A new industrial undertaking, for the purpose of exemption under Section 15c of the Indian Income Tax Act, 1922, must be a separate and independent unit, not formed by splitting up or reconstruction of an existing business.

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 and in the circumstances of the case the electrolysis plant set up by the assessee company was a new industrial undertaking within the meaning of Section 15c of the Indian income-tax Act, 1922 and as such the necessary relief under that Section was admissible to the assessee "

2. THE reference arises in respect of the assessment year 1959-60. The assessee company owns a paper mill and manufactures paper and sells it in the market. In the previous year relevant to the present assessment year it had set up an electrolysis plant for the purpose of manufacturing caustic soda which is an essential chemical for use in the process of manufacture of paper. The assessee company obtained a separate licence for the manufacture of caustic soda and the plant was housed in a separate building. In assessing the company for the relevant year the income Tax Officer held that the plant was ancillary to the main manufacturing unit and was not, therefore, a new industrial undertaking as contemplated under Section 15c of the Indian Income tax Act, 1922. The Income Tax Officer also held that as no part of the caustic soda manufactured was sold to any outsider no profit had been derived from the said plant and therefore no relief under section 15c was allowable to the assessee. There was an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner observed that the business of manufacture of caustic soda was merery a process of reconstruction of the existing business of manufacture 01 paper. The appellate Assistant Commissioner observed that no sale had taken place of the caustic soda to the outside market. The Appellate Assistant Commissioner observed further that the business of the appellant was manufacture of paper. Caustic soda being an essential chemical for manufacture of paper and the assessee company had set up plant for manufacture of caustic soda so as to avoid purchasing the same from outside. Therefore, the Appellate Assistant Commissioner came to conclusion that the plant was set up for manufacturing caustic soda for being used in the manufacture of paper which was the existing business of the appellant. According to the Appellate Assistant Commissioner the business, therefore, remained the same and all that happened was that some reconstruction of the business, reconstruction in the sense that in respect of purchasing the chemical from outside the assessee company had started producing it itself. The Appellate Assistant commissioner was of the opinion that as long as the caustic soda was not manufactured for the purpose of selling it in the market and introducing a separate business thereby the mere fact that the plant was housed in a separate building and that an industrial licence had to be obtained for the manufacture of this chemical were not sufficient considerations for holding that caustic soda plant was new industrial undertaking as contemplated under section 15c of the Act. According to the Appellate Assistant commissioner the industrial undertaking for exemption under section 15c must be a new industrial undertaking and must be a separate business. He, there fore, affirmed the order of the Income tax Officer.

There was further appeal to the tribunal. Before the Tribunal the departmental representative supported the order of the Appellate Assistant commissioner and submitted that the language used in section 15c was "profit or gains derived from any industrial undertaking". Stress was laid before the Tribunal on the word derived and it was urged that unless the profit arose directly by the sale of the product of the new plant no profits could be said to have been derived. The argument was the profit should be directly derived and not indirectly or deemed to be derived. The Tribunal was unable to accept this proposition advanced on behal