the sale of electricity and meter rentals or it is to be carried forward in the accounts of the licensees for distributions to the consumers in future in such manner as the State Government may direct. It is urged that the obligation to utilise this amount for the benefit of the consumers is absolute and it is only the manner in which that obligation is to be discharged which is directed by the State Government. The learned counsel has emphasised the fact that since the amount is under to circumstances utilisable by the company for its own purposes, it cannot be treated as an assest of the company. Support was sought for this argument from the entries made in the balance-sheet where, according to the learned counsel, the amount standing against the entry 'consumers' benefit account is shown under the had 'current liabilities and provisions' while so far as the contingencies rewserve, the development reserve and the tariffs and dividends control reserve were concerned, the learned counsel contends that these amounts were shown as part of the assests of the company. Strong reliance was placed by the learned counsel on the decision of this court in Amalgamated Electricity co. Ltd. v. Commissioner of Income-tax : 97ITR334(Bom) , and attention was particularly invited to the observations of the Division Bench in that case where will reference to the amount which is transferred to the consumers' benefit reserve, the division Bench, has observed that the amounts transferred to the consumers' benefit reserve, the Division Bench has observed that the amounts transferred to consumers' benefit reserve are at no time available to the licensee for any of its purposes, but these have to be utilised exclusively for the consumers benefit.
10. Now, the question as to whether a particular amount or an assests is includible for the purposes of computing the net wealth of an assessee will, in our view, have to be considered specifically in the light of the provisions of the wealth-tax Act. It is, no doubt, true that so far as the Sixth Schedule is concerned clause II of that Schedule does not provide that the amount standing in the consumers' benefit reserve can be utilised by the assessee for any purpose other than the one referred to therein. It is, however, important to bear mind that the functioning of a licensee under the Electricity Act, 1910, so far as its financial affairs are concerned, is controlled by the provisions of the Sixth Schedule which, as we have earlier pointed out, is always deemed to be a part of the license. The profits which an electric supply company, which is a licensee under the Electricity Act, can earn by generation and distribution of electricity are controlled by statutory provisions. Not only is a limit put so far as the profits are concerned, but the manner in which the profits are to be applied is also regulated.
11. In clause I of the Sixth Schedule, it is expressly provided that notwithstanding anything contained in the Indian Electricity Act, 1910, except sub-sections (2) of section 22A and the provisions in the licence of a liccensee, the licensee shall so adjust his charges for the sale of electricity whether by enhancing or reducing them that his clear profits in any year of account shall not, as far as possible, exceed the amount of reasonable return. There is, therefore, a clear restriction put by the legislature on the extent of the profits which can be earned by a licensee who is functioning under the provisions of the Electricity Act. In the context of the restrictions which is placed by clause I of the Sixth Schedule, the provisions of clause II, which direct as to what is required to be done in case the clear profits of a licensee exceeds the amount of reasonable return, clearly indicate that it is with a view to give effect to the provisions of clause I that a part of the amount of the excess of the clear for to the consumers in the form of rebate. Now, the latter part of clause II provides for two alternative ways of dealing with a part of the excess of the clear profits over the reasonable return. After making allowance for one-third of the excess which is to be at the disposal of the undertaking and one-half of the remaining out o f the excess which is to be appropriated to a reserve which shall be called tariffs and dividends control, reserve,. clause II provides that the remaining shall either be distributed in the form of a proportional rebate on the amounts collected from the sale of electricity and meter rentals or it can be carried forward in the accounts of the licensee for distribution to the consumers in future in such manner as the state government may direct. The intention of this clause is very clear that since there is a restriction on the extent of the clear profit to be earned by the licensee, if there is a certain excess earned in one particular year of account, in order to give effect to clause I it is provided that a rebate should be granted to the consumers. The effect of granting the rebate is not that there is any actual distributions of any amount by the licensee to the consumers but that the recovery of the price of electricity from the consumers is done after giving a certain discount or a rebate. The practical effect of this provision, therefore, is that in the next year of accounts if at all rebate is granted to the consumers, the clear profits of the licensee may diminish, the whole object being to see that the clear profits did not exceed the reasonable return. Therefore, when clause II refers to distribution in the form of a proportional rebate the only effect is that price for the electricity supplied later on, either in the next year of account or at such time as the company may think of utilising the consumers benefit fund is lesser at that particular time. But this is not the same thing as saying that the company is paying out of its resources or out of its consumers benefit fund anything to the consumers.
12. The second alternative is that the consumers' benefit and can be carried forward in the account of the licensee for distribution to the consumers in future in such manner as the state government may direct. Therefore, so far as the distribution of the kind contemplated by the latter part of clause II(1) is concerned in what manner the excess profits earned are to be distributed is to be determined by the State Government. Until such time as the state government decides to direct the licensee with regard to the distribution of the surplus profits, the amount contemplated by clause II continues to remain a part of the profits, of the company. Admittedly, no rebate has been granted in the year of account. Therefore, on the respective valuation dates the amount which stood in the consumers benefit fund continued to be a part of the profits of the company. Admittedly, the amount has been carried forward as a part of the profits through they were liable to be utilised in the manner as directed by the State Government, if and when such direction is given. Merely because, the amount required to be set apart in clause II is shown in the balance-sheet under the head of liabilities, that would not be conclusive of the question as to whether that amount which positively formed part of the real profit was an assests of the company or not. The question as to whether this amount would be available for any other purpose or not would, in our view, be hardly relevant for the purposes of computation of net wealth. When dealing with the provisions of the Wealth-tax Act, the question as to whether a particular assests is a part of the net wealth of the assessee or not will have to be determined solely with reference to the definition of 'net wealth' in section 2(m) of the wealth-tax Act. Under section 2(m) 'net wealth' is defined as meaning the amount by which the aggregate value computed in accordance with the provisions of the Act of all the asests, wherever located, belonging to the assessee on the valuation date, including the assests required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date. The debts which are to be left out for the purposes of this computation referred to in sub-clauses (i), (ii) and (iii) of clause (m) of section 2 of the wealth-tax Act are not relevant for the present purpose. An assests has been defined in section 2(e), which, so far as the material years are concerned, would mean property of every description, movable or immovable. Therefore, the only criterion for determining whether a particular item can be included as a part of the net wealth of an assessee is to find out whether it is movable or immovable property belonging to the assessee. A question of deduction of the debts does not arise in the instant case. As we have already pointed out, it is only the manner of application of a part of the clear profits which is provided for by clause II of the Sixth Schedule. Such a provisions does not destroy the nature of the asset which is admittedly part of the clear profits of the assessee-company. As observed by the Supreme Court in Calcutta Electric Supply Corporation v. Commissioner of Wealth-tax : 82ITR154(SC) , the only thing relevant for the purpose of the Act is that the assessee should be the owner of the assests in question on the relevant valuation date. Therefore, unless it is possible to demonstrate that any part of the property under the ownership of the assessee, it will be difficult to hold that it was not an assets of the assessee. It is not even the contention if the learned counsel for the assessee that the effect of clause Ii is to divest the assessee-company of the ownership of that part of the clear profit which is required to be set apart for the purposes of the consumers benefit fund. All that is contended is that this amount is not available to the assessee for being utilised. We, however, fail to see how any restriction, whether it is partial or absolute, in the matter of utilisation of an asset has any relevance to the ownership of the assests which alone is material for the purposes of determining whether it is an assests owned by the asessee or not.
13. We must bear in mind that the subject of the charge under the wealth-tax Act is entirely different from the subject of the charge under the Income-tax Act. While under section 3, tax is levied in respect of the net wealth on the corresponding valuation date, under the provisions of the Income-tax Act, tax is levied on what is now called, 'real income' or 'real profit' which is to be determined after making allowances and deductions permissible under the specific provisions of the Income-tax Act. It is in that context in the case of Amalgamated Electricity Company Ltd. : 97ITR334(Bom) , the Division Bench was considering the question when it dealt with the consumers benefit reserve for the purpose of determining whether that was a permissible deduction for the all purposes of computation of real income. It was held to be deductible on the ground that it was not available at any time for the licensee for any of its purposes. This consideration, therefore, weighted with the Division Bench in coming to the conclusion that for the purposes of computing the real income of the assessee, that amount was liable to be excluded. Utilisability of an assests cannot, however, be relevant for the purpose of the computation of net wealth in view of the definition of the net wealth in section 2(m) of the Act. It will not, therefore, be possible to accept the contention of the assessee that merely because the amount is not utilisable, it should be excluded from the net wealth of the assessee.
14. An alternative argument was then advanced by Mr. Dastur that since, for the computation of the net wealth from the total assests of the assessee the value of all debts owed has to be deducted, in any case, the amount which is set apart in the comsumers' benefit fund must be treated as debt owed. Our attention was invited to the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax : 59ITR767(SC) , where the supreme court was dealing primarily with the question as to whether the amount of the provision for payment of income-tax and super-tax in respect of the year of account was a debt owed within the meaning of section 2(m) of the wealth-tax Act. It was held in that case that though the expression 'debt' may take colour from the provisions of the concerned Act, and it may have different shades of meaning, the following definition was unanimously accepted in the decisions considered in that case :
'A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation; debitum in prasesenti, solvendum in futuro.'
15. The Supreme Court then observed at page 780 :
'In short a debt owed within the meaning of section 2(m) of the Wealth-tax act can be defined as a liability to pay in prasesenti or in futuro an ascertainable sum of money.'
16. Relying on this concept of the debt as expounded by the Supreme Court, it was contended that since clause II created on obligation on the licensee to distribute a part of the amount earned in excess of the clear profit, the amount so appreciated should be treated as a debt owed. It was contended that the debt was owed to the whole body of consumers and, therefore, even having regard to the definition of net wealth, the amount standing in the consumers' benefit fund should be deducted for the purposes of computation of net wealth.
17. It is not possible for us to accept this argument. All that was required to be done under clause II of the Sixth Schedule is that the licensee is required to set apart a particular amount. It is difficult to hold that merely by the provisions of clause II of the Sixth Schedule, any corresponding right is created in favour of any answer to claim any particular amount or even any ascertainable amount either in prasesenti or in futuro. It is not that every liability results in a debt. Here, it could not be disputed by Mr. Dastur that the whole body of consumers is an indeterminate body which would also be a consumers is an indeterminate body which would be also be a fluctuating body. The proper test to apply in order to consider whether a particular liability is a debt or not would, in our view, be whether if there is a failure to discharge an obligation by a person who claims that a debt is due, that amount would properly be recoverable by a due process of law. Unless a right to recover any money due is enforceable by a person in whose favour such obligation is said to be created, it would be difficult to hold that there is a debt owed by one person to the other. In the instant case, it is difficult to appreciate how any particular consumer could enforce any right to claim any particular amount of rebate at any particular point of time because it is exclusively left either to the assessee or to the State Government to decide if and when the amount will be distributed to the consumers and in what form. We are, therefore, not inclined to accept the contention of the assessee that the amount standing in the consumers benefit funs should be treated as a debt owed. Consequently, the amounts standing in the consumers' benefit fund was clearly liable to be included as a part of the net wealth of the assessee. Question No. 2 would, therefore, have to be answer in the negative and against the assessee.
18. So far as question Nos. 3 and 4 are concerned, it is not disputed that they are covered by two decisions of the supreme court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax : 59ITR767(SC) and H. H. Setu parvati Bayi v. Commissioner of Wealth-tax : 69ITR864(SC) . In Kesoram Industries' case, : 59ITR767(SC) the supreme court has held that the liability to pay income-tax was a present liability, though the tax became payable after it was quantified in accordance with ascertainable data. It was also held that the rate was always easily ascertainable inasmuch as if the Finance Act was passed it was the rate fixed by that Act or if the Finance Act was not yet passed it was the rate proposed in the Finance Bill which incidentally even in that case happened to be the Finance (No. 2) Act, 1957, or the rate in force in the preceding year, whichever was more favourable to the assessee. In the case of Setu Parvati Bayi : 69ITR864(SC) , the supreme court has held that by virtue of section 3 of the Wealth-tax Act, 1957, the liability to pay wealth-tax became crystallized on the valuation date and not on the first day of assessment year and the wealth-tax liability of an assessee on the valuation date for the assessment year beginning on the 1st April following is a debt owed within the meaning of section 2(m) of the Act should be deducted from the estimated value of the assests as on the valuation date. In view of these two decisions, it is not disputed by Mr. Joshi that the questions Nos. 3 and 4 had to be answered in favour of the assessee. Accordingly, questions Nos. 3 and 4 are answered in the affirmative and in favour of the assessee.
19. That brings us to the last question, the controversy in which is also concluded by the decision in Commr. of Wealth-tax v. Ramraju Surgical Cotton Mills Ltd. : 63ITR478(SC) . We have already referred to the findings given by the Tribunal before whom the main contention was that the word 'set up' in clause (xxi) of section 5(1) should be read as referring to the initial staring of the project. Sections 5 provides for exemption in respect of certain assess. According to the assessee, all the three units newly constructed at Trombay and the receiving station at Crank were exempted as they fall within clause (xxi). We are really concerned with units Nos. 2 and 3 and the Carnac receiving station. The exemption in clause (xxi) is in respect of '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.' There are certain conditions provided in the proviso which must be satisfied before such exemption can be claimed. Those conditions are;
'(a) Separate accounts are maintained in respect of such unit; and (b) The conditions specified in clause (d) of section 45 are complied with in relation to the establishment of such unit.'
20. There is a further proviso which provides that the 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. We are not concerned in this case with this proviso. There is a finding by the Tribunal that the conditions in clauses (a) and (b) have been satisfied. The correctness of those findings had not been put in issue. But the only contention is whether the units can be said to have been set up only on the date on which they were completed and went into operation or whether they can be said to have been set up prior to 1st April, 1957, that is, the point of time when the project was commenced, In Ramaraju Surgical Cotton Mills Ltd.'s case : 63ITR478(SC) , it has now been held by the Supreme Court that 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 and it is only when the unit has been put in 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. It was held that the word 'set up' in the principal clause of section 5(1)(xxi) is equivalent to the word 'established'. Having regard to this decision of the supreme court it is difficult to find any error in the order of the Tribunal when the Tribunal took the view that the units Nos. 2 and 3 and the Carnac receiving station which had commenced operation after 1st April, 1957, had to be exempted under section 5(1)(xxi). Consequently, question No. 5 is answered in the affirmative and in favour of the assessee.
21. Accordingly, the answers to the questions referred are recorded as follows :
Question No, 1 is answered in the negative and against the assessee.
Question No,. 2 is answered in the negative and against the assessee.
Question No,. 3 is answered in the affirmative and in favour of the assessee.
Question No. 4 is answered in the affirmative and in favour of the assesseee.
Question No. 5 is answered in the affirmative and in favour of the assessee.
22. Having regard to the fact that both the parties have succeeded partly and failed partly, in the circumstance of the case, there will be no order as to costs.