CAPSULATION SERVICES PVT LIMITED Vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF BOMBAY
Capsulation Services Pvt Limited
COMMISSIONER OF INCOME TAX
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KANTAWALA, J. -
(1.) THIS is a reference under section 66 (1) of the Indian Income -tax Act, 1922, and the question that is referred for our determination is :
'Whether the hiring by M/s. Pure Products and Madhu Canning Ltd. to the assessee -company of a godown belonging to and used by the former for its business purposes amounted to 'transfer' to the latter within the meaning of the phrase 'the transfer to a new business of building previously used in any other business' occurring in section 15C (2) (i) /'
(2.) THE question that is referred to us relates to the period 1958 -59 and 1959 -60, corresponding to the accounting years ending 30th September of 1957 and 1958, respectively. The assessee -company was incorporated in October, 1952, with the object of carrying on the business of sale and manufacture of gelatin capsules, etc. It took on monthly lease a huge compound pertaining to and used for its business by Messers. Pure Products and Madhu Canning Ltd. on a monthly rent of Rs. 1,500. The factory of the assessee -company was located in the godown which was belonging to Messers. Pure Products and Madhu Canning Ltd. on a monthly rent of Rs. 1,500. The factory of the assessee -company was located in the godown which was belonging to Messers. Pure Products and Madhu Canning Ltd. and it was used by the latter company as its godown for business purposes. Production was commenced by the assessee -company some time after august 1, 1954. For both the assessment years, the assessee -company claimed relief under section 15C of the Act. The relief asked for by the assessee -company was not granted by the Income -tax Officer. He took the view that the assessee -company was carrying on this business in a building which was transferred to it by Messers. Pune Products and Madhu Canning Ltd. and which was previously used by the latter company as a godown for its business purpose. In the appeal preferred by the assessee -company, the finding of the Income -tax Officer was confirmed by the Appellate Assistant Commissioner. In the appeal by the assessee -company, it was sought to be contended on behalf of the assessee -company that the godown was obtained from Messers. Pure Products and madhu Canning Ltd. on the basis of tenancy from month to month and that it did not amount to transfer within the meaning of the word 'transfer' as contained in section 5 of the Transfer of Property Act and section 150 of the Income -tax Act; that it was not the intention of the legislature to deny relief to a newly established industrial undertaking, if it carried on business in a rented building; that the assessee -company invested Rs. 7 lakhs in the said business and the area of the business premises used by the assessee -company for its purpose was merely about 2,000 sq. and its value was about Rs. 20,000; that the value of the building used for business purposes was negligible when compared to the huge capital invested by the assessee in the business of the company; that Messrs. Pure Products and Madhu Canning Ltd. were still carrying on the business and that the assessee -company was not formed by the splitting up of the other company or its reconstruction; that the business of both the companies was totally different from each other and that there was no relationship between the directors of the company. The contentions urged by the assessee -company were not accepted by the Tribunal. The Tribunal took the view that there was a clear case of transfer of possession of some of the property from one business to another. The Tribunal, however, felt that it was a hard case, but nonetheless the law had to be administered as it was. In view of the admitted fact that the assessee -company carried on business in a building, that it was transferred to it by another company and which was used by the latter for its business purpose, according to the Tribunal, the relief under section 15C could not be granted to the assessee -company.
In the reference before us, Mr. Dastur on behalf of the assessee -company contended that the provisions of section 15C of the Act are meant for the industrial development; that the word 'transfer' used in section 15C (2) (i) must mean a transfer by the assessee from one of his business to a new business started by him; that the word 'transfer' is not used in the sense in which that word was used under the Transfer of Property Act. Secondly, he contended that even if the word 'transfer' is capable of being construed to mean a transfer of ownership of a building and not when rights other than those of ownership in a building are transferred. In any event, he submitted that in no event a creation of a monthly tenancy can be regarded as transfer within the meaning of the Act. Thirdly, his submission was that the creation of a monthly tenancy is not a lease and, even it lease is regarded as a transfer, creation of monthly tenancy cannot be regarded as transfer. Lastly, his submission was that the provisions of section 15C (2) (i) will only apply when the transfer of building therein referred to is essential for the formation of an industrial undertaking; that the undertaking by the nature of it business must need a specific and particular type of a building and if the building is of such type, then alone can it be regarded as being essential for the formation of the industrial undertaking. Mr. Hajarnavis, on the other hand, on behalf of the revenue, contended that there was no warrant for restricting the application of section 15C (2) (i) in cases where there is a transfer by an assessee to his new business of a building previously used by him is his own other business. It will equally apply in a case where a building is transferred to a new business of a person other than the assessee. His further submission is that the word 'transfer' is of very wide amplitude and was not capable of being restricted to cease of ownership of building. His submission was that it is well -settled that a lease of an immovable property is a transfer and even the creation of a monthly tenancy will amount to transfer. His further submission was that no industrial undertaking can be formed without premises and the very fact that premises are required for carrying on the business automatically shows that it is essential for the formation of an industrial undertaking.
(3.) SECTION 10 of the Act provides for liability to pay tax by an assessee under the head 'profits and gains of business'. Under sub -section (1) thereof, the tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation in carried on by him'. One of the exemptions from the liability to pay tax in respect of business was introduced by the provisions of section 15C which were first introduced by the Taxation Laws (Extention to Merged States) Amendment Act, 1949 (Act No. 67 of 1949). This section has been amended form time to time and the relevant provisions of this section as applicable to the assessment years 1958 -59 and 1959 -60 are as under :
'15C (1) Save as otherwise hereinafter provided the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking, computed in accordance with such rules as may be made in this behalf by the Central Board of Revenue, (2) This section applies to any industrial undertaking which - (i) is not formed by the splitting up, or the reconstruction, of business already in existence or by the transfer to a new business of building, machinery or plant previously used in any other business.....' ;
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