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Income-tax Referred Case No. 4 of 1963, decided on 9th March 1964.
Wealth-tax-
Exemption of industrial companies for 5 years Companies formed before act-Computation of 5 years "Established", meaning of-Wealth-tax Act, 1957, S. 45 (d).
The assessee, a company formed for carrying on an industrial undertaking, which was formed and registered on 8th November 1951, but the construction of whose factory was completed only in December 1953, claimed exemption from wealth-tax for the assessment years 1957-58, 1958-59 and 1959-60 under section 45 (d) of the Wealth-tax Act:
Held (i) that the date on which the company was "established" within the meaning of section 45 (d) was the date on which the company was formed and registered, viz., 8th November 1951, and not the date on which the factory was completed;
(ii) the five assessment years for which exemption is provided by section 45 (d) were 1952-53 to 1956-57, both inclusive;
(iii) the fact that the first assessment year in which the company could be liable to tax was the assessment year 1955-56 could not make the exemption available till the close of the year 1959-60;
(iv) the five years for which exemption was available were accordingly 1952-53 to 1956-57 both inclusive, and exemption was not available for the years 1957-58, 1958-59 and 1959-60.
C. T. Peter for the Commissioner of Wealth-tax.
P. K. Kurien, P. M. Alexander, v. Desikan, K. A. Nayar and K. Sukumaran for the Assessee.
This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under section 27 (1) of the Wealth-tax Act, 1957. The reference has been made at the instance of the Commissioner of Wealth-tax, Ernakulam.
The controversy in this case is based on section 45 of the Wealth-tax Act, 1957. That section specifies certain cases to which the Act will not apply. The relevant portion of that section reads as follows:
"The provisions of this Act shall not apply to-
(d) any company established with the object of carrying on an industrial undertaking in India.
Provided that the exemption granted by clause (d) shall apply to any such company as is referred to therein only for a period of five successive assessment years commencing with the assessment year next following the date on which the company is established, which period shall, in the case of a company established before the commencement of this Act, be computed in accordance with this Act from the date of its establishment as if this Act had been in force on and from the date of its establishment."
The Appellate Tribunal has invoked the provision extracted above and held that the Wealth-tax Act, 1957, will not apply to the assessee-The Travancore-Cochin Chemicals (Private) Limited in respect of the assessment years 1957-58, 1958-59 and 1959-60. It is the correctness of that decision that is posed in the question referred, namely: "Whether the exemption from tax for the assessment years 1957-58, 1958-59 and 1959-60 was not rightly granted "
The first point for determination is: When was the company "established" within the meaning of that expression as used in section 45 (d) of the Act It was registered on the 8th November 1951. The construction of the factory, it is agreed, was completed only some time in December 1953. According to the Commissioner the date of registration is the date on which the company was "established". According to the assessee the company cannot be considered as "established" until at least its factory was constructed.
We entertain no doubt that the word "established" as used in section 45 (d) of the Act is synonymous with the expression "formed and registered" in section 3 of the Companies Act, 1956. We are unable to see any justification for the submission on behalf of the assessee that the expression "established with the object of carrying on an industrial undertaking" signifies a stage subsequent to the date of incorporation, a stage at which the company was capable of going into production.
If the date on which the company was established is the date of its registration, the 8th November 1951, then the first assessment year next following that date will be the assessment year 1952-53 and the five assessment years for which exemption is provided will be 1952-53 to 1956-57, both years inclusive. What the Legislature has done is to give a tax holiday to companies entitled to exemption under section 45 (d) of the Act for a period of five successive assessment years next following the date of their registration and that exemption, so far as we can see, has nothing to do with the effectuation or otherwise of the object with which those companies were formed.
Section 2 (d) of the Wealth-tax Act, 1957, defines the expression "assessment year". The definition is:
"'assessment year' means the year for which tax is chargeable under section 3."
The second contention on behalf of the assessee is that every financial year is not an "assessment year" and that a year "for which tax is chargeable under section 3" means a year of actual liability to pay a certain amount by way of tax under the Act.
The Schedule to the Wealth-tax Act, 1957, specifies the rates of wealth-tax. Part II of that Schedule says:
"In the case of every company:
|
| Rate of tax |
| (i) on the first rupees five lakhs of net wealth | Nil. |
| (ii) on the balance of net wealth | half percent. |
Provided that in the case of a company which has incurred a net loss in any year computed in the manner hereinafter provided and which has not declared any dividend on its equity capital in respect of that year, the rate of tax for the relevant year shall be nil."
It is submitted on the basis of this provision that the first assessment year in which the company was actually liable to pay any amount by way of wealth-tax was the assessment year 1955-56 and that as a result the exemption is available till the close of the assessment year 1959-60.
We are unable to agree. Section 3 of the Act says:
"Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of April 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule".
An actual liability to pay an amount by way of tax is not what is material. Tax is "chargeable" for every financial year commencing on and from the 1st April 1957, even though on the application of the charge no financial liability accrues to the assessee.
The third and the last contention urged on behalf of the assessee is based on the definition of "valuation date" occurring in section 2 (q) of the Act. That definition is:
"'valuation date' in relation to any year for which an assessment is to be made under this Act, means the last day of the previous year as defined in clause (ii) of section 2 of the Income-tax Act if an assessment were to be made under that Act for that year:
Provided that where in the case of an assessee there are different previous years under the Income-tax Act for different sources of income, the valuation date for the purposes of this Act shall be the last day of the last of the previous years aforesaid."
The material portion of the definition of "previous year" in section 2 (11) of the Indian Income-tax Act, 1922, reads as follows:
" previous year' means-
(i) in respect of any separate source of income, profits and gains- . . . .
(c) Where a business, profession or vocation has been newly set up in the financial year preceding the year for which assessment is to be made, the period from the date of the setting up of the business, profession or vocation to the 31st day of March next following . . . ."
The contention is that the setting up of the business of a company is different from the registration of that company, that the company can be considered to have "set up" its business only in December 1953, when its factory was constructed, that the first assessment year for the purposes of the exemption will be 1954-55, and that the exemption granted for the first two of the three years mentioned in the question referred, 1957-58 and 1958-59, can in any case be sustained. We see no force in this contention. Any investigation regarding "valuation date" and "previous year" is unnecessary for the application of section 45(d). All that is necessary is to find out the date of registration and the financial year next following. In this case the date of registration was the 8th November 1951, and the financial year next following, 1952-53.
It must follow that the five years in respect of which the exemption is available are 1952-53 to 1956-57, both years inclusive.
In the light of what is stated above we must hold that the exemption from tax granted to the assessee under section 45 (d) of the Act for the assessment years 1957-58, 1958-59 and 1959-60 was not rightly granted and answer the question referred against the assessee and in favour of the Department. We do so; but in the circumstances of the case without any order as to costs.
A copy of this judgment under the seal of the High Court and the signature of Registrar will be forwarded to the Appellate Tribunal as required by subsection (6) of section 27 of the Wealth tax Act, 1957.
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