COMMISSIONER OF INCOME TAX Vs. FIBREGLASS PILKINGTON LIMITED

JUDGEMENT

(1.) THE assessee is an Indian company and the asst. year 1965 66, the accounting year having ended on 31st March, 1965. In the assessment for the said year the ITO allowed super tax rebate at 30% on the footing that the assessee was a company in which the public were substantially interested within the meaning of S. 2(18) of the IT Act, 1961. The CIT set aside the said order of the ITO on the footing that the company was not one in which the public were substantially interested within the meaning of the said section. The Tribunal reversed the finding of the AAC and restored that of the ITO. Thereafter, the Tribunal made the present reference under S. 256(1) of the IT Act and the question referred to us is as follows :

(2.) BRIEFLY stated the facts relating to the assessee company, which are on record, are as follows : The company was established in 1962. Admittedly, as stated in sub cl. (1) of cl. 3 of the memorandum and articles of association, its first object is to carry on the business of manufacturers of, and merchants in, glass fibres and all kinds of articles made of or formed from glass fibres or of any other glass or similar organic or inorganic substance. The rest of the objects mentioned in the said cl. 3 and contained in its various sub clauses are incidental to the said main object of manufacturing the glass fibres and all other such articles. The company's capital to the extent of 50% is held by Fiberglass Ltd., U.K., which is a private limited company under the United Kingdom law. 4% of the shares are held by Bombay Company P. Ltd. 0.8% by another private company and the balance of 45.2% is held by the members of the public. The company went into trial production in July, 1965, and commercial production in September, 1965. Its products were put in the market in November, 1965. In the relevant accounting year ending on 31st March, 1965, the company's factory was under construction. During that stage, the moneys representing the share capital, not immediately required for construction or for acquiring plant and machinery, were invested in U.K. Treasury Bills and on short term deposits with banks, and in the material year, therefore, the company had an income of Rs. 2,58,701 by way of interest. The ITO assessed this income as income from other sources. In computing the tax, the ITO gave a rebate of 30% on the basis that the company was a company in which the public were substantially interested the meaning of S. 2(18) of the Act.

(3.) THE assessee appealed against the said order of the Tribunal. It was urged before the Tribunal that the assessee was a company whose business consisted wholly of manufacturing or processing of goods and, therefore, only shares of not less than 40% had to be held by the public for getting higher relief of 30%. It was pointed out on behalf of the assessee that the company's money was placed in fixed deposit and invested in short term treasury bills not in pursuance of any object mentioned in the memorandum and articles of association. They were so invested only for the period that they were not required for the business of the company. As soon as machinery was purchased, the said investments actually came down from Rs. 33.65 lakhs to Rs. 6.55 lakhs. it was further contended on behalf of the assessee that although during the relevant period the company had not started the business, it had no other business. The Explanation emphasises the character of the business and of the company and it was not needed that the actual manufacturing activity should be started in the accounting year. As against this contention of the assessee, the Revenue urged that while applying the Finance Act to any particular year, the position of a company in that very year had to be taken into consideration. Since, at the relevant time, there was no business activity and since the income taxed was not derived from any business of manufacture, the company was not entitled to the concessional treatment of the higher rebate. According to the Revenue, before any incentive could be given there should be manufacture of goods. The incentive was given not merely to start new manufacturing companies, but also to encourage old companies engaged in other activities to switch over to the manufacturing activities and, hence, argued the Revenue, the crucial test was whether there was manufacturing activity in the accounting year.