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Commissioner of Income-tax Vs. Indian Aluminium Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 84 of 1964
Judge
Reported in[1973]88ITR257(Cal)
ActsIncome Tax Act, 1922 - Section 15C and 15C(2)
AppellantCommissioner of Income-tax
RespondentIndian Aluminium Co. Ltd.
Appellant AdvocateB.L. Pal and ;N.L. Pal, Advs.
Respondent AdvocateS. Banerjee, ;D. Pal and ;S. Mukharjee, Advs.
Cases ReferredAnil Starch Products Ltd. v. Commissioner of Income
Excerpt:
- masud, j.1. in this reference under section 66(2) of the indian income-tax act, 1922, the following question has been referred to this court:' whether, on the facts found by the tribunal or on record and in the circumstances of the case, the tribunal was justified in holding that section 15c of the indian income-tax act, 1922, was applicable to the new production units added to the existing production units of the assessee at belur, alupuram and muri in respect of buildings, plants and machineries and directing exemption to be granted under the aforesaid section accordingly '2. the relevant assessment year is 1960-61, the corresponding previous year being the calendar year ended on december 31, 1959. the assessee-company is a manufacturer of aluminium ingots from ores. in the earlier.....
Judgment:

Masud, J.

1. In this reference under Section 66(2) of the Indian Income-tax Act, 1922, the following question has been referred to this court:

' Whether, on the facts found by the Tribunal or on record and in the circumstances of the case, the Tribunal was justified in holding that Section 15C of the Indian Income-tax Act, 1922, was applicable to the new production units added to the existing production units of the assessee at Belur, Alupuram and Muri in respect of buildings, plants and machineries and directing exemption to be granted under the aforesaid section accordingly '

2. The relevant assessment year is 1960-61, the corresponding previous year being the calendar year ended on December 31, 1959. The assessee-company is a manufacturer of aluminium ingots from ores. In the earlier years it had four manufacturing centres at Belur, Kalwa, Alupuram, and Hirakud. In the present accounting year one more was added at Muri and also there were additional extensions to the existing factories at Belur and Alupuram. In connection with the assessment year 1960-61 the assessee-company had claimed relief under Section 15C before the Income-taxOfficer in respect of fresh capital outlay at Muri as well as additional investment in the form of extension to the existing factory premises, installation of new plants and machineries, etc., at Alupuram and Belur. The Income-tax Officer discussed the relief under Section 15C in respect of the unit at Hirakud but did not deal with the other three units in dispute. He has, however, refused to grant any relief to the assessee-company in respect of all the said four units. In the appeal before the Appellate Assistant Commissioner the company claimed relief under Section 15C in respect of only three units at Alupuram, Belur and Muri. On the basis of the records in the earlier years the Commissioner disallowed the relief under Section 1SC in respect of Alupuram and Belur units. With respect to the unit at Muri the Commissioner has found that the assessee has already a manufacturing unit at Muri which was only expanded in the accounting year. In the premises he confirmed the order of the Income-tax Officer. The assessee-company appealed before the Appellate Tribunal. After discussion of the submission made by the representatives for the parties the Tribunal came to the conclusion that all the said three units are new undertakings and, therefore, the company is entitled to relief under Section 15C. It may be stated here that the Tribunal came to the said conclusion on the reasonings set out by them in their earlier consolidated order in respect of Belur and Alupuram units for four assessment years 1956-57, 1957-58, 1958-59 and 1959-60. Another point was raised before the Tribunal in respect of the assessment year 1959-60 which related to the disallowance of a sum of Rs. 1,59,630 which is the wealth-tax paid by the assessee and claimed as a business expense. The Tribunal rejected the said claim. We are not concerned with this point in this reference.

3. Before I deal with the points argued by the counsel for the parties it is necessary to set out the relevant provisions of Section 15C which read as follows.

' 15C. (1) Save as other wise hereinafter provided, the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking or hotel to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking or hotel, 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-

(i) is not formed by the splitting up, or the reconstruction of, business already in existence or by the transfer to a new business of building, machinery or plant previously used in any other business ;..... Provided that the Central Government may, by notification in the Official Gazette, direct that the exemption conferred by this section shall not apply to any particular industrial undertaking.'

4. Relying on. Commissioner of Income-tax v. Textile Machinery Corporation, : [1971]80ITR428(Cal) Mr. Pal, on behalf of the revenue, has strenuously argued that, in the facts and circumstances of the present case, the three units at Belur, Alupuram and Muri of the assessee-company in respect of which the reliefs under Section 15C have been claimed are only expansions of the assessee's original business and, as such, they are industrial undertakings which are formed by the 'reconstruction' of the assessee-company's earlier business within the meaning of Section 15C(2)(i). Exemption under Section 15C of the Act, Mr. Pal has therefore argued, cannot be granted to the extensions of original business of the assessee at Belur, Alupuram and Muri.

5. Mr. Banerjee, on behalf of the assessee, has, however, argued that the proposition of law laid down in Commissioner of Income-tax v. Textile Machinery Corporation is a judgment of a court of co-ordinate jurisdiction and, as such, not binding upon this court. He has submitted that if this court feels that we are bound by the law laid down in the said decision then the present reference should be referred to a larger Bench. Alternatively, he has argued that, in any event, the facts of the present case can be distinguished on material points. He has also laid great emphasis on the main ground that the Tribunal has not erred in arriving at the conclusion inferred from certain basic or primary facts as found by the Tribunal.

6. Reference has been made to the judgment, Commissioner of Income-tax v. Textile Machinery Corporation, by the counsel for both the parties and I have no hesitation in stating that Mukharji C.J. has discussed the essential ingredient of Section 15C in great detail and has thrown light on the subject in an eloquent and analytical manner. The learned Chief Justice has made the following observation at page 435 :

'The dominant requirements of Section 15C as quoted above and so far as are relevant for the purposes of this reference are-

(1) that there has to be an * industrial undertaking ',

(2) that the claim must relate to ' profits or gains derived from ' such industrial undertaking,

(3) that such profits do not exceed 6 per cent. per annum on the capital employed in the undertaking,

(4) that the industrial undertaking is not formed by splitting up or the reconstruction of business already in existence or by transfer of building, machinery or plant, and

(5) must employ ten or more workers in the manufacturing processcarried on with the aid of power or twenty or more workers in themanufacturing process carried on without the aid of power.'

7. In the present case there is no dispute with respect to the existence of the essential requirements of the said section save and except the contentionof the revenue that the undertakings of the assessee-company at Belur, Alupuram and Muri have been formed by the ' reconstruction ' of the assessee's original business. If, on the facts and in law, it can be shown that they are reconstructions within the meaning of Section 15C(2)(i) the company is not entitled to get exemption as provided in the said section and the order of the Tribunal should be set aside. If, however, I hold that those undertakings are in fact establishments which cannot be understood as ' reconstructions', the Tribunal's order must be confirmed. The dictionary meanings of 'the word' reconstruction ' in the Shorter Oxford Dictionary are as follows:

(a) The action or process of reconstructing.

(b) An instance or example of reconstructing.

(c) A thing reconstructed.

8. Similarly, the word 'reconstruct' has been mentioned in the said dictionary as ' construct anew '. As in the present case the controversy centres round the. point as to whether the word ' reconstruction ' includes the word 'expansion', the dictionary meaning of ' expansion' is also relevant, which is mentioned in the said dictionary as follows :

(a) The action or process of expanding or spreading out; the state of being expanded or spread out.

(b) Development.

(c) Anything that is spread out.

(d) An extension of business transactions, an increase of the circulating medium.

9. According to Mr. Pal the word ' reconstruction ' includes expansion of the original existing business. He concedes that a new industrial undertaking cannot be called a ' reconstruction of business already in existence', within the meaning of Section 15C(2)(i). He has relied upon the observations of the learned Chief Justice in Commissioner of Income-tax v. Textile Machinery Corporation, : [1971]80ITR428(Cal) where, after discussing the difference between reconstruction of a company and reconstruction of a business, the learned Chief Justice has stated at page 448 :

' Here, the commercial content of reconstruction is much wider when we are considering the reconstruction of a business. Such reconstruction need not be occasioned by any embarrassment with a company's creditors or members but may involve, as a matter of commercial development or commercial expediency, many considerations as of improvement, rationalization, prevention of waste or delay in the work of the business itself, or automation or mechanisation.'

10. The learned Chief Justice has made the said observations in connection with his discussion on the ' reconstruction ' of a company under company law. I agree with the learned Chief Justice that the reconstruction of a company under the Companies Act is not the same thing as the reconstruction of the business. But, at the same time, it seems to me that, although such a distinction is not irrelevant academically, the provisions of the company law or any other law would not be of much assistance in construing the meaning of the term ' reconstruction ' under Section 15C(2)(i) of the Indian Income-tax Act, 1922. The head-note of Section 15C is ' Exemption from tax of newly established industrial undertakings '. It is well settled that the head-note of a section, although throws light on the construction of its provisions, the head-note or marginal note by itself cannot be the yardstick for construing the scope and legal effect of the different words mentioned in the section. But, it is obvious from the section itself that an assessee shall not be liable to pay income-tax on the profits or gains derived from industrial undertakings as do not exceed 6% per annum on the capital employed in such undertaking. Sub-clause (2)(i) of Section 15C explains which class of industrial undertakings are not exempted from payment of such tax. In the present case we are only concerned with the class of industrial undertaking which is or is not formed by the reconstruction of business already in existence ; or, in other words, this court will have to decide if the three units at Belur, Alupuram and Muri have or have not been formed by the reconstruction of the assessee's original business. If we hold that the said three units are not formed by the reconstruction of the assessee's original business, the assessee is entitled to get exemption of tax. If, however, we come to the contrary conclusion the decision has to be made in favour of the department. Section 15C(1) provides for a general exemption from tax under the circumstances stated therein, to all assessees in respect of profits or gains derived from the particular class of industrial undertaking mentioned therein, which is commenced or established subsequent to the existence of the original business. Thus, obviously, the words 'industrial undertaking' referred to in Section 15C(1) must refer to a newly established industrial undertaking. But, this 'newly established industrial undertaking ' may be an independent separate entity or one which is formed by the splitting up or the reconstruction of the assessee's original business or by the transfer of building, machinery or plant to such new business. Thus, for the purpose of getting advantage of Section 15C the sine qua non is that there must be the assessee's original business and that the assessee has established or commenced a new undertaking, which may take the shape of reconstitution, re-formation, reincorporation on the one hand or new production unit or separate business, on the other. The separate business need not be a different kind of business. The commodity which the original business produces or manufactures or sells may be a relevant factor in finding out whether the subsequent business is the expanded business or an independent business. But, such factor by itself cannot be the determining factor. In a wide sense, the expanded business and the separate business are both cases of expansion inasmuch as the assessee-company controls both such undertakings. Bat if we accept the narrow meaning of ' expansion ' obviously ' expansion ' means improvements of or additions to or extensions of the original business. It may be added here that the confusion has arisen on account of the fact that the statute has not defined the word 'reconstruction'. There is no doubt that the word ' reconstruction ' is an unhappy expression and would continue to cause confusion in future. Unlike many other statutes the legislature has not chosen to add any Explanation clause to the said Section 15C(2)(i). No relevant English statute has been placed before us. Thus we shall have to construe the word ' reconstruction ' in accordance with the well-established principles or rules relating to interpretation of statutes.

11. Section 15C provides that the assessee should not be taxed in respect of the profits or gains derived from its subsequent industrial undertaking as do not exceed 6% per annum on the capital employed by it in such undertaking. But it is obvious from this section that the ' industrial undertaking ' in clause 15C must refer to some new undertaking or undertaking which amounts to additions, alterations, extensions, expansions or new units. It pre-supposes that the assessee has got an existing business of its own. But, apart from its original business, the assessee, for commercial expediency, might decide to cause expansion of its business. This expansion may take place in various ways. The original business might be carried on in the assessee's plot of land or over the assessee's building or buildings. Several floors may be raised on the land or the existing building of the original business of the assessee. It may purchase new plants or machineries or even replace the old machines by modern plants as a result of which the assessee might get a good return for the capital invested in such extension or improvement. Again, the expansion, in a wide sense, may also include new production unit, manufacturing, producing or even selling products which may or may not be entirely different from the nature of the original business. All these questions arise because the assessee happens to be the owner, proprietor or controlling authority of both its original business and its expanded business. Thus, we shall have to find out to what extent or limit the principle of expansion should be applied to the exemption clause under Section 15C(2)(i).

12. In my view the plain meaning or the dictionary meaning of the word ' reconstruction of business already in existence ' gives some indication of the intention of the legislature. The juridical meaning of the said word will be spelt out from the dictionary meaning if however the dictionary meaning is not inconsistent with other legal principles. The additional reasons why dictionary meaning should be accepted may now be discussed.

13. Section 15C provides for a statutory relief to an assessee who has an original business but establishes an industrial undertaking which is not formed by the splitting up or the reconstruction of business already in existence or by the transfer to a new business of building, machinery or plant used in the original business. All the three cases contemplated under Section 15C(2)(i) lay emphasis on the fact that the subsequent industrial undertaking is substantially the continuation or reorientation or rationalization of the original business in different shape or form. The new form or shape must be an industrial undertaking inasmuch as the relief in Section 15C has been granted only to an industrial undertaking. It may be added here that unlike in Commissioner of Income-tax v. Textile Machinery Corporation Ltd., : [1971]80ITR428(Cal) in the present case, the counsel for the revenue does not argue that the new units are not ' industrial undertaking '. The particular industrial undertaking may be entirely new undertaking of the assessee-company in accordance with its memorandum or it may be an addition or extension or improvement or reorganisation of the old business. The proviso to Section 15C(2) makes it clear that the Central Government may direct that ' the exemption conferred by the section shall Hot apply to any particular industrial undertaking'. If the dictionary meaning is accepted then the reconstruction of the existing business would only mean re-establishment, revival, rehabilitation or resumption of the old business in a new way or manner. But the new formation or resumption of the original business may take the form of a separate independent unit or an expansion or extension of the original business. There is no doubt that if the subsequent industrial undertaking of the asses see-company in which the capital has been invested by it and the profits of which do not exceed 6% per annum of the capital employed by the assessee-company is a newly established independent industrial undertaking the assessee shall be entitled to get the relief. But the difficulty arises when the subsequent industrial undertaking is not a separate independent undertaking but an expansion or mere addition to the original business of the assessee-company. If the assessee's original business remains intact and retains its original character and the assessee establishes separate independent undertakings whether of the same or different nature in respect of the same or different commodity the subsequent undertakings cannot be called ' reconstruction ' within the meaning of Section 15C(2)(i). The newness of subsequent industrial undertaking does not necessarily exclude all cases of expansion or extension of the original business. To illustrate, where the original Business is only extended or expanded or developed by the assessee in the same building or enclosure with a proportionately smaller capital, or' where the transactions of the original business and the extended business are of such a nature that they are dependent on one another or where the requirements of the original business are subserved substantially by the product of subsequent undertakings, it may be said that such expansions cannot have the benefit of exemption under Section 15C. But where the assessee invests large sums of money and establishes new production units of similar or different nature as result of which the original business of the assessee does not intrinsically alter its original character or continues to produce, manufacture or carry on the original activity in the same way even after the establishment of subsequent undertakings, the latter may be called extensions of such a nature which may be called a kind of new industrial undertaking which is entitled to get tax relief. Thus whether the term 'reconstruction' would include the case of substantial extensions or expansions of the assessee's original business so as to invoke the benefit or mischief under section 15C would depend upon the facts of each case. Exemption under Section 15C would only be available to those industrial undertakings which are not established by division or re-orientation of the assessee's original business or which has not been formed by the transfer to it of building, machinery or plant used in the assessee's original business. The emphasis should be laid on the words ' is formed by ' and not the form of subsequent undertaking. To obtain relief under Section 15C, the subsequent undertaking must not be formed or constituted by remodelling or reconstituting the earlier business. It is significant that, apart from the head-note, the words ' new business ' have only been specifically mentioned in the case of transfer of building, machinery or plant used in the original business. Thus the new, separate or independent character of subsequent business is relevant but not important elements in construing the word ' reconstruction '. Even any enlargement or expanded unit may be called ' new industrial undertaking ' in the sense that the subsequent unit was not originally existing but the new undertaking must be understood in the context of the word ' reconstruction'. The legal meaning of the term ' reconstruction ' is, in my opinion, a mixed question of fact and law. It will .be incorrect to say that ' reconstruction ' must include or exclude all kinds of expansions, irrespective of the nature, constitution or character of the subsequent undertaking. All the facts relating to the original business and the subsequent undertaking, as found by the Tribunal, have to be examined before a decision is made on the question whether an assessee is entitled to get relief under Section 15C. Where, therefore, the activities or the business of the subsequent undertaking show substantial expansions they may be called industrial tinder-takings which are not formed by the reconstruction of the assessee's original business. Reference may be made to K. T. M. T. M. Abdul Kayoom v. Commissioner of Income-tax, : [1962]44ITR689(SC) , where the Supreme Court has stated at page 703 :

'Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. '

14. There is another reason why the legal concept of ' reconstruction ' should not include 'substantial expansion' of the assessee's existing business. Section 15C was incorporated in the Income-tax Act of 1922 in 1949. Within 2 years the Industries (Development and Regulation) Act was passed. Section 13(1)(d) of the Act substantially provides that no owner of an industrial undertaking other than the Central Government shall effect its ' substantial expansion ' except under a licence issued by the Central Government or under permission of the State Government. An Explanation is added to Section 13, which reads as follows :

' For the purposes of this section, 'substantial expansion' means the expansion of an existing industrial undertaking which substantially increases the productive capacity of the undertaking, or which is of such a nature as to amount virtually to a new industrial undertaking but does not include any such expansion as is normal to the undertaking having regard to its nature and the circumstances relating to such expansion. '

15. Similarly in 1957 the Wealth-tax Act came into effect and under Section 5(1)(xxi) of the Act, the taxpayer was granted tax relief in cases 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 Section 45(d), as is employed by it in a new and separate unit set up after the commencement of the Act by way of substantial expansion of its undertaking '. But the assessee is debarred from this relief if the case of the assessee comes within the mischief of the said Explanation which is in pari materia with the exceptions mentioned in Section 15C(2)(i) of the Indian Income-tax Act, 1922. Thus, though the concept of ' substantial expansion ' has been put in the statute book in 1951 and 1957, the legislature did not choose to mention the words 'substantial expansion' in the Indian Income-tax Act, 1922, although Section 15C has been amended in 1953, 1956 1959, 1960 and 1961. It is contended on the contrary, that this exclusion in the Indian Income-tax Act, 1922, shows that the legislature did not intend to extend the relief on ground of ' substantial expansion ' under Section 15C for the purpose of taxation under the Income-tax Act. In my view, there may be logic in such argument but such logic does not help the revenue inasmuch as the words ' reconstruction ' and 'substantial expansion' have been separately dealt with by the .legislature as not identical legal concepts. As stated above, under the Industries (Development and Regulation) Act, 1951, the said words ' substantial expansion ' have not been overlooked. All these considerations lead to one conclusion that the formation of an industrial undertaking by way of reconstruction does not necessarily exclude grant of relief in cases of substantial expansion of an existing undertaking. I am compelled to hold this view in spite of the well-known canon of construction of a statute that the words of one Act need not have similar construction on similar words in other Acts. It should be remembered that after all the object of taxation relief in all the three enactments is to offer incentive or stimulus to subsequent undertakings of the assessee. In this connection it should be remembered that, although Section 15C has been incorporated in the Indian Income-tax Act, 1922, in 1949 and the words ' substantial expansion' have been incorporated in Section 13(1)(d) of the Industries (Development and Regulation) Act, 1951, and also in Section 45(d) of the Wealth-tax Act, 1957, read with Section 5(1)(xxi), the legislature did not choose to make the necessary amendments by adding any proviso or Explanation to Section 15C(2)(i) of the Indian Income-tax Act, 1922.

16. Reference has been made to Anil Starch Products Ltd. v. Commissioner of Income-tax, [1966] 59 I.T.R. 514 (Guj.) by the counsel for the revenue. But, that case is not helpful inasmuch as there the parties admittedly proceeded on the basis that Section 15C is applicable to the facts of that case. The only question that was mooted there was whether the starch produced in the original undertaking and used as raw materials in the new unit should be taken up at market price for the purpose of computing profits and gains of the new undertaking under Section 15C of the Indian Income-tax Act, 1922.

17. For the reasons stated above I hold that substantial expansion of an assessee's original business cannot be called 'reconstruction' within the meaning of Section 15C(2)(i), unless there is a finding of fact that the subsequent industrial undertaking is really a fresh formation, resuscitation, reorganization, revival of or resumption to the assessee's earlier business, or that the expansions are of normal and minor nature.

18. It is now for me to discuss how far the principles laid down aboveapply to the facts of the present case. Commissioner of Income-tax v. TextileMachinery Corporation, : [1971]80ITR428(Cal) is clearly distinguishable. In the said case theassessee, Textile Machinery Corporation, was a heavy engineering industrymanufacturing boilers, machinery parts, wagons, etc. The said companyhad its steel foundry division and jute mill division. For the assessmentyears 1958-59 and 1959-60 the assessee claimed exemption from tax under Section 15C in respect of the profits derived from the steel foundrydivision and for the year 1959-60 for its jute mills divisionalso. The Income-tax Officer came to the conclusion that the said steel foundry division and the jute mill division are not new industrial undertakings and, as such, they rejected the claim of the assessee. The assessee appealed to the Appellate Assistant Commissioner who in dismissing the appeal held that the said two divisions had come into existence as a reconstruction of the assessee's original business and, therefore, there was no separate industrial undertaking. The Appellate Tribunal, however, held that both the steel foundry division and the jute mill division of the assessee were new industrial undertakings and accordingly the assessee was entitled to get relief under Section 15C. On a reference to the High Court by the revenue, the High Court decided against the assessee holding that the assessee started producing and manufacturing themselves the machinery plants which it required for their original business and, as such, was doing something which was only a reconstruction of the business already in, existence.

19. The facts of the present case, however, would show that there were substantial expansions to such an extent that the subsequent undertakings can be said to be virtually new industrial undertakings. Firstly, with respect to the subsequent establishment at Belur it appears that the capital employed exceeded Rs. 50 lakhs. It was established in six different buildings, the total accommodation of which is comprising an area of 27,560 sq.ft. It contained 12 different categories of machinery. The Government of India granted import licences and released foreign exchange in favour of the assessee at Belur. Similarly, at Alupuram the capital employed was more than Rs. 50 lakhs. Four separate buildings were constructed in an area of 21,360 sq. ft. Ten different categories of machinery were set up and used for which the Government of India granted import licences also and released foreign exchange. In the same way at Muri also we find that the new extension took place in three different buildings in an area of 19,000 sq.ft. with six different categories of machinery for which import licence was granted and foreign exchange were released by the Government of India. The capital employed was also Rs. 55,70,000. It is true that the assessee's original business and the business at Belur, Alupuram and Muri were manufacturing the same products. It is also true that each one of the findings of fact mentioned above does not by itself lead to the conclusion that they are extensions of such a nature which can be called a new industrial undertaking. But, taking into consideration all the facts together, the extensions are of a very substantial nature which lead me to come to no other conclusion than to hold that they are new industrial undertakings of the assessee.

20. Secondly, unlike the case of Commissioner of Income-tax v. Ttxtilt Machinery Corporation, : [1971]80ITR428(Cal) the undertakings at Belur, Alupuram and Muri were not set up with a view to manufacture parts for being used in the original business of the assessee. In fact, the manufacturing plants at Belur, Alupuram and Muri were working since before 1948.

21. Thirdly, the learned judges of the said case took into consideration the fact that a licence was required under the Industries (Development and Regulation) Act, 1951, and the Registration and Licensing of Industrial Undertakings Rules, 1952, framed under the Act. Under Rule 15 of the said rules a licence has to be obtained from the Central Government for effecting a substantial expansion of the undertaking. Section 15C of the Income-tax Act, 1922, came into the statute book in 1949, whereas the Industries (Development and Regulation) Act, 1951, came into force in 1951. The legislature has not chosen to use the words ' substantial expansion ' as it has been done in the case of Form ' F ' prescribed under Rule 15 of the Regulation and Licensing of Industrial Undertakings Rules, 1952. No amendment by way of proviso or Explanation has taken place in Section 15C of the Indian Income-tax Act on this point. In fact the Tribunal gave importance to the fact of this industrial licence which the assessee got in that-case as one of the reasons for holding that this is a new industrial undertaking entitled to qualify for the exemption under Section 1 5C of the Income-tax Act, 1922. It is true that although industrial licences were granted to the assessee in the aforesaid case yet the learned judges held that they are only substantial extension of the old business and, as such, they amounted to 'reconstruction' within the meaning of Section 15C. In the present case there is no finding whether the licence has been granted under the Industries (Development and Regulation) Act, 1951, and, as such, it may be argued against the assessee that there is no substantial expansion of the assessee's original business. Assuming the argument against the assessee is correct it only shows that the assessee has committed breach of the provision of the Industries (Development and Regulation) Act, 1951. In fact, the learned judges of the aforesaid case did not give much importance to the grant of this industrial licence under the Industries (Development and Regulation) Act of 1951 as, otherwise, they might have treated this as a relevant factor for considering the steel division and jute mill division in holding them as new industrial undertakings.

22. Fourthly, in the case of Commissioner of Income-tax v. Textile Machinery Corporation, : [1971]80ITR428(Cal) the Appellate Assistant Commissioner found that the parts manufactured by the steel foundry division and the jute mill division being essential for the boiler division of the assessee's original business the former two divisions were set up by the assessee so as to avoid purchasing such parts from outside. He also recorded the fact to the effect that the steel foundry and the jute mill divisions were set up with a view to manufacture parts for being used in the manufacture of boilers which was existing business of the assessee (page 344). The learned Chief Justice in the said decision accepted the finding of the Appellate Assistant Commissioner there and has made the following observations at page 438 :

' Now, reconstruction is again a very general and wide term. The fact here is that the goods which this jute mill division and the steel foundry division are producing now for the assessee were also previously used by the assessee in its business but they were purchased from outside and what has happened now is that this purchase from outside is replaced by production or manufacture from within their own business. The question then is, is it or is it not a reconstruction of the existing business. The expression, ' business already in existence '. in this context, must necessarily mean and include the purchase of goods in the outside market for the simple reason that they were used for the business of the assessee. It was a part of the business of the assessee to run its business and, for that purpose, if necessary, to get its goods even from outside. The business, therefore, remained the same. The method of procurement of the goods has changed. Instead of procuring from outside, they were being manufactured from within by the assessee itself under these two divisions.'

23. Thus, it is obvious that the learned Chief Justice has proceeded on the basis that the assessee was purchasing parts for the assessee's original business from the market and after the establishment of the steel foundry division and jute mill division the assessee started purchasing parts from those two divisions which were established by them for the manufacture of the parts which they were originally purchasing from the market. In fact the feeder principle or the canopy principle as described by him was applied to the facts found by the Appellate Assistant Commissioner in that case. In fact in the said decision it was found out that in the steel foundry division out of the total sales of Rs. 28,23,127 worth of steel, goods worth Rs. 18.39,433 were used for the boiler section. There the casting was used mostly by the other existing division of the assessee itself. Similarly, in the jute mill division out of the total sales of Rs. 13,03/509, sales to the boiler division amounted to Rs. 11,89,812. At page 433, there are some more relevant facts on record which may be stated as follows :

' In respect of the jute mill division the records show that the profit of Rs. 1,85,337 for which exemption was claimed under Section 15C of the Income-tax Act, 1922, the relevant facts found by the Income-tax Officer are that, out of the total sales of Rs. 13,03,509, sales to the boiler division amounted to Rs. 11,89,812. These sales consisted of the job work only and nothing else. The raw materials were supplied by the boiler division and, after machining and forging, the parts were given to the boiler division The only sales to outside consisted of parts in respect of jute mills and amounting to Rs. 1,13,697. It is recorded that the assessee admitted that, so far as the products of the jute mill parts were concerned, the company was in an initial and an experimental stage only and whatever profit was earned under the jute mill division is in respect of the work done on behalf of the boiler division.'

24. The Appellate Assistant Commissioner also in that, case found the following facts at page 432 :

' '... The business remained the same and all that had happened was some reconstruction in the business, reconstruction in the sense that, instead of purchasing some parts from outside, the appellant started producing the same itself.'

25. Further, he has stated at page 434:

'... The assessee is a heavy engineering concern manufacturing boilers, etc. The parts manufactured by the steel foundry division and the jute mill division being essential for the boiler division, these two divisions, viz., the steel foundry and the jute mill divisions, were set up by the assessee so as to avoid purchasing such parts from outside . . . these two units of steel foundry and jute mill divisions were set up with a view to manufacturing parts for being used in the manufacture of boilers, etc., which was the existing business of the appellant. ... the business remained the same and all that had happened was reconstruction as mentioned above.' The Tribunal, however, decided against the decision of the income-tax authorities by relying on the following facts at page 434:

' The machinery was new, housed in a separate building and that industrial licences had to be obtained for manufacturing the parts in question. New machinery, housed in a separate building and industrial licence were the three reasons shown by the Tribunal to come to the conclusion that they were separate business. The Tribunal was of the opinion that these two divisions were not reconstructions of existing business. According to the Tribunal, the existing business of the assessee consisted of manufacturing boilers, wagons, etc., and for that purpose the assessee was purchasing the spare parts, forgings and castings from outside. In fact, the Tribunal came to the conclusion that the business of the new industrial undertaking was to manufacture those spare parts. Hence, the Tribunal's view was that it could not be said that this was formed out of the existing business.'

26. In the present case, however, at page 12 of the paper book we find that the Appellate Tribunal has come to the following conclusion :

' We accordingly asked the assessee to present before us a complete statement regarding the various units brought into existence in order to appreciate the contentions on behalf of the parties. Full details have now been furnished. On going through the details of the addition to the units at Belur and Alupuram we are convinced that the assessee has fulfilled the requirements for getting the statutory exemption under Section 15C. There is no dispute that the assessee was having a portion of the building, land and a part of the plant also which were being used for manufacturing aluminium and that portion was existing and working since before 1st April, 1948. In the year 1954-55 there were, however, substantial additions to the units at Belur and Alupuram.'

27. The Tribunal has further found the following facts at page 14 of the paper book :

' The industrial machines were pressed into action during the previous year 1954-55 and the production of aluminium ingots went up by double. The additional units, set up by the assessee-company, have cost it over Rs. 50,00,000 at Belur and about the same figure or a little more at Alupuram. In view of the nature of installation, which in their character and value are substantial, it cannot be said that the units were not new industrial units by themselves, These new units have come up side by side with the old ones and have added to the assessee's total output of aluminium ingots. Producing the same material, however, does not mean that the new units should be taken as mere additions to the old undertakings. The test does not lie in the commodity produced but whether it is the whale undertaking in itself or not.'

28. Thus, the ratio of the decision in the case of Commissioner of Income-taxv. Textile Machinery Corporation, : [1971]80ITR428(Cal) cannot be applied to the facts of thepresent case. Here the additions or extensions in the subsequent undertakings at Belur, Alupuram and Muri are not establishments for thepurpose of running the assessee's original business and, as such, it cannotbe said that they are not new industrial undertakings. It is true thatin a sense it cannot be said to be an absolutely independent industrialundertaking nor can it be urged that the said subsequent extensionsat Belur, Alupuram and Muri are only formed by way of reconstruction of the assessee's original business. As already stated, a decision as tothe connotation of the term ' reconstruction ' is a mixed question of lawand fact; the findings of fact in the present case are of such a nature that,in my opinion, the Tribunal has come to the right conclusion. In thisconnection, reference may be made to the observations of Mukherji J., as hethen was, in Ganga Metal Refining Co, v. Commissioner of Income-tax, : [1968]67ITR771(Cal) where the learned judge has relied on Lord Halsbury's dictum in Quinn v.Leathem, [1901] A.C. 495, 506 (H.L.) that a case is an authority for the proposition it decides and notfor the proposition that was either assumed or seemed to follow from suchdecision. la my view, the principles of law laid down in Commissionerof Income-tax v. Textile Machinery Corporation in any event are notapplicable to the facts of this case, and the Tribunal has come to the correct conclusion on the facts found by it.

29. For the reasons stated above the question is answered in the affirmative infavour of the assessee. There will be no order as to costs.

A.N. Sen, J.

30. The Indian Aluminium Company Ltd., the respondent in the present proceeding, is a manufacturer of aluminium ingots from ores. The said company is the assessee and the assessment year involved is 1960-61, the corresponding previous year being the calendar year ended on 31st December, 1959. In the earlier year the assessee had 4 manufacturing centres, namely, at Belur, Alupurarn, Kalwa and Hirakud. Daring the year in question one more unit was added at Muri and there had been further extensions to the existing factories at Belur and Alupuram. In connection with the assessment under review, the company had claimed relief under Section 15C before the Income-tax Officer in respect of the fresh capital outlay at Muri as well as the additional investments in the form of extension to the existing factory premises, installation of new plant and machinery, etc., at Alupuram and Belur. The newly set up factory at Muri was pressed into action in the year 1959. The Income-tax Officer in his order does not appear to have discussed the question of allowability of such claim in the assessment which mentions only of the assessee's claim under Section 15C in respect of the unit at Hirakud and the Income-tax Officer for reasons stated in his order disallowed the claim of the assessee in respect of the unit at Hirakud. Being aggrieved, the assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner in his order held :

' The first contention in the appeal is regarding the relief under Section 15C of the Act. The company had claimed relief under Section 15C in respect of the Alupuram, Belur and Muri expansion units. The Income-tax Officer did not discuss the claim in detail in the assessment order. In the appeal also this contention was not argued in detail. I find from records that in the earlier years also the assessee had claimed under Section 15C relief in respect of the Belur and Alupuram units. In the earlier years relief under Section 15C was not allowed and in the appeal also this disallowance was upheld. In this year for the same reasons relief under Section 15C in respect of the Alupuram and Belur units will not be allowed. As regards Muri unit the matter was not argued in detail. Here also I find that the assessee has already a manufacturing unit at Muri. This unit was expanded in the accounting year. Therefore, Section 15C relief is not admissible on the expansion made in an existing unit. Therefore, the Income-tax Officer was justified in not allowing Section 15C relief in respect of the three units claimed.'

31. The assesses preferred a further appeal to the Income-tax Appellate Tribunal. The Tribunal following its own decision in respect of the assessment years 1956-57 to 1959-60 (I.T.As. Nos. 10183 to 10186 of 1960-61) allowed the assessee's claim in respect of the additional investments at Belur and Alupuram, It appears from the said earlier order of the Tribunal, a copy whereof has been made a part of the case and included in the annexure ' B ' at pages 11 to 15 of the paper book, that the Tribunal had asked the assessee to present before the Tribunal a complete statement regarding the various units and full details thereof had been furnished. The Tribunal considered the details of the addition to the units at Belur and Alupuram and the said details are noted in the said order. The Tribunal on going into the details of the units at Belur and Alupuram felt convinced that the assessee had fulfilled the requirements for getting the statutory exemption under Section 15C. After referring to the particulars of the additions which were effected both in the matter of construction of buildings and installation of machinery at the said units at Belur and Alupuram, the Tribunal held :

' The industrial machines were pressed into action during the previous year 1954-55, and the production of aluminium ingots went up by double. The additional units, set up by the assessee-company, have cost it over Rs. 5,00,000 at Belur and about the same figure or a little more at Alupuram. In view of the nature of the installation, which in their character and value are substantial, it cannot be said that the units were not new industrial units by themselves. These new units have come up side by side with the old ones and have added to the assessee's total output of aluminium ingots. Producing the same materials, however, does not mean that the new units should be taken as mere additions to the old undertakings. The test does not lie in the commodity produced but whether it is the whole undertaking in itself or not.

On a consideration of the nature of the units pressed into action we hold that they are new industrial undertakings and qualify themselves fully for the concession under Section 15C of the Act.'

32. In respect of the new unit at Muri, the Tribunal gave a finding in favour of the assessee after considering the total cost of the building, plant and machinery, etc., which formed part of the new unit and the substantial increase in the output since the initial outlay. The Tribunal also took into consideration the nature of the plant and machinery installed at Muri. The Tribunal in its order held :

' In the expansion of the new unit at Muri, the facts are that it has been pressed into action in the year 1959, and the total cost of the building, plant and machinery is a sum of Rs. 42,00,000, besides a working capital of Rs. 13,70,000, The output of aluminium has since increased by 8,000 to 10,000 tonnes from the previous production at this place. The plant and machinery for the new units are more or less of the same nature as has been mentioned in our order relating to the preceding years mentioned above. The facts and circumstances relating to the assessment year in question being the same as that prevailing during those years, which came in appeal before the Tribunal, the decision arrived at by the Tribunal then must prevail even now for this unit.

In the result we order that the capital employed now in the units at the three places have to be computed in accordance with the law and the statutory percentage of tax exemption admissible in question shall be grant ed to the assessee.'

33. The Commissioner applied before the Tribunal for a reference to this court and the application of the Commissioner was rejected by the Tribunal, The Commissioner, thereafter, moved this court and directed by this court the Tribunal has referred the following question:

' Whether, on the facts found by the Tribunal or on record and in the circumstances of the case, the Tribunal was justified in holding that Section 15C of the Indian Income-tax Act, 1922, was applicable to the new production units added to the existing production units of the assessee at Belur, Alupuram and Muri in respect of buildings, plant and machinery and directing exemption to be granted under the aforesaid section accordingly ?'

34. Mr. B.L. Pal, learned counsel for the revenue, has submitted that the findings recorded by the Tribunal indicate that new production units have been added to the existing production units of the assessee at Belur, Alupuram and Muri in respect of the buildings, plant and machinery and in consequence thereof the production of the assessee's existing business of manufacturing aluminium ingots from ores has considerably increased. Mr. Pal contends that the effect of the said finding is that there has been a substantial extension or expansion of the assessee's existing business. It is the contention of Mr. Pal that such expansion or extension of the existing business of the assessee, however substantial the same may be, does not qualify for exemption under Section 15C. Mr. Pal has argued that the units brought into existence by way of such expansion or extension of the existing business of the assessee C9me within the mischief of Section 15C(2)(i), as these units are industrial undertakings formed by the reconstruction of business already in existence. It is the argument of Mr. Pal that this question is covered by the decision of the Division Bench of this court in the case of Commissioner of Income-tax v. Textile Machinery Corporation Ltd., : [1971]80ITR428(Cal) Mr. Pal has submitted that the said decision concludes the matter and it is. the duty of this court to follow the said decision and in view of the said decision of the Division Bench, the decision of the Tribunal must be held to be erroneous. According to Mr. Pal, the said decision lays down the proposition that any extension or expansion, however substantial the same may be and whatever may be the nature and character of such extension or expansion of the existing business of the assessee, is not entitled to any relief under Section 15C, as the industrial undertakings set up by the assessee for such extension or expansion are undertakings formed by reconstruction of the business of the assessee already in existence.

35. Mr. Banerjee, learned counsel appearing on behalf of the assessee, has submitted that the Tribunal's decision is perfectly justified, as all the requirements of Section 15C are satisfied in the instant case. Mr. Banerjee has drawn our attention to the facts found by the Tribunal in the instant case. Mr. Banerjee has pointed out that the Tribunal in its order has recorded the following findings :

A--In respect of undertaking at Belur-

(i) There are six different buildings

(ii) Total accommodation is 27,560 sq. ft.

(iii) 12 different categories of machinery

(iv) Capital employed over Rs. 50,00,000

(v) Production went up by double

(vi) Government of India granted import licence and released foreignexchange.

B--In respect of undertaking at Alupuram-

(i) 4 different buildings

(ii) Total accommodation 21,360 sq. fit

(iii) 10 categories of machinery

(iv) Capital employed little over Rs. 50,00,000

(v) Production went up by double

(vi) Government of India granted import licence and released foreign exchange.

C--In respect of undertaking at Muri-

(i) Three different buildings

(ii) Total accommodation 19,000 sq. ft.

(iii) Six different categories of machinery

(iv) Total quantity of production went up by 6,000 to 8,000 tonnes.

(v) Government of India granted import licence and released foreign exchange.

(vi) Capital employed Rs. 55,70,000.

36. Mr. Banerjee has argued that on a consideration of the above facts the Tribunal rightly felt convinced that the assessee had fulfilled the requirements of getting the statutory exemption under Section 15C. Mr. Banerjee has argued that none of the aforesaid findings of the Tribunal have been or can be challenged. Mr. Banerjee has submitted that it has not been contended on behalf of the department, as it cannot be contended in view of the above facts found by the Tribunal, that the units at Belur, Alupuram and Muri do not constitute industrial undertakings within the meaning of section 15C of the Act. It is the submission of Mr. Banerjee that as the new units set up at Belur, Alupuram and Muri constitute industrial undertakings, the requirement of Section 15C in so far as it speaks of 'any industrial undertaking ', is satisfied and it cannot be argued and has not in fact been argued that Section 15C has no application as the new units at Belur, Alupuram and Muri are not industrial undertakings at all. The learned counsel has pointed out that the only contention raised on behalf of the department is that the new units set up at Belur, Alupuram and Muri are industrial undertakings which have been formed by the re-construction of business already in existence and are, therefore, not entitled to any relief under Section 15C by virtue of the provisions contained in Section 15C(2)(i). Mr. Banerjee has commented that apart from this contention no other contention has been advanced on behalf of the department and it has not been argued on behalf of the department that any of the other requirements of Section 15C have not been satisfied. Mr. Banerjee has contended that the industrial undertakings set up at Belur, Alupuram and Muri cannot be said to have been formed by the reconstruction of the business of the assessee already in existence. Mr. Banerjee has argued that the stage to be Considered is the stage of formation of the industrial undertaking and not any stage subsequent thereto and the end product of the undertaking or what the undertaking produces is not a material consideration. It is the argument of Mr. Banerjee that to fall within the mischief of Section 15C(2) in the instant case, it has to be established that the newly set up units at Belur, Alupuram and Muri which are indisputably industrial undertakings were formed by the reconstruction of business already in existence. Mr. Banerjee argues that the business of the assessee remained as it was at the time of formation of these new units and even after formation the said business had continued to remain. It is the argument of Mr. Binerjee that before the formation of these units in question at Belur, Alupuram and Muri, the assessee was carrying on its business of manufacturing aluminium ingots from ores in the other units of production which were already in existence then : and the said old units of production remained the same and were not in any way affected and the new units were not formed by any re-construction of the old existing units. As the old units of production remained unaffected and the new units were not set up by any a reconstruction of the business in existence. Mr. Banerjee has referred to the dictionary meaning of the word 'reconstruction'.

37. In Webster's New Twentieth Century Dictionary of the English Language, 2nd edition, the meaning attributed to the word ' reconstruction ' is ' the act of constructing again'. In The Shorter Oxford English Dictionary, 3rd edition, the meaning given is ' the action or process of reconstructing ' ; 'instance or example of re-constructing'. Mr. Banerjee has submitted that in view of the plain and ordinary meaning of the word ' reconstruction' the new undertakings which were not originally there at all cannot be said to have been formed by the reconstruction of the business already in existence and the business already in existence in the other units had remained unaffected and not undergone any change. Mr. Banerjee has contended that as the industrial undertakings in question cannot be said to have been formed by the reconstruction of business already in existence and as it is not disputed that the other requirements of the section are satisfied, the assessee is entitled to the relief under Section 15C.

38. Mr. Banerjee has submitted that the decision of the Division Bench of this court in the case of Commissioner of Income-tax v. Textile Machinery Corporation does not conclude the question involved in the present case. It is the submission of Mr. Banerjee that the said decision was passed on the peculiar facts of that case and, according to the learned counsel, the facts of the instant case are entirely different. The learned counsel has contended that the present case is clearly distinguishable from the case of Textile Machinery Corporation, : [1971]80ITR428(Cal) .

39. The learned counsel has offered various criticisms of the judgment and has submitted that the said judgment is not correct.

40. I must observe that it is not for this court to sit in appeal over the said decision of the Division Bench and to adjudicate upon the correctness or otherwise of the said decision. If the said decision covers the question in the present reference, it is normally the duty of this court to follow the said decision, so long as the said decision is not set aside by any appropriate higher authority. If, for some reason or other, this court feels unable to agree with and follow the said decision, it will be the duty of this court to refer the said decision to a larger Bench. If, however, the said decision of the Division Bench is distinguishable and does not cover the dispute involved in the instant reference, no such question of either following the said decision or referring the same to a larger Bench will naturally arise.

41. I have to note that in the present reference it is not contended before us that the new production units set up by the assessee are not industrial undertakings within the meaning of Section 15C of the Act. It is not in dispute and it has not been disputed before us that the new units which have been set up by the assessee constitute industrial undertakings within the meaning of Section 15C of the Act. It has been contended before us that these undertakings which have been set up by the assessee are not entitled to any benefit under Section 1SC of the Act, as these undertakings of the assessee, though they are industrial undertakings, have been formed by the reconstruction of business of the assessee already in existence. This is the only contention which has been raised on behalf of the department. In support of this contention, the argument has been that these undertakings constitute and are in the nature of substantial expansion or extension of the existing business of the assessee and must, therefore, be considered to be industrial undertakings formed by the reconstruction of business already in existence by virtue of the decision of the Division Bench in the case of Commissioner of Income-tax v. Textile Machinery Corporation, : [1971]80ITR428(Cal) . It has been submitted on behalf of the department that the said decision of the Division Bench concludes the matter.

42. Before considering the said decision of the Division Bench, it will be convenient to set out the material provisions of Section 15C which read, inter alia, 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 6% 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-

(i) is not formed by the splitting up, or the reconstruction of, business already in existence or by the transfer to a new business of building machinery or plant used in a business which was being carried on before the 1st day of April, 1948 (Now amended as ' previously used in any other business'. The amendment applies retrospectively by the Finance Act of 1959)......

(iii) employs ten or more workers in a manufacturing process carried on with the aid of power, or employs 20 or more workers in a manufacturing process carried on without the aid of power. .....'

43. An analysis of the relevant provisions of the section as quoted aboveindicates that the requirements material for the purpose of the presentcase are :

(1) There must be an ' industrial undertaking '.

(2) The claim must relate to ' profits or gains derived from ' such industrial undertaking.

(3) Such profits not to exceed 6% per annum on the capital employed in the undertaking.

(4) That the industrial undertaking is not formed by a splitting up or the reconstruction of business already in existence or by transfer of building, machinery and plant used in the assessee's business to a new business.

(5) The industrial undertaking must employ ten or more workers in the manufacturing process carried on with the aid of power or 20 or more persons in the manufacturing process carried on without the aid of power.

44. It is to be noted that in the instant reference before us there is no dispute with regard to the fulfilment of the requirements enumerated above in (1), (2), (3) and (5) and it has not been contended that the said requirements have not been satisfied. The only dispute relates to the fourth requirement as to whether the industrial undertakings in question of the assessee are not formed by the reconstruction of business already in existence and the only contention is that these industrial undertakings of the assessee are not entitled to the benefit of Section 15C as these undertakings have been formed by the reconstruction of business already in existence and Section 15C has, therefore, no application to these undertakings of the assessee.

45. I now proceed to consider the decision of the Division Bench in the case of Commissioner of Income-tax v. Textile Machinery Corporation, : [1971]80ITR428(Cal) . As the learned counsel for the department has made his submissions entirely on the basis of this decision and rested his case thereon, it becomes necessary to consider the said decision in some detail. The material facts of the case as recorded in the judgment appear to be as follows: Textile Machinery Corporation Ltd., the assessee, was a heavy engineering concern manufacturing boilers, machinery parts, wagons, etc. In the assessment years 1958-59 and 1959-60, the assessee claimed exemption from tax under Section 15C in respect of profits and gains derived from its steel foundry division, and for the year 1959-60, for its jute mill division also. The Income-tax Officer found that the castings made by the steel foundry division were being used mostly by other existing divisions of the assessee itself. According to the Income-tax Officer, the assessee was manufacturing some castings which it was previously buying from the market. As no profit could be made on such departmental transfers and as in the opinion of the Income-tax Officer it could not be said that the assessee started a new industrial undertaking which manufactures or produces articles so as to entitle it to relief under Section 15C, he rejected the assessee's claim for both the years. So far as the claim under Section 15C in the jute mill division for the assessment year 1959-60 was concerned, the Income-tax Officer found that out of the total sales of this department of Rs. 13,03,509 sales to the boiler division amounted to Rs. 11,89,812. The raw materials were supplied by the boiler division and after machining and forging the parts were given to the boiler division. The Income-tax Officer's opinion was that this kind of an activity was in the nature of job work and he considered the jute mill division to be merely an expansion of the existing activities in the heavy engineering concern of the assessee and, therefore, came to the conclusion that the assessee was not entitled to any relief under Section 15C. On appeal by the assessee before the Appellate Assistant Commissioner, the contention of the assessee was that it was immaterial whether the parts manufactured in the steel foundry division or jute mill division were utilised by the other division of the assessee when considering relief under Section 15C. The emphasis then put by the assessee was that so long as the steel foundry division and the jute mill division were separate independent units of machinery, building, etc., the provisions of Section 15C were attracted. The Appellate Assistant Commissioner dismissed the appeal of the assessee. He came to the conclusion that the business remained the same and all that happened was ' some reconstruction in the business, reconstruction in the sense that, instead of purchasing some parts from outside, the appellant started producing the same itself '. He was of the view that the industrial undertaking for exemption under Section 15C must be a new industrial undertaking and must be a separate business. When the matter came up in appeal before the Tribunal, the Tribunal allowed the appeal of the assessee and set aside the decisions of the Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal came to the conclusion that the assessee had established that the steel foundry division was a new industrial undertaking, not formed by the splitting up or reconstruction of an already existing business. The Tribunal also held that profits could be earned by the steel foundry division even though its manufacturing products were mostly utilised in the assessee's other business of manufacturing .wagons, boilers, etc. The Tribunal held that the assessee was entitled to exemption under Section 15C of the Indian Income-tax Act, 1922, both in respect of its steel foundry division and the jute mill division. The Tribunal referred three questions to this court under Section 66(1) of the Indian Income-tax Act, 1922. Of the three questions the following first two questions are relevant; '(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the steel foundry division was an industrial undertaking to which Section 15C of the Indian Income-tax Act, 1922, applied (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the jute mill division set up by the assessee-company was an industrial undertaking to which Section 15C of the Indian Income-tax Act, 1922 applied ' A Division Bench of this court answered both the said questions in the negative in favour of the revenue. The learned Chief Justice who delivered the judgment of the Division Bench noted some more relevant facts at pages 433-434 wherein it is observed :

' Some more relevant facts on record may be usefully noted here. The assessee claimed a sum of Rs. 2,13,034 in respect of business income of the steel foundry division as exemption under Section 15C of the Income-tax Act, 1922. The profit and loss account showed that, out of the total sales of Rs. 28,23,127 worth of steel castings, goods worth Rs. 18,39.433 were used for the boiler section. Therefore, the castings were used mostly by the other existing division of the assessee itself. Then again, the Income-tax Officer points out that, apart from the fact that any profit on such sales to other departments would be profit from oneself, it would appear that the present activity of the company was a mere normal expansion of the existing business. The assessee was thus manufacturing some castings which it was previously buying from the market and that fact could not be said to create the situation where the assessee can be described as having started a new industrial undertaking which manufactures or produces articles so as to entitle it to relief under Section 15C. The Income-tax Officer, therefore, on these facts of the steel foundry division, came to the conclusion that the assessee being itself a big heavy engineering concern, such expansion of activities is in the normal process of the business which need not constitute a new industrial undertaking within the meaning of Section 15C of the Income-tax Act, 1922.

In respect of the jute mill division the records show that the profit of Rs. 1,85,337 for which exemption was claimed under Section 15C of the Income-tax Act, 1922, the relevant facts found by the Income-tax Officer are that, out of the total sales of Rs. 13,03,509, sales to the boiler division amounted to Rs. 11,89,812. These sales consisted of the job work only and nothing else. The raw materials were supplied by the boiler division and, after machining and forging, the parts were given to the boiler division. The only sales to outside consisted of parts in respect of jute mill division and amounting to Ps. 1,13,697. It is recorded that the assessee admitted that, so far as the products of the jute mill parts were concerned, the company was in an initial and an experimental stage only and whatever profit was earned under the jute mill division is in respect of the work done on behalf of the boiler division.

The Appellate Assistant Commissioner found the following facts. The assessee is a heavy engineering concern manufacturing boilers, etc. The parts manufactured by the steel foundry division and the jute mill division being essential for the boiler division, these two divisions, viz., the steel foundry division and the jute mill division, were set up by the assessee so as to avoid purchasing such parts from outside. He, therefore, records the fact that these two units of steel foundry division and jute mill division were set up with a view to manufacturing parts for being used in the manufacture of boilers, etc., which was the existing business of the appellant. His conclusion, therefore, was that the business remained the same and all that had happened was reconstruction as mentioned above.

The Tribunal in coming to this conclusion that both the steel foundry division and the jute mill division of the assessee were new industrial undertakings relies on the following considerations. The machinery was new, housed in a separate building and that industrial licences had to be obtained for manufacturing the parts in question. New machinery, housed in a separate building and industrial licence were the three reasons shown by the Tribunal to come to the conclusion that they were separate businesses. The Tribunal was of the opinion that these two divisions were not reconstruction of existing business. According to the Tribunal, the existing business of the assessee consisted of manufacturing boilers, wagons, etc., and for that purpose the assessee was purchasing the spare parts, forgings and castings from outside. In fact, the Tribunal came to the conclusion that the business of the new industrial undertaking was to manufacture those spare parts. Hence, the Tribunal's view was that it could not be said that this was formed out of the existing business. The last reason of the Tribunal was that, even though the manufactured products of the new industrial undertakings were mostly used in the assessee's other business of manufacturing wagons, boilers, etc., the element of profit was there and the extent of the same could be ascertained as the assessee was maintaining separate books of account and, therefore, the Tribunal applied the principle laid down by the Supreme Court in Tata Iron & Steel Co. Ltd, v. State of Bihar, : [1963]48ITR123(SC) .'

46. The learned Chief Justice analysed the relevant provisions of the section and laid down the necessary requirements which had to be satisfied by the assessee to enable the assessee to claim the benefit of the relief under the said section. The learned Chief Justice then proceeded to consider very elaborately whether the said requirements had been satisfied in the facts of the case. The learned Chief Justice came to the conclusion that the industrial undertakings of the assessee in question before him were formed by the reconstruction of the assessee's business already in existence. It is with this aspect of the decision that we are mainly concerned in the present reference. The observations of the learned Chief Justice while considering the other requirements of the section are not very material in the present case, as in the present case it is not disputed that all other requirements are complied with. The learned Chief Justice observed at pages 438-440 :

' The next step in the interpretation is of the word ' reconstruction ' and of the expression business already in existence' used in Section 15C(2)(i) of the Income-tax Act, 1922, Now, reconstruction is again a very general and wide term. The fact here is that the goods which this jute mill division and the steel foundry division are producing now for the assessee were also previously used by the assessee in its business but they were purchased from outside and what has happened now is that this purchase from outside is replaced by production or manufacture from within their own business. The question then is, is it or is it not a reconstruction of the existing business. The expression ' business already in existence', in this context, must necessarily mean and include the purchase of goods in the outside market for the simple reason that they were used for the business of the assessee. It was a part of the business of the assessee to run its business and, for that purpose, if necessary, to get its goods even from outside. The business, therefore, remained the same. The method of procurement of the goods has changed. Instead of procuring from outside, they were being manufactured from within by the assessee itself under these two divisions. Taking a broad view of the expression 'reconstruction', it is difficult to hold that this change of producing one's own goods systematically used in the existing' business instead of buying them from outside would not be reconstruction of a business already in existence. There is one another aspect of this expression ' business already in existence '. It is being argued from the bar on behalf of the assessee that this business of. producing these goods, castings and forgings were not there. That is true, but business does not only mean actual production of the goods in question but also includes the business of getting the goods even from outside so long as these goods had all along been employed in the existing business of the assessee.

At the same time it would be necessary to indicate certain other aspects of the interpretation of the expression ' business already in existence' in Section 15C(2)(i) of the Income-tax Act, 1922. We shall call this aspect as the feeder principle or the canopy principle. In the course of argument it was suggested by the learned counsel for the revenue that any industrial undertaking which really was intended to feed the main stream of business of the assessee would be within the expression 'business already in existence '. It was also argued by the learned counsel for the revenue On the same strain that when the assessee is a company carrying on business, it must carry on business within its charter of memorandum and articles of association. The far-reaching implication of this argument is that the canopy of charter spreads so that no industrial undertaking started by sucha company can at all claim exemption because it is only carrying on business within its charter of incorporation and, therefore, is a 'business already in existence' within the meaning of Section 15C. We have no hesitation in rejecting these two arguments advanced on behalf of the revenue in their extreme form. No doubt an assessee which is a company doing its business under its memorandum of objects and articles of association has to do its business within its charter but then the charter contains usually numerous objects in the memorandum and articles and it is common knowledge that such a company often carries on business only in one or two or even more objects of the company and not in other objects stated in the memorandum or articles. Therefore, if it starts an industrial undertaking, no doubt within its objects and charter, then it can, in an appropriate case, claim exemption under Section 15C of the Indian Income-tax Act and say that it is not business already in existence but it is permitted by the charter but which had not been undertaken so far but is now being undertaken. For instance, in this very case in the memorandum of objects and articles of association Clause 3(1) describes a number of objects by which the company is authorised to carry on business, namely,' to carry on the business of manufacturing machinery, engines, turbines, tanks, ships, bodies, tools, implements, accessories, equipments and other materials and products in India and elsewhere'. Now, this assessee, the Textile Machinery Corporation, is not manufacturing ships at the moment. Suppose it does, it will be within its objects and in that event if it otherwise satisfies the requirements of the statute then such a new industrial undertaking of shipbuilding, within the charter of objects, will be entitled to claim exemption under Section 15C of the Indian Income-tax Act, 1922. No doubt an assessee, which is a company doing business under its charter of incorporation, when it wants to establish a new industrial undertaking, it must be well within its objects, otherwise such an industrial undertaking will be ultra vires the company.

While, therefore, these extreme propositions advanced by the learned counsel for the revenue cannot be accepted, yet there is a residue of consideration which may be effective in appropriate cases and the present case is one such appropriate case. The expression ' business already in existence ' must be given its ordinary commercial meaning. The business already in existence in this case is the business of heavy engineering and in particular the business of manufacturing wagons and boilers. In doing that business castings and forgings are necessary ingredients. In fact the assessee had to have these castings and forgings but they bought them from outside. In so far as they started producing and manufacturing themselves, the assessee, in this case, therefore, was doing something which was reconstruction of the business already in existence and to that extent the feeding principle may he invoked but no more, and to that extent the canopy principle may be invoked arid no more and, subject to the limitations of these principles of feeder or canopy as we have indicated, each case has to be judged on its own facts whether the business was already in existence or not.'

47. The learned Chief Justice again at pages 446-448 considered the meaning of the word 'reconstruction' with reference to various decisions. While on this the learned Chief Justice also took into consideration the concept of reconstruction of a company in company law and the learned Chief Justice observed at page 448 :

' Reconstruction of a company with its limited concept is not the same thing as reconstruction of a business. If Mr. Justice Buckley was right that even the concept of reconstruction in company law had no definite legal meaning and was only a commercial term and which even as a commercial term hid no definite connotation, then it will be all the more so when we are considering the reconstruction of a business and not the reconstruction of a company. Here, the commercial content of reconstruction is much wider when we are considering the reconstruction of a business. Such reconstruction need not be occasioned by any embarrassment with a company's creditors or members but may involve, as a matter of commercial development or commercial expediency, many considerations as of improvement, rationalization, prevention of waste or delay in the work of the business itself, or automation or mechanisation.'

48. Dealing with the provisions of the Industries (Development and Regulation) Act, 1951, the Wealth-tax Act, 1957, and the Indian Income-tax Act, 1922, at page 453, the learned Chief Justice has observed :

' The conclusion is irresistible, therefore, that under the Indian Income-tax Act, 1922, and the Wealth-tax Act, 1957, the concept of substantial business expansion under the Industries (Development and Regulation) Act, 1951, is not recognised. We are, therefore, bound to hold that these statutes do not help the assessee in this case for relief under Section 15C of the Indian Income-tax Act, 1922.'

49. I have quoted in extenso the above observations of the learned ChiefJustice, as it has been contended on behalf of the revenue that the aforesaidobservations of the learned Chief Justice clearly establish that anysubstantial expansion of the existing business of the assessee must be heldto be formed by reconstruction of the assessee's business already in existence. I am unable to accept this contention, as, in my opinion, the saiddecision and the aforesaid observations of the learned Chief Justice do notlay down any such proposition and are not intended to lay down any suchgeneral proposition. The decision of the learned Chief Justice was basedon the peculiar facts of the case. To quote the words of the learned Chief Justice at pages 438-439 :

' The fact here is that the goods which this jute mill division and the steel foundry division are producing now for the assessee were also previously used by the assessee in its business but they were purchased from outside and what has happened now is that this purchase from outside is replaced by production or manufacture from within their own business. The question then is, is it or is it not a reconstruction of the existing business. The expression ' business already in existence ', in this context, must necessarily mean and include the purchase of goods in the outside market for the simple reason that they were used for the business of the assessee. It was a part of the business of the assessee to run its business and, for that purpose, if necessary, to get its goods even from outside. The business, therefore, remained the same. The method of procurement of the goods has changed. Instead of procuring from outside, they were being manufactured from within by the assessee itself under these two divisions. Taking a broad view of the expression 'reconstruction' it is difficult to hold that this change of producing one's own goods systematically used in the existing business instead of buying them from outside would not be reconstruction of a business already in existence.'

50. The decision of the learned Chief Justice rested mainly on the aforesaid findings. The observations of the learned Chief Justice at page 440 to the effect that if the Textile Machinery Corporation started manufacturing ships, it would be well within the objects of the company and if the undertaking formed for manufacturing ships satisfied the requirements of the statute, the Textile Machinery Corporation would be entitled to claim exemption under Section 15C of the Indian Income-tax Act, 1922, were made in dealing with the extreme contention of the revenue that no industrial undertaking started by a company carrying on its existing business could at all claim exemption because it would be only carrying on business within its charter of incorporation and would, therefore, be a ' business already in existence'. The example of Textile Machinery Corporation starting the business of manufacturing ships was given by the learned Chief Justice to meet the argument of the revenue and cannot, in my opinion, be construed to suggest that unless an entirely different kind of business from the one already carried on by the assessee is done by the newly established undertaking of the assessee, the newly established undertaking of the assessee will not be entitled to claim the benefit of Section 15C. It is of interest to note that the learned Chief Justice was not considering the question of any expansion of the existing business of the assessee by the establishment of any new, separate and independent production units of manufacture and production of the same commodity.

51. The learned Chief Justice was considering the case where industrial undertakings have been started by the assessee for manufacture of goods which the assessee needed in the manufacture and production of its principal products and which the assessee had so far been purchasing from the market. The learned Chief Justice, was not concerned with a case where the assessee had set up another independent industrial undertaking which substantially increased the production of the assessee. On the basis that the Textile Machinery Corporation had set up industrial undertakings for manufacturing goods which the company needed in its existing business activity and which the company had been purchasing from the market, the learned Chief Justice, to my mind, came to the conclusion that the industrial undertaking so formed for manufacturing goods needed in the assessee's existing business, should be considered to be industrial undertakings formed by reconstruction of the assessee's business, as all that the company had done by setting up the said undertakings was to manufacture such goods as the company had been previously purchasing from the market.

52. The observations of the learned Chief Justice at page 453 to the effect, ' that under the Income-tax Act, 1922, and the Wealth-tax Act, 1957, the concept of substantial business expansion under the Industries (Development and Regulation) Act, 1951, is not recognised ' do not lay down that substantial business expansion must necessarily be reconstruction of the existing business and is not under any circumstances entitled to the benefit of relief conferred under Section 15C of the Indian Income-tax Act, or under the relevant provisions of the Wealth-tax Act. The said observations of the learned Chief Justice indicate that the concept of licensing of substantial expansion under the Industries (Development and Regulation) Act, 1951, has not been extended to the Indian Income-tax Act, 1922, and the Wealth-tax Act, 1957. The learned Chief Justice himself has observed at page 452:

' It is plain from that fact that the concept of licensing of substantial expansion under the Industries (Development and Regulation). Act, 1951, has not been extended to the Income-tax Act and its exemption under Section 15C thereof.'

53. It may also be noticed that under the Wealth-tax Act, specific provision has been made with regard to substantial expansion and the learned Chief Justice at page 453 has noticed the same. The learned Chief Justice, at page 453, has observed :

' We shall briefly notice these provisions of the Wealth-tax Act. Section 5(1)(xxi) of the Wealth-tax Act excludes ' 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.'

54. I have earlier noted the observations made by the learned Chief Justice at page 448 on the aspect of commercial content of reconstruction in course of which the learned Chief Justice has mentioned that it ' may involve, as a matter of commercial development or commercial expediency, many considerations as of improvement, rationalisation, prevention of waste or delay in work of the business itself or automation or mechanization '. Judged by any of the aforesaid tests laid down by the learned Chief Justice, the industrial undertakings in the shape of new and independent units of production, set up by the assessee cannot, in my opinion, be said to have been formed by reconstruction of business already in existence. The decision of the Division Bench in the case of Commissioner of Income-tax v. Textile Machinery Corporation, : [1971]80ITR428(Cal) therefore, does not conclude the question and cover the point raised in the present reference and is clearly distinguishable.

55. I do not see any logic in the contention that the benefit under Section 15C can only be granted in respect of an industrial undertaking of an assessee, if the assessee chooses to carry on a kind of a business different from the one which is being carried on by the assessee. The intention of the legislature, to my mind, is to grant tax relief to industrial undertakings, which must, of course, satisfy the requirements of the section. The object was to promote industrial development of the country by employment of fresh capital by setting up new industrial undertakings. It does not appear from the language of the section that the legislature intended that an assessee must diversify its industrial activity and must not develop its existing business by setting up new industrial undertakings. An assessee, experienced and well-versed in the manufacture and trade of a particular commodity, is usually expected to develop the industry with which the assessee is familiar. He is likely to set up. new industrial undertakings for further development of its existing industry arid he may not be inclined to risk his capital by setting up an industrial undertaking for the manufacture and trade of a different commodity about which he has no experience. AH that is required of an assessee to claim relief under Section 15C is that he must satisfy the requirements of the said section and the industrial undertaking in respect of which he claims relief is not formed by the splitting up, or the reconstruction of, business already in existence or by the transfer to a new business of building, machinery or plant used in a business which was being carried of before the 1st day of April, 1948 (now amended retrospectively by the Finance Act of 1959 as ' previously used in any other business '). In the facts of the instant case the industrial undertakings in question cannot be said to have been formed by the reconstruction of business already in existence only because the newly set up units manufacture and produce the same commodity, viz., aluminium ingots. The ultimate end product of the industrial undertaking is not of any material consequence in judging whether the industrial undertaking has been formed by the reconstruction of business already in existence. The stage which is relevant find has to be considered is the stage of formation of the industrial undertaking and not the stage when the industrial undertaking goes into manufacture.

56. On the facts found by the Tribunal in the instant case I have no hesitation in coming to the conclusion that the industrial undertakings in question were not formed by the reconstruction of business already in existence.

57. I, therefore, agree with my Lord that the question raised must be answered in the affirmative in favour of the assessee and I agree with the order proposed by my Lord as to costs.


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