Commissioner of Wealth Tax vs Hindusthan National Glass Manufacturing Co.

Masud, J.—In this reference u/s 27(1) of the Wealth Tax Act, 1957, the following question of law has been referred to us:

Whether on a true interpretation of Section 5(1)(xxi) of the Wealth Tax Act the Assessee was entitled to exemption in regard to the sum of Rs. 21,28,239 in computation of its net wealth as on the material valuation date.

The reference relates TO the assessment year 1958-59, the material valuation date being March 31, 1958. The relevant facts out of which the said question of law has arisen are not disputed and may be stated as follows:

The Assessee company, carrying on the business of Glass Manufacture, was incorporated on February 23, 1946. In the financial year 1956-57 the company started operation for setting up another unit in the same place in expansion of its undertaking. During the financial years 1956-57 and 1957-58, the operations for setting up another unit continued and the total amounts spent on such operations as on March 31, 1958 amounted to Rs. 21,28,239. These operations were actually completed in May 1958 and in that month the manufacturing activities of the new unit commenced. The Assessee claimed a deduction in respect of the said sum of Rs. 21,28,239 u/s 5(1)(xxi) of the Wealth Tax Act from its net wealth as on the material valuation date. The Wealth Tax Officer held that the exemption in Section 5(1)(xxi) was allowable only in those cases where the operations for the establishment of the new unit are commenced after the Act came into force and he, accordingly, disallowed the claim inasmuch as, in the instant case, the operation for the establishment of the new unit commenced prior to April 1, 1957, which was the date when the Act came into force. The Appellate Assistant Commissioner of Wealth Tax, on appeal, set aside the order of the Wealth Tax Officer and held that since the operations were completed in May 1958 and the unit was set up after the commencement of the Wealth Tax Act, the deduction should be allowed. The Tribunal, thereafter, concurred with the Appellate Assistant Commissioner and held that the Assessee was entitled to the exemption claimed.

The short point to be decided in this reference is whether on the facts and circumstances of this case, the new and separate unit has been "set up" within the meaning of Section 5(1)(xxi) so that the Assessee can claim exemption under it. Mr. Balai Pal, on behalf of the department, has urged that the Assessee is not entitled to claim such exemption inasmuch as the new unit had been commenced on a date prior to the date when the Act came into force. According to him, the words "to set up" mean "to make a beginning" and to substantiate such meaning he referred us to the second proviso to Section 5(1)(xxi). Section 5(1)(xxi) reads as follows:

(1) Wealth Tax shall not be payable by an Assessee in respect of the following assets, and such assets shall not be included in the net wealth of the Assessee.

...............

(xxi) that portion of the net wealth of a company established with the object of carrying on an industrial understanding 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) separate accounts are maintained in respect of such unit; and

(b) the conditions specified in Clause (d) of Section 45 are complied with in relation to the establishment of such unit:

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.

Relying on the second proviso to Section 5(1)(xxi), Mr. Pal has urged that if the exemption is allowed only for a period of 5 assessment years from the date on which the company commences operations for establishment, the words "set up" in the substantive clause must also refer to the commencement of the operation. He has, therefore, concluded that the new unit of the Assessee, in the instant case, has commenced its operation for the establishment prior to the date when the Act came into force and, as such, the Assessee is not entitled to claim exemption.

In our opinion, Mr. Pal''s argument cannot be accepted. The words "set up" in the context they have been used in Section 5(1)(xxi) could only mean finally set up. It appears from Murray''s New English Dictionary that the words "to set up" mean "to erect and make ready for use" and the words "to set to" mean to make a beginning or to get to work. Thus a new unit can only be called "set up" when it is ready to commence business or ready to function. A machinery or a plant is set up only when it is ready for use and by no stretch of imagination they can mean commencement of its operation for establishment. The words used in Section 5(1)(xxi) are "set up" and not "being set up". The words "set up" are often used in connection with cases on contract where parties have contracted to deliver and set up a set of machines on a consideration. Lord Esher, M.R. in Armitage v. John High and Sons Ltd. (1893) 9 ITR 287 at 288 has stated:

The words "set up" in this contract meant completing it.

The meaning of the expression "set up" as "ready to commence business", has also been accepted in Ramaraju Surgical Cotton Mills Ltd. Vs. Commissioner of Wealth Tax, and Commissioner of Wealth Tax, Kerala, Ernakulam Vs. Travancore Cements Ltd., Kottayam, . It seems to us that the words "set up" in the substantive clause cannot be construed in the light of the words expressed in the second proviso. In any event, the scope of the second proviso should not be mixed up with the scope of the main clause of Section 5(1)(xxi). The exemption u/s 5(1)(xxi) has been allowed as a tax relief by way of an incentive to the rapid industrialisation of the country and with that object in view certain conditions have been set out in its provisos. The second proviso only refers to the period for which the exemptions would be granted and with that object in view it contains the two terminal points during which exemptions could be claimed. It only states that the exemption shall apply to any 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. The words "set up" have not been used in the proviso and, therefore, their meaning cannot be inferred from the language of the proviso.

Mr. Pal has drawn our attention to the original provisions of the Wealth Tax Bill, 1957 and the Select Committee Report on the relevant clause. But in view of the fact that there is no vagueness, or uncertainty or doubt as to the meaning of the words "set up" in the Act itself, we do not consider it necessary to deal with them for the purpose of finding out the meaning of the words "set up".

For the reasons stated above the answer to the question referred to us will be in the affirmative and in favour of the Assessee. The Commissioner of Wealth Tax shall pay the costs of this reference to the Assessee.

Mitter, J.

I agree.