Judgment

GOSWAMI, J.:- These two appeals by certificate are from the judgment of the Calcutta High Court since reported in Commissioner of Income-tax, West Bengal I v. Textile Machinery Corporation. The two appeals relate respectively to two assessment years 1958-59 (calender year 1957) and 1959-60 (calendar year 1958). The matter relates to the claim by the assessee for exemption of tax under Section 15-C of the Indian Income-tax Act, 1922 (briefly the Act).

2. The matter came up before the High Court on a reference under Sec. 66 (1) of the Act. The two questions referred to were as follows:-

(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 15-C 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 15-C of the Indian Income-tax Act, 1922, applied?

3. The facts may briefly be stated:

The assessee (the appellant herein) is a heavy engineering concern manufacturing boilers, machinery parts, wagons, etc. For the assessment years 1958-59 and 1959-60 the assessee claimed exemption of tax under Section 15-C of the Act in respect of the profits and gains derived from its Steel Foundry Division and a similar claim for relief under Section 15-C in respect of its profits and gains derived from its Jute Mill Division for the year 1959-60.

3-A. The assessee had previously in the earlier years bought from outside the castings manufactured in the Steel Foundry Division which was started in the assessment year 1958-59 and continued thereafter. Again, similarly in the year 1959-60, in addition to the manufacturing of castings in the Steel Foundry Division the assessee started the Jute Mill Division where the parts made out of the raw material supplied by the Boiler Division by machining and forging them were given to the Boiler Division of the assessee. It was found that out of a total sale of Rs. 28,23,127/- of steel castings goods worth Rs. 18,39,433/- were used in connection with the various Divisions of the company. In respect of the Jute Mill Division, the Income-tax Officer found that out of the total sales of Rs. 13,03,509/- sales to the Boiler Division totalled Rs. 11,89,812/- and sales to outside the Jute Mill Division totalled only a sum of Rs. 1,13,697/-. The Income-tax Officer and the Appellate Assistant Commissioner, on the above facts, held the undertaking as expansion and reconstruction of the business already existing and hence the assessee was not entitled to exemption under Sec. 15-C of the Act. The Income-tax Appellate Tribunal, however, allowed the appeal of the assessee and accepted the claim for exemption under Section 15-C. According to the Tribunal both the Steel Foundry and the Jute Mill Division of the assessee were new industrial undertakings. The above conclusion was reached on the basis of several facts found by the Tribunal. These are that the machinery was new, was housed in a separate building and that industrial licences had to be obtained for manufacturing the parts in question. 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. The Tribunal came to the conclusion that the business of the new industrial undertaking was to manufacture those very spare parts. Hence the Tribunal concluded that it could not be said that the undertakings were formed out of the existing business to come within the mischief of the exclusion clause in Section 15-C (2) (i). The Tribunal rightly relying upon the Tata Iron and Steel Co. Ltd. v. State of Bihar, 48 ITR 123 also held that even though the manufactured products of the new industrial undertakings were mo