COMMISSIONER OF INCOME-TAX, RAWALPINDI Versus COLONY THAL TEXTILE MILLS LTD.

S.A.NUSRAT, J. --This appeal arises out of the judgment of the Lahore High Court dated 19-3-1976 passed on a reference application of the appellant made under section 66(2) of the Income-tax Act, 1922.

2. The brief facts of the case are that respondent, a private limited company, which is a manufacturer of yarn and cloth, acquired a textile mill from the Thal Development Authority on 3-9-1958. The spinning section of this mill was set up by the Thal Development Authority in July 1954, which enjoyed tax holiday under section 15-B of the Income-tax Act for a period of five years. The Thal Development Authority having ceased to have any interest in the mill from September, 1958 did not claim any exemption on account of tax holiday in its fifth assessment year. The respondent, in the circumstances, claimed tax holiday in respect of the spinning section of the mill under section 15-B of the Income-tax Act in its return for the assessment year 1960-61. The Income-tax Officer disallowed the claim on the ground that the benefit of tax holiday was available only upto the assessment year 1959-60.

3. This decision was challenged by the respondent in appeal before the Income-tax Appellate Tribunal, which was allowed by order dated 12-12-1968. The Tribunal held that on the facts presented to it, the respondent's claim for tax holiday was justified and the Income-tax Officer was accordingly directed to recompute the relief to which the respondent was entitled.

4. Aggrieved by this order, the appellant filed an application under section 66(2) of the Income-tax Act requiring the Tribunal to refer the following question of law to the High Court:-

"Whether in view of subsection (7) of section 15-B and in the circumstances of the case the Tribunal was justified in directing that section 15-B relief was admissible to the assessee on spinning section?"

The reference application was rejected on 22-5-1969 by the learned Tribunal on the ground that the question with regard to the determination of the fifth year, to which tax holiday was applicable, did not call for interpretation of any provision of law and its decision was arrived at on the basis of facts stated before it.

5. The appellant thereupon made an application to the High Court under section 66(2) of the Income-tax Act seeking a direction to the Tribunal to refer the following question of law, said to arise out of the Appellate Tribunal's order, for decision by the High Court:

"Whether on the facts and circumstances of the case, the Tribunal was justified in directing that 15-B relief was admissible to the assessee on spinning section in view of subsection (7) of section 15-B?"

6. The above reference application was decided by the learned High Court as per impugned judgment dated 19-3-1976 and the question was answered in the affirmative. The learned High Court also came to hold that it was in full agreement with the opinion of the Tribunal that the determination of the fifth year of the tax holiday was a question of fact dependent upon the dates on which the assessment year began and ended and did not require interpretation of any law for that purpose. As such it was held that the reference was otherwise also incompetent.

7. Leave to appeal was granted to examine the correctness of the judgment of the High Court on the ground raised on behalf of they appellant "that in this case the tax holiday was to be calculated from the date when the spinning section was added to the Mills, July, 1954" and this principle was allegedly ignored by the learned High Court.

8. As the decision turns on the language of subsection (7) of section 15-B of the Income-tax Act, the same is reproduced hereunder:-

"The provisions of this section shall apply to the assessment for the financial year next following the previous year in which the undertaking is set up or commenced for the four assessments immediately succeeding."

9. In the present case, the spinning section was set up in the mill in July, 1954. Income therefrom was, therefore, exempt for-

(a) the financial year 1954-55, as being the financial year "next following the previous year in which the undertaking is set up or commenced"; and

(b) the financial years-

1955-56

1956-57

1957-58 and

1958-59 being "the four assessments immediately succeeding". Incidentally, the Thai Development Authority also closed its accounts on 31st o March each calendar year and its returns of Income were filed accordingly. As against this, the respondent closed its accounts on 30th September, 1959.

10. No doubt the fifth year in the case of the Thal Development Authority was the assessment year 1959-60 for which the accounting year would have been the year ending with 30th March, 1959, but as the assessee/respondent had acquired this factory on 3rd September, 1959, and closed its accounts on 30th September, 1959, the fifth assessment year fell to be the assessment year 1960-61. Thus, the respondent was entitled to relief under section 15-B of the Act in its assessment year 1960-61 and the decision of the Income-tax Officer was not correct. The learned Tribunal had found this factual position to be correct and issued directions accordingly. This aspect of the case was duly examined by the learned High Court and the findings recorded by it in the impugned judgment are unexceptionable and calls for no interference. The appeal has no merits which is dismissed with no order as to costs.

S.Q./C-11/S Appeal dismissed.