1974 (12) TMI 14 - HC - Income Tax

High Court rules in favor of assessee on exemption, emphasizing liberal interpretation of transfer provisions.

The High Court of Bombay ruled in favor of the assessee regarding entitlement to exemption under section 15C for the textile department unit. The court ... Business Expenditure, Industrial Undertaking, Wealth Tax Issues:1. Entitlement to exemption under section 15C for the textile department unit.2. Allowability of wealth-tax as expenditure in the computation of business income under the Income-tax Act.Entitlement to Exemption under Section 15C:The case involved a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the entitlement to exemption under section 15C for the textile department unit. The assessee, a non-resident company, had set up a new factory at Ghatkopar for manufacturing asbestos products. The issue was whether the transfer of some machinery from the old factory to the new one affected the eligibility for exemption under section 15C(2)(i). The Tribunal held that the new unit was not formed by the transfer of old machinery, as the transferred items were insignificant compared to the total capital invested in the new unit. The Tribunal applied a liberal interpretation of the exemption provisions, citing previous judgments emphasizing the need to construe such provisions favorably for the assessee. The court agreed with this approach and ruled in favor of the assessee, stating that the relief under section 15C should not be denied based solely on the transfer of old assets if their value was minimal compared to the total assets of the new unit.Allowability of Wealth-tax as Expenditure:Regarding the second issue of whether wealth-tax payable by the assessee could be considered as an allowable expenditure in the computation of business income under the Income-tax Act, the matter was deemed concluded by an amendment to the Act and a previous court decision. The court agreed that the question should be answered in the negative and against the assessee, focusing solely on the first issue of exemption under section 15C. The judges, DESAI J. and VIMADALAL J., concurred on the decision, with VIMADALAL J. having nothing further to add. The court answered the question in favor of the assessee regarding exemption under section 15C and against the assessee regarding the allowability of wealth-tax as an expenditure.Conclusion:The High Court of Bombay, through a detailed analysis of the facts and legal provisions, upheld the assessee's entitlement to exemption under section 15C for the textile department unit, emphasizing a liberal interpretation of the exemption provisions. The court's decision was based on the insignificance of the transferred machinery compared to the total capital invested in the new unit. The judgment highlighted the importance of considering the monetary value and essentiality of old assets transferred to new undertakings when determining eligibility for exemption under section 15C.