JAGADISAN J. - The Standard Motor Products of India Ltd. is a public company incorporated under the Indian Companies Act engaged in the manufacture of 'Standard' motor-cars and 'Ferguson' tractors. It entered into an agreement on September 22, 1949, with the Standard Motor Co. Ltd., Conventry, Untied Kingdom, under the terms of which it became entitled to import into this country parts and components for assembling cars and tractors. The company started manufacturing cars and tractors on and from May 1, 1950. The capital employed by the company is Rs. 14,38,760. The company imported spare parts from the United Kingdom under the terms of the agreement aforesaid and not merely used the spare parts for assembling cars but also sold them as spared. In the year of assessment 1952-53 ('previous year' ending December 31, 1951) under the Indian Income-tax Act the company returned an income of Rs. 6,67,850. The Income-tax Officer computed the profit arising out of the dealing in spare parts, not manufactured by the company but imported from the United Kingdom, at Rs. 33,337. The assessee company preferred an appeal to the Appellate Assistant Commissioner and contended that it was an industrial undertaking under section 15C of the Act, and that no part of its income, profits or gains in the year 1952-53 should be assessed to tax. The Appellate Assistant Commissioner took the view that the business activity of the company in importing and selling spare parts as such was part of the industrial undertaking of the company and that the Income-tax Officer failed to adopt the correct mode of assessment. The total profits of the company for the year were, however, considerably in excess of the rebate admissible under section 15C of the Act. In calculating the rebate the Income-tax Officer had excluded the value of spare parts dealt with by the company. The value of spare parts was included by the appellate authority in working out the rebate and the result was that the taxable income of the company was reduced by Rs. 7,648. The department filed an appeal against this decision to the Income-tax Appellate Tribunal, Madras. The Tribunal held that the selling of spare parts was an integral part of the industrial activity of the company consisting of manufacturing and assembling of cars and tractors and that the decision of the Appellate Assistant Commissioner was well founded. At the instance of he department the following question of law has been referred to this court under section 66 of the Act :
'Whether, on the facts and circumstances of the case, the assessee company is entitled to relief under section 15C of the Indian Income-tax Act in respect of the profits arising from purchase and sale of spare parts as such ?'
Section 15C, in so far as it is relevant for the disposal of this reference, reads as follows :
'(1) Save as otherwise hereinafter provided, the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking, computed in accordance with such rules as may be made in this behalf by the Central Board Of Revenue.
(2) This section applies to any industrial undertaking which... (iii) employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power....
(3) The profits or gains of an industrial undertaking to which this section applies shall be computed in accordance with the provisions of section 10....
(6) The provisions of this section shall apply to the assessment for the financial year next following the previous year in which the assessee begins to manufacture or produce articles and for the four assessments immediately succeeding.'
The object of this section is to promote the establishment of new industrial undertakings. Relief from taxation is certainly a measure of encouragement to the starting and establishment of fresh industries. The language of the section is fairly clear. Income, profits or gains derived from an industrial undertaking as defined in section 15C is immune from taxation to the extent of six per cent. per annum on the capital employed in the undertaking which is to be computed in accordance with certain rules. The exemption is confined only to the income derived from the industrial undertaking. An assessee claiming exemption under this provision must establish that the income sought to be taxed in his hands has its source from 'an industrial undertaking'.
The real question that has to be determined in this case is whether the income derived by the assessee company by way of profits from the sales of spare parts which did not undergo a manufacturing process in this country is part and parcel of its income from an industrial undertaking, there being no dispute that the assembling of cars and tractors by the assessee constitutes it as an industrial undertaking within the meaning of section 15C. Learned counsel for the department submits that the answer to the question referred must be against the assessee in view of the decision of this court is Ashok Motors Ltd. v. Commissioner of Income-tax. In that case the assessee was a dealer in Austin cars and trucks and spare. It commenced to import parts from abroad and assemble cars at its factory. The department proceeded on the basis that the assessee did not derive the income solely from the industrial undertaking but that it was in part derived from activities such as trade in purchase and sale of cars and spare parts. The question that arose for consideration was whether the import and sale of spare parts constituted an integral part of the industrial undertaking so as to call into play section 15C of the Act in respect of the assessees entire income, profits or gains. This court held that the sale of spare parts though connected with and allied to the industrial undertaking was not part of the undertaking and that income from the sale of spare parts would not get the benefit of section 15c. We have no doubt that the case directly governs the decision of the question now before us. The question now in issue, whether a composite income derived partly from an industrial under-taking and partly from a business connected with it, is within section 15C has been fully considered in all its aspect in that decision. We find ourselves so completely in agreement with it that we have not felt the need for any discussion of the subject afresh. The learned counsel for the assessee endeavoured to contend for the contrary position but failed to convince us as he was confronted with the language of the statute which makes its meaning clear and the object of the legislature plain. Learned counsel for the assessee, however, drew our attention to the following passage in that decision at page 404 :
'But he would contend that in the present case what the assessee has been doing is to import and sell spare parts. He argues that the business of the industrial undertaking itself would not be advanced unless it trades in spare parts as well. He would suggest, therefore, that since this business is intimately connected with the industrial under-taking, the advancement of which cannot be secured except by its engaging in this additional business, the two should be treated as forming part and parcel of the same industrial undertaking. We are not satisfied that his argument is correct..... assuming that he assembles and sells 1,000 cars of a particular make in the course of a year in the functioning of his industrial undertaking, but he purchases and sells spare parts needed for 10,000 or more cars, his main business would really be that of buying and selling spare parts, rather than the pursuit of the industrial undertaking. In such an event, the argument that the industrial undertaking would not be carried on successfully except by engaging in the buying and selling of spare parts loses much of its point.'
Basing himself on this passage learned counsel for the assessee submits that in a case where the industrial undertaking engaged in the manufacture and assembling of cars deals in spare parts not manufacutred by the undertaking, such dealing may be part of the industrial undertaking if it constitutes only a small fraction of the total value of the business of the undertaking. His contention is that if there are two businesses, (i) an industrial undertaking and (ii) purchase and sale of spares, in the hands of the same assessee, he cannot be said to be carrying on both the businesses but should be deemed to carry on only that business which is dominant. If the magnitude of the industrial under-taking is very much larger than that of the business in spares, the assessee can be said only to carry on the undertaking; so runs the argument of the learned counsel. We are quite sure that the decision referred to does not lend any support to this contention. It is enough to refer to the following passage from that judgment at page 405 :
'The conclusion is irresistible that in the case of even such composite businesses carried on by the assessee, it is only the profits of the industrial undertaking that would be eligible for the exemption.'
The words of the statute indicate clearly that unless and until the income, profits or gain are derived from the industrial undertaking the exemption cannot be invoked. Any income which is referable to a source different from that of the undertaking cannot be saved from taxation under section 15C and it is impossible to bring it within that provision merely because the assessee happens to derive income from an industrial undertaking as well. For purposes of section 15C there can be no merger of several business activities into the industrial undertaking, however much they may be closely allied to or intimately associated with the latter. The exemption has to be strictly construed, and the language of the enactment prevents the extension of the benefits to income which is merely incidental or ancillary to the industrial undertaking but which does not arise from and out of it. The protection is only to the income from the undertaking and not to other income from the satellites in its orbital system.
Learned counsel for the assessee submits that under the terms of the agreement with the Standard Motor Co. Ltd., Convently, purchase of spare parts was obligatory and inextricably interwined with the industry. The following provisions of the agreement may be referred to (In that agreement the assessee is described as the All India Company and the Standard Motor Co. Ltd., Coventry, as the Standard).
'1. The All India Company is hereby granted the exclusive right to import, assemble, manufacture and market motor vehicles, tractors, components and spare parts manufactured and/or supplied by Standard, such importation, assembly, marketing and manufacture to be carried out in India......
3. The All India Company will not import or otherwise acquire the foregoing motor vehicles and tractors, components and spare parts except direct from Standard unless due to import restrictions they cannot be imported into India.....
5. Except as may otherwise be agreed in writing by Standard the All India Company and its present or future subsidiary or associated companies or any of them shall so far as motor vehicles, tractors and similar mechanical units are concerned devote itself exclusively to purchasing, importing, assembling, manufacturing and marketing such units, components thereof and spare parts therefor manufactured and/ or supplied by Standard excluding such parts thereof as are not permitted by law to be imported into India.
6. The All India Company will order and purchase all motor vehicles, component parts and spare parts from Standard and will sell them under the following terms and conditions.....'
It may be that as part of the programmer of manufacture and sale of cars and tractors the assessee had to incur the contractual obligations as laid upon it under the terms of the above agreement. But this contractual obligation cannot really constitute the business of the assessee by purchase and sale of spares as part of the industrial undertaking by binding that business into that undertaking. The business in spare parts is not essential to the subsistence of the industrial undertaking of the assessee and it cannot be pretended that a failure or a cessation to carrying on such business would put an end to the undertaking itself. We are of opinion that the decision of the Appellate Assistant Commissioner and that of the Appellate Tribunal are incorrect and that the Income-tax Officer took the right view in the matter.
The question is answered against the assessee and in favour of the department. The assessee will pay the costs of the department; counsels fee Rs. 250.
Question answered accordingly.