Independent industrial undertaking test: separate cotton spinning unit qualified for tax exemption despite earlier weaving business.

A cotton spinning division set up with separate buildings and machinery was treated as an independent industrial undertaking, even though the assessee had an earlier silk weaving business. Common ownership, common objects, financial control, or connection with the textile trade did not make the two units one undertaking. Section 15C applied to each undertaking separately, and the spinning unit was not shown to be a reconstruction of the earlier business because the weaving business continued independently and no assets were transferred from it. The assessee was therefore entitled to the exemption for the relevant assessment year.

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Issues: Whether the cotton spinning division, commenced on 24 March 1951, was a newly established industrial undertaking entitled to exemption under section 15C of the Income-tax Act, 1922, notwithstanding the assessee's earlier silk weaving business.

Analysis: The assessee had first carried on silk weaving and later set up a separate cotton spinning unit with distinct buildings and machinery. The relevant inquiry was whether the spinning unit was an independent industrial undertaking or merely part of the earlier weaving business. The existence of a common company, common objects clause, common financial control, or connection with the textile trade did not by itself make the two units one undertaking. A business may consist of separate industrial undertakings, and section 15C applies to each undertaking independently. The record also did not show that the spinning unit was a reconstruction of an existing business within the meaning of section 15C(2), since the earlier weaving business continued separately and the assets of the spinning unit were not transferred from the old business.

Conclusion: The cotton spinning unit was a distinct industrial undertaking and the assessee was entitled to the exemption under section 15C for the assessment year 1956-57.

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