- (1.) "Whether the aforesaid asset of Rs. 1,43,727 is exempt under Section 5 (1) (xxi) read with the second proviso thereunder of the Wealth-tax Act - The High Court answered the question in favorer of the respondent, and consequently, this appeal has been brought up to this Court by the Commissioner of Wealth-tax, Madras, by special leave.
(2.) 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: "5(1)(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 undertaking :- 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' 11th 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.
(3.) 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 interior to the commencement of the factory. Thereafter, the High Court referred to a decision of the Bombay High Court in Western India Vegetable Products, Ltd. v. Commr. of Income-tax, Bombay City, 1954-26 ITR 151: (AIR 1955 Bom 13) and on its basis, concluded that 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 organization 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 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 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. The applicability of the proviso has, therefore, to be decided by finding out 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. This is also the meaning that the Bombay High Court derived in the case of Western India Vegetable Products Ltd., 1904-26 ITR 151: (AIR 1955 Bom 13) (supra) 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, as 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 was 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 with 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, it is the operations for establishment of a unit which ultimately culminate in the setting up of the unit.;