Law:

Section:

Section 5(1)(xxi) of the Wealth-tax Act, 1957 - Exemption - New industrial unit - Assessment year 1957-58 - Assessee-company placed orders for purchase of spinning machinery and plant in months of January and February 1956 - Errection of spinning machinery and plant in factory building was completed by December, 1957 - For assessment in question, assessee claimed that in computing wealth on valuation date (i.e. 30-9-1956), certain amount should be deducted being amount laid out in setting up new unit - Whether since assessee had commenced operations for establishment of its new unit prior to 1-4-1957 (i.e, date when Act came into force), it was to be allowed exemption in respect of amount that had been invested up to relevant valuation date - Held, yes FACTS In March 1955, the board of directors of the respondent-assessee-company resolved to establish a new spinning unit for which a licence was obtained from the Government of India in August, 1955. The respondent placed orders for purchase of necessary spinning machinery and plant in the months of January and February, 1956. The constitution of factory buildings was taken in hand in March, 1956, and these constructions were completed by December, 1957. The erection of the spinning machinery and the plant in the buildings was completed in several stages commencing from June, 1957. A licence from the Inspector of Factories for working the factory was obtained in June, 1958. For the assessment year 1957-58, the respondent claimed that, in computing the wealth on the valuation date which was 30-9-1956, an amount of Rs. 1,43,727 should be deducted as being the amount laid out in setting up this new unit. The WTO disallowed the claim on the ground that the unit was set up prior to the date on which the Wealth-tax Act came into force, i.e., 1-4-1957. On the same basis, the AAC and the Tribunal upheld that order. On reference, the High Court however, allowed the assessee's claim. On appeal to the Supreme Court: HELD 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…

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