Kirpal, J. - (1.) This is an appeal by way of special leave having been granted against the judgment of the Madras High Court which had answered the three questions of law referred to it by Income-tax Tribunal under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) in favour of the respondent.
(2.) The facts as found by the Tribunal are that the appellant was manufacturing caustic soda utilising billiter cells and up to the year 1956, its production capacity was 13.5 tons per day. The appellant felt the need to expand its capacity and had obtained a licence which permitted it to manufacture 20 tons of caustic soda per day.
(3.) In order to increase the capacity, the appellant gradually replaced billiter cells with hooker cells. Thirty hooker cells were installed by 31-3-1957 and thirty more were installed in February, 1958. The installation of the hooker cells required a change over in the power system and the installation of a rectifier was completed only in the year ended 31-3-1959. However, the hooker cells were utilised for the production as and when they were installed by a suitable adjustment in the power system even before the rectifier was installed. The position, thus, was that the production for the year 31-3-1957 included certain production attributable to the use of thirty hooker cells. All the sixty hooker cells were installed by the end of 1958 and the installation of the unit together with the rectifier was also completed in the year ended 31-3-1959. It was clear that the capacity of the unit gradually increased from the stage of the installation of the hooker cells, though full capacity was reached only with the installation of all the hooker cells.;