KANTAWALA, C.J. - (1.) BY this reference at the instance of the revenue the following question is referred for our determination : 'Whether, on the facts and in the circumstances of the case, the assessee is entitled to exemption of tax under section 15C of the Indian Income -tax Act, 1922, for the assessment year 1960 -61 ?'
(2.) THE assessee is a limited company whose shares are entirely held by the Government. It was incorporated on March 30, 1954, and on June 1, 1954, it took over the project for manufacture of penicillin and other antibiotic products, which was initially started by the Government of India. The company commenced actual operations for manufacturing crude penicillin as from December 12, 1954. In the profit and loss account for the year ending March 31, 1955, it showed a closing stock of crude penicillin worth Rs. 16,727. The first samples of crude penicillin which were manufactured by the assessee -company on December 14, 1954, were required to be sent to U.S.A. and U.K. for obtaining certificates as to their qualities. The requisite were received some time in June, 1955, and the assessee -company started manufacture of sterile penicillin from August, 1955, onwards. It is not disputed that sterile penicillin is the only product which can be sold in the market. It will be useful to the total income of the assessee -company for the assessment years 1955 -56 to 1959 -60, and the said figures of total income are determined as under : Rs.1955 -56 Business loss 3,30,422Les : Depreciation 7,00,174 - - - - - - - -Total Loss C/F 10,30,596 - - - - - - - - -1956 -57 Business income 4,77,688Les : Depreciation allowed 36,91,322 - - - - - - - - -Loss on account ofunabsorbed depreciation C/F 32,13,634 - - - - - - - - -1957 -58 Business income 12,37,786Les : Depreciation allowed 23,18,515 - - - - - - - - -Loss on account ofunabsorbed depreciation C/C 10,80,729 - - - - - - - - -1958 -59 Business income 48,54,243Les : Depreciation allowed 18,50,111 - - - - - - - - -30,04,132Les : Loss of 1955 -56allowed to be set offunder section 24(2) 3,30,422 - - - - - - - - -26,73,710Les : Unabsorbed depreciationset of under section 10(2)(vi),clause (b)Out of 1955 -5 : 7,00,174Out of 1956 -5 : 19,73,536 26,73,710 - - - - - - - - - - - - - - - - - -NIL - - - - - - - - -1959 -60 Business income 1,60,07,163Les : Depreciation allowed 13,35,614 - - - - - - - - - - -1,46,71,549Les : Unabsorbeddepreciation ofprevious yearsRs.23,20,827Reduction admissible asa result of the decisionsof Appellate AssistantCommissioner in assessmentyears 1955 -56 to 1958 -591,60,25524,81,082Total income 1,21,90,467 - - - - - - - - - - -
(3.) FOR the assessment year 1960 -61, for which the relevant previous year ended on March 31, 1960, a question arose whether the assessee -company was entitled to exemption under the provisions of section 15C of the Act. Such exemption was claimed by the assessee -company but the claim was rejected by the Income -tax Officer. The Income -tax Officer, inter alia, took the view that it is no correct that the assessee -company's actual manufacturing operations commenced with effect from August, 1955; that for the accounting year ending March 31, 1955 (the relevant year corresponding to assessment year 1955 -56), the company in its profit and loss account showed a closing stock of crude penicillin worth Rs. 16,737. he took the view that the process of manufacture must certainly have commenced in the accounting year 1954 -55, as the sales were effected in the accounting year 1955 -56. Further, he took the view that the beginning of the manufacturing process was certainly in the accounting year 1954 -55, as the balance -sheet and profit and loss accounts for the year ending March 31, 1955, showed that a substantial quantity of raw materials and stores were consumed, wages were paid and electricity charges were incurred.;