Period of exemption where operative started prior to enactment of Wealth Tax Act.

JAGADISAN J.

This is a reference application arising under section 27 of the Wealth-tax Act, 1957 (27 of 1957), and the question raised is :

"whether the asset of Rs. 1, 43, 727 is exempt under section 5(1)(xxi) read with the second proviso thereunder of the Wealth-tax Act?" *

The assessee is a public limited company incorporated under the Indian Companies Act in the year 1939. It is carrying on business in the manufacture and sale of absorbent cotton-wool. The board of directors of the company resolved on March 3, 1955, at a duly constituted meeting to establish a new spinning unit with 6, 000 spindles under the name of "Sudarsanam Spinning Mills". On April 25, 1955, the company applied to the Government of India for licence to establish the spinning unit under the Industries (Development and Regulation) Act, 1951. The licence was granted by the Government on August 17, 1955. In the months of January and February, 1956, the company placed orders with Machinery Manufacturers Corporation Ltd., Bombay, and with Voltas Ltd., Madras, for the purchase of certain items of plant and machinery. Orders were placed in February, 1956, with P. S. G. and Sons, Charity Industrial Institute, Coimbatore, and with Textool Co. Ltd., Coimbatore, for other items of machineries. The company then began constructing the necessary buildings and the construction was completed sometime in December, 1957. The erection of the machinery and plant of this spinning unit was, of course, done in several stages, commencing from June, 1957. The Government of India extended the time for completion of the project till March 17, 1959. The machinery was installed and the factory was fully equipped to go into operation only in the accounting year 1957-58. Permission to work the spinning mill was obtained in June, 1958. The company had laid out a total sum of Rs. 1, 43, 727 till September 30, 1956, in the construction of the new spinning unit, as per details set out belowRs. A. P

Spinning buildings 11, 129 14 0

Textool Co. Ltd. 21, 009 0 0

Parry's Engineering Department 4, 186 0 0

Spinning initial expenses 4, 401 2 0

P. S. G. and Sons Charitable Industrial Institute 6, 560 0 0

Voltas Ltd., Madras 75, 000 0 0

Machinery Manufacturers Corporation 21, 450 0 0

Total 1, 43, 727 0 0

The Wealth-tax Act came into force on April 1, 1957. The first assessment year was 1st April, 1957, to 31st March, 1958. In response to a notice issued by the Wealth-tax Officer, Virudhunagar, the company submitted a return admitting a net wealth of Rs. 6, 07, 001. The company claimed exemption for the outlay of Rs. 1, 43, 727 the details of which we have set out above, under section 5(1)(xxi) of the Act. The officer disallowed the claim holding as follows

"This exemption applies only for the new unit set up after the commencement of this Act, i.e., after April 1, 1957. As the unit in question was set up prior to the above date, the assessee is not entitled to the exemption." *

The assessee preferred an appeal to the Appellate Assistant Commissioner of Wealth-tax, Madurai. The appellate authority held that though the grammatical meaning of the expression "set up" in section 5(1)(xi) would warrant the contention of the assessee, the proviso of that section would cut down its real meaning, and that as the operation of the establishment of the factory had commenced prior to April 1, 1957, the exemption cannot be invoked

The assessee went up on further appeal to the Income-tax Appellate Tribunal, the proper appellate authority under the Wealth-tax Act also. The Tribunal was also of the opinion that the proviso to section 5(1)(xxi) should govern the interpretation of the main provision itself and negatived the assessee's claim. The Tribunal observes :

"We have no doubt that the clear intention of Parliament is to grant exemptions to new units, in regard to the establishment of which a company commences operations after the date of commencement of the Act, namely, 1st April, 1957." *

We shall first re