# TRA VANCORE-COCHIN CHEMICALS (P.) LTD v. COMMISSIONER OF WEALTH-TAX, KERALA

- **Citation:** [1967] 3 S.C.R. 448
- **Court:** Supreme Court of India
- **Decided:** 1967-04-06
- **Case number:** Civil Appeals Nos. 405F 407 of 1966
- **Bench:** J. C. Shah, S. M. Sikri, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tra-vancore-cochin-chemicals-p-ltd-v-commissioner-of-wealth-tax-kerala-4065
- **Pages:** 6

## Headnote

A
Wealth Tax Act (27 of 1957), s. 45(d), proviso-Company incorpoB
rated on one date and commencing
business on a later
date-When
"'estab/ished"-Meaning of "estab/ishetf'.
The appellant, which was a private limited company, was formed and
registered under the Indian Companies Act, 1913,
on 8th November,
1951. The erection and construction of its factory was completed
in
December 1953 and production conunenced from 1-1·1954. On
the
question whether the company was established on 8th November, 1951,
C
the date of its incorporation and was therefore liable to pay wealth tax
for the assessment years 1957-58, 1958-59 and 1959-60, on the
basis
that the exemption from payment of wealth tax under the proviso to
s. 45d) was only for five successive assessment years commencing with
the assessment year next following the date on which the company was
established.
HELD: A comparison of clauses (d)
and (f) of s. 45 shows that
D
the word "established" in cl. (d)
and its proviso, does not mean "in·
corporated". The word "established" bas the same meaning it has in
s. 5 ( 1 )(xxi) of the Act, namely, that the Company has been put into
such a shape that it can start functioning as a business or a manufacturing
organisation.
So construed, the appellant was established within s. 45(d)
only in December, 1953,, or 1st January 1954,
and the five assessment
years next following would be 1954-55, 1955-56, 1956-57, 1957-58 and
1958·59. Therefore, the appellant would be entitled to exemption for
E
tho assessment years 1957-58 and 1958-59 but not for 1959-60. [451F;
452D-E; 453B-C]
Commissioner of Wealth Tax, Madras v. Ramaraju
Surgical Cotton
Mills Ltd. [1967] I S.C.R. 761, followed.
Thomas !. Davidson v. W. L. Lanier, 18 'L.Ed. 377, 379, ·referred to.

## Text

TRA VANCORE-COCHIN CHEMICALS (P.) LTD.
v.
COMMISSIONER OF WEALTH-TAX, KERALA
April 6, 1967
[J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.J
A
Wealth Tax Act (27 of 1957), s. 45(d), proviso-Company incorpoB
rated on one date and commencing
business on a later
date-When
"'estab/ished"-Meaning of "estab/ishetf'.
The appellant, which was a private limited company, was formed and
registered under the Indian Companies Act, 1913,
on 8th November,
1951. The erection and construction of its factory was completed
in
December 1953 and production conunenced from 1-1·1954. On
the
question whether the company was established on 8th November, 1951,
C
the date of its incorporation and was therefore liable to pay wealth tax
for the assessment years 1957-58, 1958-59 and 1959-60, on the
basis
that the exemption from payment of wealth tax under the proviso to
s. 45d) was only for five successive assessment years commencing with
the assessment year next following the date on which the company was
established.
HELD: A comparison of clauses (d)
and (f) of s. 45 shows that
D
the word "established" in cl. (d)
and its proviso, does not mean "in·
corporated". The word "established" bas the same meaning it has in
s. 5 ( 1 )(xxi) of the Act, namely, that the Company has been put into
such a shape that it can start functioning as a business or a manufacturing
organisation.
So construed, the appellant was established within s. 45(d)
only in December, 1953,, or 1st January 1954,
and the five assessment
years next following would be 1954-55, 1955-56, 1956-57, 1957-58 and
1958·59. Therefore, the appellant would be entitled to exemption for
E
tho assessment years 1957-58 and 1958-59 but not for 1959-60. [451F;
452D-E; 453B-C]
Commissioner of Wealth Tax, Madras v. Ramaraju
Surgical Cotton
Mills Ltd. [1967] I S.C.R. 761, followed.
Thomas !. Davidson v. W. L. Lanier, 18 'L.Ed. 377, 379, ·referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 405F
407 of 1966.
Appeals by special leave from the judgment and order dated
March 9, 1964 of the Kerala High Court in Income Tax Referred
Case No. 4 of 1963.
S. T. Desai and G. L. Sangh1', for the appellant (in all
the
appeals).
G
T. V. Vishwanatha l,ver, Gopal Singh, S, P. Nayyar and R. N.
Sachthey, for the respondent (in all the appeals).
The Judgment of the Court was delivered by
Sikrl, J. These appeals by special leave are directed against
the judgment of the High Court of Ker~la in a reference made
H
to it by the Income-Tax Appellate Tribunal, Madras Bench,
under s. 27(1) of the Wealth Tax Act, 1957, hereinafter referred
to as the Act. The reference was made a• the instance of the
••
..
A
B
c
D
E
F
G
H
T. C. CHEM. LTD. V. COMMR. W. TAX (Sikri, J.)
449
Commissioner of Wealth Tax, Kerala, and the question referred
was as follows :-
"Whether the exemption from tax for the assessment years 1957-58, 1958-59 and 1939-60 was
not
rightly granted."
The High Court held that the exemption from tax granted to
the assessee under s. 45 ( d) of the Act for the assessment years
1957-58, 1958-59 and 1959-60 was not rightly granted and
answered the question against the assessee.
The relevant facts
are as follows :-The appellant, Travancore Cochin Chemicals
(P) Ltd., hereinafter called
the
assessee,
was formed
and
registered under the Indian Companies Act on November 8,
1951. The prior history of the Company is given in the statement of the case as follows :-
"On 22-7-1949, a partnership was formed between
two public limited companies, viz., Fertilisers & Chemical Travancore Ltd., Alwaye, and the Mettur Chemical
& Industrial Corporation Ltd., Mettur, for establishing
a Caustic Soda Factory with an estimated capital of
Rs. one crore. The firm could not function due to
lack of finance.
The Government of Travancore was
approached for necessary finance to complete the purchase of plants and machinery which had been started
in August 1949, and that Government entered
the
Company and subscribed a large share capital and a
new private limited company was formed and registered under the Indian Companies Act on 8-11-1951."
Further facts given in the statement of the case are as follows :-
"This new company took over the plant, machinery,
buildings, construction stores, materials, etc., at different
stages of erection and also all book debts and liabilities.
The erection and construction of the factory was completed in December, 1953, and production commenced
from 1-1-1954. The trading accounts were closed for
the first
time on 31-3-1954. There was
a loss of
Rs. 16,04,212/- incurred."
For the assessment year 1957-58 (the relevant date of valuation being March 31, 1957) the a~sessee claimed before !he
Wealth Tax Officer that it was not liable to pay wealth tax dunng
the year of account as it was exempted from wealth tax under
s. 45(d) of the Act. The Wealth Tax Officer rejected the claim
on the ground that the assessee was established within the meaning of s. 45(d) and the proviso thereto, in November 1951, a!ld
consequently the period of five years exemption was over with
the assessment year 1956-57.
450
SUPREME COURT REPORTS
(1967) 3 S.C.R.
The relevant portion of s. 45 of the Act reads as follows :-
"45. The provisions of this Act shall not apply to-
(a)
(b)
( c) any company established with the
object
of
financing, whether by way of making Joans or
advances to, or subscribing to the capital of,
private industrial enterprises in India, in any
case where the Central Government has made
or agreed to make to the company a special
advance for the purpose or has guaranteed or
agreed to guarantee the payment of moneys borrowed by the company from any institution
outside India;
( d) any company established with the object of
carrying on an· industrial undertaking in India
in any case where the company is not formed
by the splitting up, or the reconstruction of a
business already in existence or by the transfer
to a new business of any building, machinery
or plant used in a business which was
being
previously carried on :
Provided that the exemption granted by clause (d)
shall apply to any such company as is referred
to therein only for a period of five successive
assessment years commencing with the assessment year next following the date on which the
company is established, which period shall, in
the case of a company established before the
commencement of this Act, be computed
in
accordance with this Act from the date of its
establishment as if this Act had been in force
on and from the date of its establishment;
Explanation.-
( e) ..... .
(f) any company registered under section 25 of the
Companies Act, 1956."
The Wealth Tax Officer followed the same reasoning for the
assessment years 1958-59 and 1959-60. The Appellate Assistant
Commissioner of Wealth Tax upheld the orders of the Wealth
Tax Officer.
The Income Tax Appellate Tribunal,
however,
allowed the appeals of the assessee. It held that the woFd "established" in s. 45 ( d) was used in contradistinction to the word
"incorporated". It observed :
"It seems to us that this 'establish' (sic) can be inferred only wh1n the object with which the company
was formed or incorporated is begun to be achieved."
A
B
c
D
E
F
G
H
T. C. CHBM. LTD, v. COMMR. W. TAX (Sikri, J.)
451
A It further held :
B
c
D
E
F
G
H
"To attract tax under sec. 3 there must be an assessment year as defined in sec. 2(d). In this case, the
assessment has commenced for the first time in 1954-55
and having regard to Part II of the Scliedule to the
Wealth Tax Act, the first year 1954-55 having ended
in a loss, the assessment year can be said to commence
only from 1955-56. For five years from then, the asseo;see would be entitled to the exemption."
As mentioned above, the Appellate Tribunal referred the
question at the instance of the Commissioner, and the High Court
answered the question against the assessee. The assessee having
obtained leave from the High Court, the aru>eal is now before us.
The learned counsel for the assessee contends that the word
"eStablished" in s. 45 ( d) has the same me.an'ing ils it has in
s. 5 ( l) ( xxi) of the Act, which was in~rpreted by this Court in
Commissioner of Wealth Tax, Madras v. Ramaraju Surgical
Cott0rt Mills Ltd. ( 1)
He says that the w11rd "established" cannot be equated with the word "incorporated''. The learned counsel for the respondent, on the other harid, contend• that the
word "established" ins. 4S(d) has a different meaning to that in
s. S(l)(xxi), ass. 45(d) deals with a company being established
while s. 5 (l )( xxi) deals with a unit being established. Bhargava, J., speaking for the Court, in Commissioner of Wealth Tax, ·
Madras v. Ramaraju Surgical Cotton Mills Ltd.,(') observed:
'·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 tho 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
that used in the principal clause. In the proviso, the
period of five successive years of exemption 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 o~y signify i;teps that have to be fali:en to establish
tho 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. The
applicability of the proviso has, therefore, to be decided
(I) [~967) I.S.C.R. 761, 7114 : 63 l.T.R. 478, 481-482.
LSSup CJ/67-16
452
SUP.IU!MB COURT .RBPOJtTS
[1967] 3 s.c.R.
by finding out when the company commenced operations for establishment of the unit, which
operation
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 in Western
India Vegetable Products Ltd.,(') where that Court
was concerned with the interpreta .ion of the expression
'set up' as used in section 2 ( 11 ) of the Income-tax Act.
Th.at court held : 'It seems to us that the expression setting up means, as is defined in the Oxford English Dictionary,-to place on foot or to establish, and in oontradistinction to commence. Tho distinction is this that
when a business is established and is ready to eommence
business, then it can be said of that business that it is set
up. But before it is ready to oommence business it is
not set up.
This view was expressed when that Court
was considering the difierence between the meaning of
the expression setting up a business and oommencing of
a business."
It seems to us that the same meaning must be given to tho
word "established" ins. 45(d) as ins. 5(l)(xxi). Ii would be
noticed that s. 45 uses tho word "established" in cl ( c) and in tho
proviso to cl. ( d), while the word "formed" is also used, apart
from the word "established" in cl. ( d); and in cl. (f) the word
"registered" is used.
Thero is a clear distinction between tho
word "registered" or "inoorporated" and the word "established".
If the Legislature was thinking of inoorporation of a oompany,
then we fail .to understand why this word was not used instead of
the word "established". Further, if we look at cl. (d), it excludes
certain industrial undertakings from the benefit of s. 45; wha:t artl
-excluded are oompanies "formed by tho splitting up, or tho :reconstruction of a business already in existence or by the transfer to
a new business of any buildin~. machinery or plant used in a
business which was being previously carried _on."
Ordinarily
the date of incorporation of a company has nothing to do with
the transfer qf a machinery or plant to it.
The case of Thomas I. D11Vidso11 v. W. L. Lanier(")
also
Jen~ support to the interpretation which we have placed on the
word "established" .. Chase, C.J .. Observed:
"What is meant by. putting in operation ()r esiablishing a Banking Company ?
We think that this Ian·
guage has a much wider. import than mere commen<;cment of business. To establish a company for any
business means complete· and -permane!lt provision for
. (I) 26 I.T.R. 151.
(2) 18 L. Ed. 377, 379 •
. •
A
B
c
D
E
F
G
H
A
I!
c
T. C, CHEM. LTD. v. COMMR. W. TAX (Sikri, /,)
453
carrying on that bu5iness, and putting a company in
operation may well include its continued as well as its
first or original operation."
We may mention that no other poirit was debated before us.
In the result w~ hold that the assessee was established within
s. 45 ( d) of the Act in December 1953, or January 1, 1954. The
first llSSC$Sment year following the date of establishment of the
Company was 1954-55, and the next four assessment years would
be 1955-56, 1956-57, 1957-58 and 1958-59. The only assessment year in dispute that is not covered is 1959-60. Consequently the answer to question referred is that the exemption for the
:wessment years 1957-58 and 1958-59 was wrongly withheld
while the exemption for the year 1959-60 was rightly not granted.
We accordingly accept the appeals and answer the question as
indicated above. There will be ao order to costs.
V.P.S.
Appeal allowed In part.