Section 15C industrial undertaking test denied where divisions merely supported existing business and wealth-tax deduction was disallowed.

Section 15C exemption required proof of a genuinely new industrial undertaking that was commercially separate and not formed by splitting up, reconstruction, or mere expansion of an existing business. The steel foundry division and the jute mill division failed that test because each mainly supplied the assessee's existing business and replaced outside purchases; separate machinery, premises, accounts, or an industrial licence were not enough. Wealth-tax paid during the accounting year was also not allowable as a deduction in computing business profits. All three questions were answered in favour of the Revenue.

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Issues: (i) whether the steel foundry division was an industrial undertaking entitled to exemption under section 15C of the Indian Income-tax Act, 1922; (ii) whether the jute mill division was an industrial undertaking entitled to exemption under section 15C of the Indian Income-tax Act, 1922; (iii) whether wealth-tax paid during the accounting year was admissible as a deduction in computing business profits.

Issue (i): whether the steel foundry division was an industrial undertaking entitled to exemption under section 15C of the Indian Income-tax Act, 1922.

Analysis: Section 15C granted a limited exemption only where the assessee established a new industrial undertaking that was not formed by splitting up or reconstruction of an existing business and where the statutory conditions as to capital employed, profits derived, and minimum labour were satisfied. The steel foundry division supplied castings largely for the assessee's own existing engineering business, replacing purchases previously made from outside. New machinery, separate housing, and an industrial licence did not by themselves establish a distinct undertaking for section 15C. On the facts, the division was treated as a reconstruction or extension of the existing business rather than a new undertaking within the exemption provision.

Conclusion: The answer was against the assessee and in favour of the Revenue.

Issue (ii): whether the jute mill division was an industrial undertaking entitled to exemption under section 15C of the Indian Income-tax Act, 1922.

Analysis: The jute mill division mainly produced parts for the assessee's boiler division, with only a small portion sold outside. The same statutory test applied: the undertaking had to be separate in substance and not a reconstruction of an existing business. The court held that the division was set up to feed the existing business by manufacturing items earlier procured from the market, so the commercial character of the assessee's business remained the same. Separate books, separate premises, and manufacture through new machinery were insufficient to convert the activity into a new undertaking for section 15C.

Conclusion: The answer was against the assessee and in favour of the Revenue.

Issue (iii): whether wealth-tax paid during the accounting year was admissible as a deduction in computing business profits.

Analysis: The court applied the governing rule that wealth-tax paid on net wealth is not a permissible deduction in computing business income under the cited deduction provision. The issue was treated as governed by the prior Supreme Court decision and required no further enlargement of the deduction base.

Conclusion: The answer was against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered wholly against the assessee, with all three questions decided in favour of the Revenue and costs awarded accordingly.

Ratio Decidendi: For section 15C relief, the assessee must prove a truly new industrial undertaking that is commercially separate from an existing business and is not merely a reconstruction, expansion, or internalisation of supplies previously obtained from outside; separate machinery, premises, or accounts are not conclusive.

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