# COMMISSIONER OF WEALTH TAX, MADRAS v. RAMARAJU SURGICAL COTfON MILLS, LTD

- **Citation:** [1967] 1 S.C.R. 761
- **Court:** Supreme Court of India
- **Decided:** 1966-10-05
- **Case number:** Civil Appeal No. 674of1965
- **Bench:** J.C. Shah, V. Ramaswami, V. Bhargav..\
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-wealth-tax-madras-v-ramaraju-surgical-cotfon-mills-ltd-3911
- **Pages:** 7

## Headnote

Wealth Tax Act (27 of 1957), s. 5(1) (xxi)-Exemption-Crit!ria
for period-'~et up'' and "''elitabli$Jied" 11 meaning-Question not raised
before Tribunal, if could be raised in the Supreme Court.
The respondent-Company was assessed to wealth-tax. for the assessment year 195(-58 and the re~pondent ~!aimed dedu~tion of an amOUJ!l
laid out for settmg up a new umt. The bcence for settmg up the new UDtt
was granted in 1955; the construction of the factory building was completed by December 1957; the erection of the machinery and plant was com.
pleted in several stages commencing from June 1957; the licence for work·
ing the factory was obtained in June 1958; and time given to complete the
project also was extended by Government up to March
17, 1959. The
Wealth Tax Officer disallowed the claim on the ground that the unit was
set up prior to the date on which the W.ealth Tax Act came into force, I.e.,
April 1, 1957. This order was upheld in appeals.
But in reference, the
Htgh Court answered the question in favour of the assessee, for, it proceeded on the basis that the unit was completed and became ready to g<>
into busilless after the Act had come into force.
HELD : The assessee was entitled to the claim as it satisfied the condition laid down in cl. (xxi) of s. 5(1) of ihe Act.
The criterion for determining the period of exemption is based on the
· commencement of the operations for establishment of the unit. These
operations for establishment of the unit cannot be simultaneous with the
setting up of the unit, but must precede the actual setting·up of the unit.
[764 G-HJ
The word "set up" in clause (xxi) of s. 5(1) of the Act, is equivalent
to the word "estabhshed" but
operations for
establishment can.not
be
equated with the establishment of the unit itself or its setting UP.
The
applicability of the proviso has, therefore, to be decided by finding cut
when the company commenced operations for establishment of the unit,
which operations must be antecedent to the actual date on which the company is held to have been set up for purposes of the principal clause.
17(..! D-EJ
1Vestern
India Vegetable Products, Limited v.
CoJ1unissioner of
Income-tax, Bombay City, 26 I.T.R. 151 referred to.
Jn the present case, the Tribunal proceeded on the basis that whatever
be the exact date of commencement of the operations for establishment of
lhis unit, it was certainly before April 1, 1957 and that fact by itself is
sufficient fo entitle the assessee to claim the exemption. The Commissioner
cannot be allowed to raise a new question and ask this Court to decide
that the date of commencement of the operation for establishment of tho
uni! by the respondent was different from that accepted by the Tribunal.
Tbat question was not raised and dealt with by the Tribunal. [766 E]
Co1n1nissioner of lnconze .. fax,
Bo1nbay v. Scindia Steant Navigation
Co., Ltd., 42 I.T.R. 589 relied on.

## Text

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COMMISSIONER OF WEALTH TAX, MADRAS
v.
RAMARAJU SURGICAL COTfON MILLS, LTD.
October 5, 1966
(J.C. SHAH, V. RAMASWAMI.AND V. BHARGAV..\ JJ.]
Wealth Tax Act (27 of 1957), s. 5(1) (xxi)-Exemption-Crit!ria
for period-'~et up'' and "''elitabli$Jied" 11 meaning-Question not raised
before Tribunal, if could be raised in the Supreme Court.
The respondent-Company was assessed to wealth-tax. for the assessment year 195(-58 and the re~pondent ~!aimed dedu~tion of an amOUJ!l
laid out for settmg up a new umt. The bcence for settmg up the new UDtt
was granted in 1955; the construction of the factory building was completed by December 1957; the erection of the machinery and plant was com.
pleted in several stages commencing from June 1957; the licence for work·
ing the factory was obtained in June 1958; and time given to complete the
project also was extended by Government up to March
17, 1959. The
Wealth Tax Officer disallowed the claim on the ground that the unit was
set up prior to the date on which the W.ealth Tax Act came into force, I.e.,
April 1, 1957. This order was upheld in appeals.
But in reference, the
Htgh Court answered the question in favour of the assessee, for, it proceeded on the basis that the unit was completed and became ready to g<>
into busilless after the Act had come into force.
HELD : The assessee was entitled to the claim as it satisfied the condition laid down in cl. (xxi) of s. 5(1) of ihe Act.
The criterion for determining the period of exemption is based on the
· commencement of the operations for establishment of the unit. These
operations for establishment of the unit cannot be simultaneous with the
setting up of the unit, but must precede the actual setting·up of the unit.
[764 G-HJ
The word "set up" in clause (xxi) of s. 5(1) of the Act, is equivalent
to the word "estabhshed" but
operations for
establishment can.not
be
equated with the establishment of the unit itself or its setting UP.
The
applicability of the proviso has, therefore, to be decided by finding cut
when the company commenced operations for establishment of the unit,
which operations must be antecedent to the actual date on which the company is held to have been set up for purposes of the principal clause.
17(..! D-EJ
1Vestern
India Vegetable Products, Limited v.
CoJ1unissioner of
Income-tax, Bombay City, 26 I.T.R. 151 referred to.
Jn the present case, the Tribunal proceeded on the basis that whatever
be the exact date of commencement of the operations for establishment of
lhis unit, it was certainly before April 1, 1957 and that fact by itself is
sufficient fo entitle the assessee to claim the exemption. The Commissioner
cannot be allowed to raise a new question and ask this Court to decide
that the date of commencement of the operation for establishment of tho
uni! by the respondent was different from that accepted by the Tribunal.
Tbat question was not raised and dealt with by the Tribunal. [766 E]
Co1n1nissioner of lnconze .. fax,
Bo1nbay v. Scindia Steant Navigation
Co., Ltd., 42 I.T.R. 589 relied on.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 674of1965.
M17 Sup. C. I./66
761
762
SUPllEME COUllT llEPORTS
(196 7J I S.C.R.
Appeal by special leave from the judgment and order dated
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March 14, 1962 of the Madras High Court in T. C. No. 209 of
1959.
B. Sen and R. N. Sachthey, for the appellant.
A. K. Sen, and R. Ganapathy Iyer, for the respondent.
The Judgment of the Court was delivered by
Bhargava. J. The respondent is a public limited company
ncorporated under the Indian Companies, Act, 1913 in the year
1939 and was carrying on the 11usiness of manufacture of absorbent
cotton wool.
In March 1955, the Board of Directors resolved
to establish a new spinning unit under the name of Sudarsanan
Spinning Mills for which. a licence was obtained from the Government of India under the Industries (Development and Regulation)
Act, 1951 in
August 1955. The respondent placed orders for
purchase of necessary spinning machinery and plant in the months
of January and February, 1956. The construction of factory buildings was taken in hand in March, 1956, and these constructions were
completed by December, 1957.
The erection of the spinning
machinery and the plant in the buildings was completed in several
stages commencing from June, 1957. A licence from the Inspector
of Factories for working the factory was obtained in June, 1958.
The statement of the case further mentioned that the time given to
complete the project was extended by the Government up to 17th
March, 1959. The respondent was assessed to wealth tax for the
assessment year 1957-58, and in that year the respondent claimed
that, in computing the wealth on the valuation date which was 30th
September, 1956, an amount of Rs. 1,43,727 should be deducted
as being the amount laid out in setting up this new unit. The
Wealth Tax Officer disallowed the claim on the ground that the
unit was set up prior to the date on which the Wealth Tax Act
(hereinafter referred to as "the Act") came into force, i.e., 1st April
1957. On the same basis, the Appellate Assistant Commissioner
and the Income-tax Appellate Tribunal upheld that order. Thereupon, at the request of the respondent, the following question of law
was referred for opinion of the High Court of Madras:-
"Wh~ther the aforesaid asset of Rs. 1,43,727 is exempt
under section 5( I )(xxi) read with the second proviso thereunder of the Wealth-tax Act?"
Tbe High Court answered the question in favour of the respondent,
and consequently, this appeal has been brought up to this Court
by the Commissioner of Wealth Tax, Madras, by special leave.
The question that fell for
determination depended on the
interpretation of section 5(1)(xxi) of the Act read with the second
proviso to that clause which are reproduced below:
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COMMR.. w. TAX v. R.AMARAJU MJLLS (Bhargava, 1.)
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"5(l)(xxi) that portion of the net wealth of a company
established with the object of carrying on an industrial
undertaking 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 underB
taking:-
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Provided that-
(a)
(b)
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."
It has been urged before us by learned counsel for the Commissioner
that the main provision of clause (xxi) should be interpreted in
conjunction with the second proviso so as to give a harmonious
construction to both parts of the provision with which we are concerned. Relying on this principle, he urged that we should hold
that a new and separate unit is set up only when the company
commences operations for the establishment of such unit.
He
relied on the principle stated by Maxwell in his book 'On Interpretation of Statutes' ! Ith Edn. at p. 155 that there is no rule that
the first or enacting part is to be construed without reference to
the proviso. "The proper course is to apply the broad general
rule of construction, which is that a section or enactment must be
construed as a whole, each portion throwing light, if need be, on the
rest." "The true principle undoubtedly is that the sound interpretation and meaning of the statute, on a view of the enacting
clause, saving clause, and proviso, taken and construed together
is to prevail." The view taken by the High Court was challenged
on the ground that the High Court had interpreted the principal
clause without giving full effect to the language of the proviso.
The High Court held that unless a factory is erected and the
plants and machinery installed therein, it cannot be said to have
been set up. The resolution of the Board of Directors, the orders
placed for purchasing machinery, licence obtained from the Government for constructing the machinery, are merely initial stages towards setting up, however necessary and essential they may be to
further the achievement of the end. It is not, however, the actual
functioning of the factory or its going into production that can alone
be called setting up of the factory. The setting up is perhaps a
stage·· anterior to the commencement of the factory. Thereafter,
764
SUPREME COUilT REPORTS
[19i7! l S.C.R.
the High Court referred to a decision of the Bombay High
Court in Wes/em India Vegetable Products, limited v. Co11unissio11er of Income-tax, Bombay City,(') and on its basis, concluded
th;,t the proper meaning. to be assigned to the expression "set up"
in section 5(l)(xxi) would be "ready to commence business." We
are unable to agree with the learned counsel for the Commissioner
that in arriving at this view, the High Court committed any error.
A unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. It is only when the
unit has been put into such a shape that it can start functioning as a
business or a manufacturing organisation that it can be said that the
unit has been set up. The expression used in the proviso, under
which the period for which the exemption is available is to be determined, is not the same as used in the principal clause. In the
proviso, the period of five successive years of eKemption has to·
commence with the assessment year next following the date on
which the company commences operations for the establishment of
the unit. Operations for the establishment of a unit, from the very
nature of that expression, can only signify steps that have to be
taken to establish the unit. The word "set up" in the principal
clause, in our opinion, is equivalent to the word "established", but
operations for establishment cannot be equated with the establishment
of the unit itself or its setting up. Theapplicabilityoftheproviso has,
therefore, to be decided by finding out when thecompnnyconunenced
operations for establishment of the unit, which operations must be
antecedent to the actual date on which the company is held to have
been set up for purposes of the principal clause. This is also the
meaning that the Bombay High Court derived in the case of Wes/em
India
Vegetable
Products
Ltd.(') where that Court
was
concerned with the interpretation of the expression "set up" -as
used in section 2( 11) of the Income-tax Act. That Court held:
"It seems to us that the expression 'setting up' means, a~ is defined
in the Oxford English Dictionary, 'to place on foot' or 'to establish", and is contradistinction to 'commence.' The distinction
is this that when a business is established and is ready to commence
business, then it can be said of that business that it is set up. But
before it is ready to commence business it is not set up.'' This view
was expressed when that Court wa' considering the difference between the meaning of the expression "setting up a business" and
"commencing of a business." In the case before us, the proviso
does not even refer to commencement of the unit. The criterion
for determining the period of exemption is based on the commencement of the operations for the establishment of the unit. These
operations for establishment of the unit cannot be simultaneous
wi:.h the setting up of the unit, as urged on behalf of the Commissioner, but must precede the actual setting up of the unit. In fact,
(i 26 l.T.R ISi.
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CaMMr.. w. TAX v. RAMARAJU MILLS (Bhargava, 1.)
765
it is the operations for establishment of a unit which ultimately
culminate in the setting up of the unit.
On this interpretation, it is clear that in this case, the claim
put forward by the respondent for exemption has been rightly held to
be allowable by the High Court. In the statement of the case and
in its appellate judgment, the Tribunal did not specifically recor~
any finding as to the date when the unit was ready to go int~ business and to start production. In the appellate order, 1t was
mentioned that l\ccording to the respondent, the unit was set up
only when the Inspector of Factories issued a licence to the respondent for working the factory, which was in June, 1958. In the
statement of the case, the facts recited show that the construction
of the factory buildings was completed by December,· 1957 and the
erection of the spinning machinery and plant was completed in several
stages commencing from June, 1957. On these facts, the High
Court, and we consider rightly, . proceeded on the basis that the
unit was completed and became ready to go into business only
after 1st April, 1957, when the Act had already come into force.
Consequently, the condition laid down in the principal clause of
s. 5(1)(xxi) was satisfied, ·and the company became entitled to
exemption in respect of the value of the assets used up in setting up
this unit.
Learned counsel for the Commissioner, however, challenged
the right of the respondent to claim this exemption on another
ground, uiz., that the exemption was claimed in respect of money
~aid out in a period which was not covered by the period envisaged
m the second proviso. It was urged that if it be held that the unit
was set up after the Act had come into force on the· Ist April, 1957,
it must also be held that the operations for the establishment of the
unit had been commenced by the company almost simultaneously
with the unit having been set up, and that date would, therefore, be a
date subsequent to the assessment year 1957-58 in which year the
exemption was claimed. This is a question which we do not think
can be legitimately raised on behalf of the Commissioner at this
stage. The only contention before the Tribunal on behalf of the
Commissioner was that the operations for the establishment of the
unit had been commenced by the respondent before the Act came
into force, and that it should be held that the unit was also set
up at the same time when those operations were commenced. There
was no contention at any stage that the operations for the establishment of the unit were commenced at a subsequent stage. In fact,
it was only for the purpose of urging that the principal clause was
not applicable to the case of the respondent that the position was
taken up on behalf of the Commissioner that the operations for
establishment of the unit had been commenced before 1st April,
1957, and the unit must be held to have been set up at the same time
766
SUPREME COUllT REPORTS
[1961) I S.C.R.
when those operations were commenced·. That submission, as we
have indicated above, has no force.
In any case, the judgments passed by all the Wealth-tax A uthorities show that it was at no stage in dispute that the operations for
establishment of the unit had been commenced by the respondent
prior to I st April, 1957. Para 5 of the statement of the case mentions
that the the wealth-tax officer disallowed the claim on the ground
that unit was set up prior to !st April, 1957.
The Appellate
Assistant Commissioner also in his judgment said: "In this view
of the matter, the appellant set up the undertaking even prior to
!st April, 1957 as operations were carried out prior to that date for
the establishment of the undertaking. The operations consisted
of the seeking of permission from the Goverrunent to instal the
unit, and placing of orders with manufacturers of machinery and
advancing of moneys towards the purchase of machinery." The
Tribunal also disallowed the claim on the basis that the respondent commenced operations for setting up the unit earlier than !st
April, 1957. It does not appear to be necessary for us to express
any opinion as to the particular stage at which it can be said that a
company corrunences operations for the establishment of a unit.
In the present case, the Tribunal proceeded on the basis that, whatever be the exact date of corrunencement of the operations for establishment of this unit by the respondent, it was certainly before
1st April, 1957; and we consider that that fact, by itself, is sufficient
to entitle the respondent to claim the exemption. The Commissioner cannot, at this stage, be allowed to raise a new question and
ask this Court to decide that the date of commencement of the
operations for establishment of the unit by the respondent was
different from that accepted by the Tribunal. That question was
not raised and dealt with by the Tribunal. It is not even a question that might have been raised before the Tribunal and the Tribunal
might have failed to deal with, nor is it a question which may not
have been raised before the Tribunal and, yet, was dealt with by it.
On the principle laid down by this Court in Commissioner of Incometax, Bombay v. Scindia Steam Narigation Co., Ltd.,(l) such a
question could not be canvassed before the High Court and cannot
be allowed to be raised in this Court. The question referred to
the High Court had to be answered on the basis that the respondent
did commence operations for establishing this unit before I st
April, 1957; and the further finding of fact recorded by theTribunal
is that a sum of Rs. 1,43,727/- had been invested in setting up the
unit by 30th September, 1956, which was the valuation date for the
assessment year 1957-58. The very first assessment year after the
conunencement of the operations for establishment of the unit was
this assessnient year 1957-58, In the Wealth Tax Act, assessment
(I) 11962] I s.c.R 788 : 42 l.T.R. 589.
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COMM!l. w. TAX v. llAMAllA.JU MILLS (Bhargavs, I.)
767
year has been defined to mean the year for which tax is chargeable
under s. 3 .of that Act. Since the Act came into force onf the !st
April, 1957, the financial year 1957-58 was the first assessment year
for which tax became chargeable, and consequently, for purposes
of the second proViso to section S(l)(xxi), the assessment year
follewing the commencement of operations for establishment of the
unit in the case of any company which commenced the operations
any time before the 1st April, 1957, will be the assessment year
1957-58. Prior to the year 1957-58, there was no assessment YCl!I
as defined under the Act, and consequently, the first assessment year
for which exemption could be claimed was this assessment year
1957-58. The respondent which had comqienced operations for
establishment of its new unit prior to 1st April, 1957, was rightly
allowed exemption in respect of the .amount that had been invested
· by it upto the relevant valuation date. The answer returned by the
· High Court was, therefore, correct. The appeal fails and is
dismissed with costs'
Y.P.
Appeal dismissed.