Case: Travancore-Cochin Chemicals (P.) Ltd Vs. Commissioner Of Wealth-Tax, Kerala

2. The High Court held that the exemption from tax granted to the assessee under S. 45 (d) of the Act for the assessment years60 was not rightly granted , and answered the question against the assessee. The relevant facts are as follows: The appellant, Travancore Cochin Chemicals (P) Ltd., hereinafter called the assessee, was formed and registered under the Indian Companies Act on November 8, 1951. The prior history of the Company is given in the statement of the case as, a partnership was formed between two public limited companies, viz., Fertilisers and Chemical Travancore Ltd., Alwaye, and the Mettur Chemical and Industrial Corporation Ltd., Mettur for establishing a Caustic Soda Factory with an estimated capital of Rs. one crore. The firm could not function due to lack of finance. The Government of Travancore was approached for necessary finance to complete the purchase of plants and machinery which had been started in August 1949, and that Government entered the Company and subscribed a large share capital and new private limited company was formed and registered under the Indian Companies Act onfacts given in the statement of the case are asnew company took over the plant machinery, buildings, construction stores, materials etc at different stages of erection and also book debts and liabilities. The erection and construction of the factory was completed in December 1953, and production commenced fromThe Trading accounts were closed for the first time onThere was a loss of Rs. 16,04,212/For the assessment year(the relevant date of valuation being March 31, 1957) the assessee claimed before theOfficer that it was not liable to pay wealth tax during the year of account as it was exempted fromunder S.45(d) of the Act. TheThe relevant portion of S. 45 of the Act reads asThe provisions of this Act shall not apply to(a)........ ....... ......... ........(b) ........ ....... ......... ........(c) any company established with the object of financing, whether by way of making loans or advances to, or subscribing to the capital of, private industrial enterprises in India, in any case where the Central Government has made or agreed to make to the company a special advance for the purpose or has guaranteed or agreed to guarantee the payment of moneys borrowed by the company from any institution outside India,(d) any company established with the object of carrying on an industrial undertaking in India in any case where the company is not formed by the splitting up, or the reconstruction of a business already in existence or by the transfer to a new business of any building. machinery or plant used in a business which was being previously carried on :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....... ....... ............(f) any company registered under Section 25 of the Companies Act, 1956.ax Officer followed the same reasoning for the assessment years0. The Appellate Assistant Commissioner ofupheld the orders of thetax Appellant Tribunal, however, allowed the appeals of the assessee. It held that the word "established" in S. 45 (d) was used in contradistinction to the word "incorporated". It observedseems to us that this "established" (sic) can be inferred only when the object with which the company was formed or incorporated is begun to beTo attract tax under S. 3 there must be an assessment year as defined in S. 2 (d). In this case, the assessment has commenced for the first time inand having regard to Part II of the Schedule to theAct, the first yearhaving ended in a loss, the assessment year can be said to commence only from.For five years from then, the assessee would be entitled to the exemption.As mentioned above, the Appellate Tribunal referred the question at the instance of the Commissioner, and the High Court answered the question against the assessee. The assessee having obtained leave from the High Court, the appeal is now before us.

Reasoning: 8. It seems to us that the same meaning must be given to the word "established" in S. 45 (d) as in S. 5 (1) (xxi). It would be noticed that S. 45 uses the word "established in C1. (c) and in the proviso to Cl. (d), while the word formed" is also used, apart from the word "established" in Cl. (d) and in Cl (f) the word "registered" is used. There is a clear distinction between the word "registered" or incorporated and the word "established. If the Legislature was thinking of incorporation of a company, then we fail to understand why this word was not used instead of the word "established". Further, if we look at Cl. (d), it excludes certain industrial undertakings from the benefit of S. 45; what are excluded are companies "formed by the splitting up, or the reconstruction of a business already in existence or by the transfer to a new business of any building, machinery or plant used in a business which was being previously carried on." Ordinarily the date of incorporation of a company has nothing to do with the transfer of a machinery or plant to it.9. The case ofThomas J. Davidson v. W. L. Lanier,18 Law Ed 377 at p. 379also lends support to the interpretation which we have placed on the word "established". Chase. C. J.,is, meant by putting in operation or establishing a Banking Company? We think that this language has a much wider import than mere commencement of business. To establish a company for any business means complete and permanent provision for carrying on that business, and putting a company in operation may well include its continued as well as its first or original operation.We may mention that no other point was debated before us.