RAJESWARI MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to us is :

(2.) THEREAFTER , the company put up separate buildings and installed machinery for the manufacture of cotton yarn. The buildings were completed in March, 1950, and the production commenced from the 24th of March, 1951. During the years following, there appear to have been losses and such losses carried forward from the preceding year relevant to the asst. year 1956 -57 came to Rs. 2,89,197. The account year relevant to the asst. year 1956 -57 was the calendar year ending 31st Dec., 1955, and during that year of account the company derived an income of Rs. 3,84,684 from its cotton spinning undertaking. These figures are not in dispute and the assessable income of the assessee was taken as the difference of Rs. 95,487. Before the ITO, the assessee claimed that this spinning undertaking was established by the company in the asst. year 1952 -53, and that, therefore, it was entitled to the benefit of S. 15C of the Act. The ITO, however, chose to take the view that the spinning business, though it came into existence only in the asst. year 1952 -53, was nevertheless part of the textile mill which had been started by the company in 1949 itself. In his view, therefore, the exemption contemplated by S. 15C of the Act would be available only from the assessment year immediately following the production of silk cloth, and since the exemption was limited to a period of five years, it was not available in respect of the asst. year 1956 -57. On appeal, the AAC agreed with the ITO. He too observed that the two businesses are connected with the same branch of trade or manufacture, that one business is ancillary to the other, that the two businesses are controlled on one account and that financial arrangements and banking accounts are also common. He therefore, held that the weaving business that was started in 1948, and the spinning business which was started in 1951, were parts of the same business and that the date of commencement must be taken to be the date on which any part of this single joint venture was started, that is, 1948. He also thought that the expression "any industrial undertaking" in S. 15C must refer to the unit as a whole and not to parts of a single unit.

(3.) THE Tribunal further thought that the starting of the spinning industry was only a reconstruction of the existing business. It also relied upon the features mentioned by the AAC in denying the exemption sought. The question before us, to put it in terms of S. 15C of the Act, is whether the spinning section of the business which was started in the asst. year 1951 -52, is an industrial undertaking to which this section applies. What is contended by the assessee is that a textile industry is not a single and indivisible unit and that the various parts of such an industry such as spinning mill or weaving mill are distinct and separate parts of the industry, any one of which may be started and carried on without the necessity of bringing into existence other aspects of that industry. As a matter of fact, in this case, the weaving section was started in 1948 with 12 looms. It worked for about a year and thereafter ceased business. It was only subsequently that the spinning mill was brought into existence by putting up separate buildings therefore and installing the necessary machinery. It is, therefore, claimed that a spinning mill being a distinct industrial undertaking, not having necessarily any connection with the weaving mill, in the sense that it can be operated independently of the other, the exemption contemplated by S. 15C must apply to each of the two industrial undertakings irrespective of the other.