Appeal No 674 of 1965
Ml 7 Sup
C I66 761 762 Appeal by special leave from the judgment and order dated March 14 1962 of the Madras High Court in T C No 209 of 1959
B Sen and R N Sachthey for the appellant
A K Sen and R Ganapathy Iyer for the respondent
The respondent is a public limited company incorporated under the Indian Companies Act 1913 in the year 1939 and was carrying on the business of manufacture of absorbent cotton wool
In March 1955 the Board of Directors resolved to establish a new spinning unit under the name of Sudarsanan Spinning Mills for which a licence was obtained from the Government of India under the Industries Development and Regulation Act 1951 in August 1955
The respondent placed orders for purchase of necessary spinning machinery and plant in the months of January and February 1956
The construction of factory buildings was taken in hand in March 1956 and these constructions were completed by December 1957
The erection of the spinning machinery and the plant in the buildings was completed in several stages commencing from June 1957
A licence from the Inspector of Factories for working the factory was obtained in June 1958
The statement of the case further mentioned that the time given to complete the project was extended by the Government up to 17th March 1959
The respondent was assessed to wealth tax for the assessment year 1957 58 and in that year the respondent claimed that in computing the wealth on the valuation date which was 30th September 1956 an amount of Rs 143727 should be deducted as being the amount laid out in setting up this new unit
The Wealth Tax Officer disallowed the claim on the ground that the unit was set up prior to the date on which the Wealth Tax Act hereinafter referred to as the Act came into force ie 1st April 1957
On the same basis the Appellate Assistant Commissioner and the Income tax Appellate Tribunal upheld that order
Thereupon at the request of the respondent the following question of law was referred for opinion of the High Court of Madras Whether the aforesaid asset of Rs 143727 is exempt under section 51xxi read with the second proviso thereunder of the Wealth tax Act The High Court answered the question in favour of the respondent and consequently this appeal has been brought up to this Court by the Commissioner of Wealth Tax Madras by special leave
The question that fell for determination depended on the interpretation of section 51xxi of the Act read with the second proviso to that clause which are reproduced below 763 lm15 51xxi that portion of the net wealth of a company established with the object of carrying on an industrial undertaking in India within the meaning of the Explanation to clause d of section 45 as is employed by it in a new and separate unit set up after the commencement of this Act by way of substantial expansion of its undertaking Provided that a b Provided further that this exemption shall apply to any such company only for a period of five successive assessment years commencing with the assessment year next following the date on which the company commences operations for the establishment of such unit
 It has been urged before us by learned counsel for the Commissioner that the main provision of clause xxi should be interpreted in conjunction with the second proviso so as to give a harmonious construction to both parts of the provision with which we are concerned
Relying on this principle he urged that we should hold that a new and separate unit is set up only when the company commences operations for the establishment of such unit
He relied on the principle stated by Maxwell in his book On Inter pretation of Statutes  11th Edn
at P 155 that there is no rule that the first or enacting part is to be construed without reference to the proviso
The proper course is to apply the broad general rule of construction which is that a section or enactment must be construed as a whole each portion throwing light if need be on the rest The true principle undoubtedly is that the sound interpretation and meaning of the statute on a view of the enacting clause saving clause and proviso taken and construed together is to prevail
 The view taken by the High Court was challenged on the ground that the High Court had interpreted the principal clause without giving full effect to the language of the proviso
The High Court held that unless a factory is erected and the plants and machinery installed therein it cannot be said to have been set up
The resolution of the Board of Directors the orders placed for purchasing machinery licence obtained from the Government for constructing the machinery are merely initial stages towards setting up however necessary and essential they may be to further the achievement of the end
It is not however the actual functioning of the factory or its going into production that can alone be called setting up of the factory
The setting up is perhaps a stage anterior to the commencement of the factory
Thereafter 764 the High Court referred to a decision of the Bombay High Court in Western India Vegetable Products Limited vs Commissioner of Income tax Bombay City  and on its basis concluded that the proper meaning to be assigned to the expression set up in section 51xxi would be ready to commence business
 We are unable to agree with the learned counsel for the Commissioner that in arriving at this view the High Court committed any error
A unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up
It is only when the unit has been put into such a shape that it can start functioning as a business or a manufacturing Organisation that it can be said that the unit has been set up
The expression used in the proviso under which the period for which the exemption is available is to be deter mined is not the same as used in the principal clause
In the proviso the period of five successive years of exemption has to commence with the assessment year next following the date on which the company commences operations for the establishment of the unit
Operations for the establishment of a unit from the very nature of that expression can only signify steps that have to be taken to establish the unit
The word set up in the principal clause in our opinion is equivalent to the word established but operations for establishment cannot be equated with the establishment of the unit itself or its setting up
The applicability of the proviso has therefore to be decided by finding out when the company commenced operations for establishment of the unit which operations must be antecedent to the actual date on which the company is held to have been set up for purposes of the principal clause
This is also the meaning that the Bombay High Court derived in the case of Western India Vegetable Products Ltd where that Court was concerned with the interpretation of the expression set up as used in section 2l1 of the Income tax Act
That Court held It seems to us that the expression settling up  means as is defined in the Oxford English Dictionary to place on foot or to establish  and is contradistinction to commence  The distinction is this that when a business is established and is ready to commence business then it can be said of that business that it is set up
But before it is ready to commence business it is not set tip
 This view was expressed when that Court was considering the difference between the meaning of the expression setting up a business and  commencing of a business
 In the case before us the proviso does not even refer to commencement of the unit
The criterion for determining the period of exemption is based on the commencement of the operations for the establishment of the unit
These operations for establishment of the unit cannot be simultaneous with the setting up of the unit as urged on behalf of the Commis sioner but must precede the actual setting up of the unit
In fact 126 ITR 15 1 765 it is the operations for establishment of a unit which ultimately culminate in the setting up of the unit
On this interpretation it is clear that in this case the claim put forward by the respondent for exemption has been rightly held to be allowable by the High Court
In the statement of the case and in its appellate judgment the Tribunal did not specifically record any finding as to the date when the unit was ready to go into business and to start production
In the appellate order it was mentioned that according to the respondent the unit was set up only when the Inspector of Factories issued a licence to the respondent for working the factory which was in June 1958
In the statement of the case the facts recited show that the construction of the factory buildings was completed by December 1957 and the erection of the spinning machinery and plant was completed in several stages commencing from June 1957
On these facts the High Court and we consider rightly proceeded on the basis that the unit was completed and became ready to go into business only after 1st April 1957 when the Act had already come into force
Consequently the condition laid down in the principal clause of section 51xxi was satisfied and the company became entitled to exemption in respect of the value of the assets used up in setting up this unit
Learned counsel for the Commissioner however challenged the right of the respondent to claim this exemption on another ground viz that the exemption was claimed in respect of money laid out in a period which was not covered by the period envisaged in the second proviso
It was urged that if it be held that the unit was set up after the Act had come into force on the 1 st April 1957 it must also be held that the operations for the establishment of the unit had been commenced by the company almost simultaneously with the unit having been set up and that date would therefore be a date subsequent to the assessment year 1957 58 in which year the exemption was claimed
This is a question which we do not think can be legitimately raised on behalf of the Commissioner at this stage
The only contention before the Tribunal on behalf of the Commissioner was that the operations for the establishment of the unit had been commenced by the respondent before the Act came into force and that it should be held that the unit was also set up at the same time when those operations were commenced
There was no contention at any stage that the operations for the establishment of the unit were commenced at a subsequent stage
In fact it was only for the purpose of urging that the principal clause was not applicable to the case of the respondent that the position was taken up on behalf of the Commissioner that the operations for establishment of the unit had been commenced before 1st April 1957 and the unit must be held to have been set up at the same time 766 when those operations were commenced
That submission as we have indicated above has no force
In any case the judgments passed by all the Wealth tax Authorities show that it was at no stage in dispute that the operations for establishment of the unit had been commenced by the respondent prior to 1 st April 1957
Para 5 of the statement of the case mentions that the the wealth tax officer disallowed the claim on the ground that unit was set up prior to 1st April 1957
The Appellate Assistant Commissioner also in his judgment said In this view of the matter the appellant set up the undertaking even prior to 1st April 1957 as operations were carried out prior to that date for the establishment of the undertaking
The operations consisted of the seeking of permission from the Government to install the unit and placing of orders with manufacturers of machinery and advancing of moneys towards the purchase of machinery
 The Tribunal also disallowed the claim on the basis that the respondent commenced operations for setting up the unit earlier than 1st April 1957
It does not appear to be necessary for us to express any opinion as to the particular stage at which it can be said that a company commences operations for the establishment of a unit
In the present case the Tribunal proceeded on the basis that whatever be the exact date of commencement of the operations for establishment of this unit by the respondent it was certainly before 1st April 1957 and we consider that that fact by itself is sufficient to entitle the respondent to claim the exemption
The Commissioner cannot at this stage be allowed to raise a new question and ask this Court to decide that the date of commencement of the operations for establishment of the unit by the respondent was different from that accepted by the Tribunal
That question was not raised and dealt with by the Tribunal
It is not even a question that might have been raised before the Tribunal and the Tribunal might have failed to deal with nor is it a question which may not have been raised before the Tribunal and yet was dealt with by it
On the principle laid down by this Court in Commissioner of Income tax Bombay vs Scindia Steam Navigation Co Ltd  such a question could not be canvassed before the High Court and cannot be allowed to be raised in this Court
The question referred to the High Court had to be answered on the basis that the respondent did commence operations for establishing this unit before 1st April 1957 and the further finding of fact recorded by the Tribunal is that a sum of Rs 143727 had been invested in setting up the unit by 30th September 1956 which was the valuation date for the assessment year 1957 58
The very first assessment year after the commencement of the operations for establishment of the unit was this assessment year 1957 58 In the Wealth Tax Act assessment 1  ITR 589
767 year has been defined to mean the year for which tax is chargeable under section 3 of that Act
Since the Act came into force on the 1st April 1957 the financial year 1957 58 was the first assessment year for which tax became chargeable and consequently for purposes of the second proviso to section 51xxi the assessment year following the commencement of operations for establishment of the unit in the case of any company which commenced the operations any time before the 1st April 1957 will be the assessment year 1957 58
Prior to the year 1957 58 there was no assessment year as defined under the Act and consequently the first assessment year for which exemption could be claimed was this assessment year 1957 58
The respondent which had commenced operations for establishment of its new unit prior to 1st April 1957 was rightly allowed exemption in respect of the amount that had been invested by it upto the relevant valuation date
The answer returned by the High Court was therefore correct
The appeal fails and is Appeal dismissed
dismissed with costs


Summary:
The respondent Company was assessed to wealth tax for the assessment year 1957 58 and the respondent claimed deduction of an amount laid out for setting up a new unit
The licence for setting up the new unit was granted in 1955 the construction of the factory building was completed by December 1957 the erection of the machinery and plant was completed in several stages commencing from June 1957 the licence for working the factory was obtained in June 1958 and time given to complete the project also was extended by Government up to March 17 1959
The Wealth Tax Officer disallowed the claim on the ground that the unit was set up prior to the date on which the Wealth Tax Act came into force ie April 1 1957
This order was upheld in appeals
But in reference the High Court answered the question in favour of the assessee for it proceeded on the basis that the unit was completed and became ready to go into business after the Act had come into force
HELD  The assessee was entitled to the claim as it satisfied the condition laid down in cl
xxi of section 51 of the Act
The criterion for determining the period of exemption is based on the commencement of the operations for establishment of the unit
These operations for establishment of the unit cannot be simultaneous with the setting up of the unit but must precede the actual setting up of the unit
1764 G H The word set up in clause xxi of section 51 of the Act is equivalent to the word established but operations for establishment cannot be equated with the establishment of the unit itself or its setting up
The applicability of the proviso has therefore to be decided by finding out when the company commenced operations for establishment of the unit which operations must be antecedent to the actual date on which the company is held to have been set up for purposes of the principal clause1764 D E Western India Vegetable Products Limited vs Commissioner of Income tax Bombay City referred to
In the present case the Tribunal proceeded on the basis that whatever be the exact date of commencement of the operations for establishment of Ibis unit it was certainly before April 1 1957 and that fact by itself is sufficient to entitle the assessee to claim the exemption
The Commissioner cannot be allowed to raise a new question and ask this Court to decide that the date of commencement of the operation for establishment of the unit by the respondent was different from that accepted by the Tribunal
That question was not raised and dealt with by the Tribunal 766 E Commissioner of Income tax Bombay vs Scindia Steam Navigation Co Ltd  relied on