1964 (2) TMI 90 - HC - Income Tax

Commercial Profits Not Exempt under Section 15C: Industrial Activities Requirement Emphasized

Industrial Gases Limited Versus Commissioner of Income-Tax, Calcutta

The court held that profits from the commercial activities were not exempt under section 15C as they were not directly derived from the industrial ... - Issues:1. Determination of whether the manufacturing and commercial activities of the assessee constitute separate undertakings.2. Interpretation of whether profits from the sale of gases and equipment are exempt under section 15C of the Indian Income-tax Act.Analysis:The judgment pertains to a reference under section 66(2) of the Indian Income-tax Act, 1922, for the assessment year 1951-52. The assessee, a private limited company, had separate activities of manufacturing industrial gases and commercial dealings. The company claimed exemption under section 15C for the entire income arising from its business activities. The dispute arose as the manufacturing unit incurred a loss, while the commercial activities were profitable. The Income-tax Officer did not grant the exemption due to the loss in the manufacturing unit. The Appellate Assistant Commissioner and the Appellate Tribunal also denied the exemption, ruling that the profits from commercial activities did not qualify as profits from an industrial undertaking under section 15C.The court framed two questions for consideration: whether the manufacturing and commercial activities were separate undertakings, and whether profits from the sale of gases and equipment were exempt under section 15C. The counsel for the assessee argued that the activities should be considered a single business unless evidence proves otherwise. The court examined section 15C and highlighted that the exemption is limited to profits directly derived from the industrial undertaking. Referring to precedents, the court emphasized that even if an assessee conducts a composite business, only profits from the industrial undertaking are eligible for exemption under section 15C.The court analyzed decisions from the Madras High Court, emphasizing that profits must directly arise from the industrial undertaking to qualify for exemption. It was concluded that the commercial activities of the assessee were not essential to the industrial undertaking and could be conducted independently. Therefore, the profits from commercial activities were not exempt under section 15C. The court upheld the Tribunal's decision, answering both questions in the affirmative.In conclusion, the court held that the profits from the commercial activities were not exempt under section 15C as they were not directly derived from the industrial undertaking. The judgment reiterated the strict interpretation of section 15C, emphasizing that profits must directly relate to the industrial activities to qualify for exemption. The court upheld the Tribunal's decision, affirming that the commercial activities were separate from the industrial undertaking, and the profits from the former were not eligible for exemption.