Case: Commissioner of Income Tax, Delhi and Rajasthan Vs. Webbing and Belting Factory Private Limited

the manufactured cloth through the canvassing agents of the Common-wealth Trust Limited, but without the labels of the said Trusts. This is apparent from a letter produced before me in which the Common-wealth Trust Limited agreed to sell the goods through its canvassers. I also find that the production of handloom cloth during the various months was as under:Rs February 1947 14, 348 March do. 30, 254 April do. 11, 692 May do. 3, 000 June do. 2, 743 July do. 9, 897 August do. 5, 934 November do. 67 December do. 631 A total production of Rs. 67, 085 cannot be described as pure experimental production and it is not merely the production of samples of launching the bigger production scheme of the assessee. It is true that the assessee was not able to manufacture all the contemplated varieties, yet they had commenced producing goods on the handlooms installed by them in the Bela Road factory prior to 31st March, 1948 The contention of the assessee that during these months they had to consume the quota of yarn allotted to them monthly has not much force as the fact remains that the manufacture was carried on. The factory had begun to manufacture articles before 1st April, 1948, and, therefore, is not entitled to the exemption laid down under section 15C." It would be noticed from the order of the Appellate Assistant Commissioner that he did not reject the contention of the assessee, which the Income-tax Officer had apparently accepted, i.e., that a pilot project had been set up by the assessee. He further found that because the total production amounted to Rs. 67, 085, it could not be described as " pure experimental production." It is difficult to understand the exact import of the words " pure experimental production ", in the context 7. The High Court first set out some undisputed facts some of which it took from the order of the Income-tax Officer and some from the order of the Appellate Assistant Commissioner. Regarding the purely experimental nature of production, the High Court felt that the question in issue was : " Whether the transfer of any machinery or plant to a new business, however small a portion the plant or machinery so transferred forms of the plant or machinery of the new business, automatically has the effect of denying the new business the concession under section 15C. With this is involved the question whether the manufacture of cloth at the Bela Road factory was undertaken merely by way of an experiment and as training for the start of what might be called the new business of the manufacture of handloom furnishing fabrics." The High Court observed:" On this point the learned counsel for the Commissioner has argued that we cannot question the finding of fact of the Appellate Assistant Commissioner that the sale of cloth worth Rs. 67, 000 in 1947, could not be described as purely experimental production. I find, however, that the Income-tax Officer accepted the fact that the production before the 1st of April, 1948, was experimental, and that the pilot plant consisting of the handlooms became the starting point of the enterprise. Moreover, what we are to consider is a question of law arising out of the final order of the Appellate Tribunal which has not expressed any opinion either as to whether the manufacture in 1947, was by way of experiment and training, but has based its decision entirely on the fact that some looms were transferred to the new factory. I therefore do not consider that I am precluded from expressing the opinion that the fact that sales amounted to Rs. 67, 000 in 1947, in no way rebutted the contention of the assessee that the production at the Bela Road factory of one simple kind of cloth was by way of experiment and training, and this opinion is supported by the fact that in the fourth year of production of the new factory sales had risen to Rs. 15, 00, 000." The High Court then concluded:" In my opinion a provision of this kind which is intended to encourage the setting up of new industrial enterprises must be construed liberally and on this view of the matter I consider that the opening of the factory at Ghaziabad was a new enterprise encouraged by the successful experiment, and that the fact that what apparently amounts to about 35% of the machinery or plant used in the factory had been used before the 1st of April, 1948, does not preclude the factory at Ghaziabad from enjoying the concession granted under section 15C." It seems to us that the High Court has exceeded its jurisdiction under section 66 of the Indian Income-tax Act. It is true that the Income-tax Officer had apparently accepted the fact that the production before April 1, 1948, was experimental, but the Appellate Assistant Commissioner had merely stated that a total production of Rs. 67, 085 could not be described as " pure experimental production ". In other words, the Appellate Assistant Commissioner did not give a clear finding whether the assessee had put up a pilot plant or not. In view of these circumstances, the High Court should have called for a supplementary statement under section 66(4) of the Indian Income-tax Act and not gone into the facts itself and come to the conclusion that the Income-tax Officer was right in holding that a pilot plant had been set up by the assessee, which became the starting point of the enterprise 8. Accordingly we set aside the judgment of the High Court and remand the case to it with the direction that it should call for a supplementary statement from the Appellate Tribunal and then deal with the reference according to law. As the point on which we are allowing the appeal was not taken in the statement of the case, the learned counsel for the assessee contends that the assessee should not be burdened with costs.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]6. On going through the correspondence, I find that the goods produced by the Bela Road factory were completed except to the extent that they were not bleached by the regular bleaching plant but by local dhobis etc., and as the local dhobis were not able to do expert work, the assessee chose to sell all the manufactured cloth through the canvassing agents of theh Trust Limited, but without the labels of the said Trusts. This is apparent from a letter produced before me in which theFebruary 1947 14, 348March do. 30, 254April do. 11, 692May do. 3, 000June do. 2, 743July do. 9, 897August do. 5, 934November do. 67December do. 631A total production of Rs. 67, 085 cannot be described as pure experimental production and it is not merely the production of samples of launching the bigger production scheme of the assessee. It is true that the assessee was not able to manufacture all the contemplated varieties, yet they had commenced producing goods on the handlooms installed by them in the Bela Road factory prior to 31st March, 1948The contention of the assessee that during these months they had to consume the quota of yarn allotted to them monthly has not much force as the fact remains that the manufacture was carried on. The factory had begun to manufacture articles before 1st April, 1948, and, therefore, is not entitled to the exemption laid down under section 15C."It would be noticed from the order of the Appellate Assistant Commissioner that he did not reject the contention of the assessee, which thex Officer had apparently accepted, i.e., that a pilot project had been set up by the assessee. He further found that because the total production amounted to Rs. 67, 085, it could not be described as " pure experimental production." It is difficult to understand the exact import of the words " pure experimental production ", in the contextIt seems to us that the High Court has exceeded its jurisdiction under section 66 of the Indianx Act. It is true that thex Officer had apparently accepted the fact that the production before April 1, 1948, was experimental, but the Appellate Assistant Commissioner had merely stated that a total production of Rs. 67, 085 could not be described as " pure experimental production ". In other words, the Appellate Assistant Commissioner did not give a clear finding whether the assessee had put up a pilot plant or not. In view of these circumstances, the High Court should have called for a supplementary statement under section 66(4) of the Indianx Act and not gone into the facts itself and come to the conclusion that thex Officer was right in holding that a pilot plant had been set up by the assessee, which became the starting point of the enterprise8. Accordingly we set aside the judgment of the High Court and remand the case to it with the direction that it should call for a supplementary statement from the Appellate Tribunal and then deal with the reference according to law. As the point on which we are allowing the appeal was not taken in the statement of the case, the learned counsel for the assessee contends that the assessee should not be burdened with costs.