Financial Daily from THE HINDU group of publications
Tuesday, Apr 06, 2004

News
Features
Stocks
Cross Currency
Shipping
Archives
Google

Group Sites

Corporate - Courts/Legal Issues


Some smokestack wisdom for infotech age

D. Murali

Chennai , April 5

BURIED in tomes of tax cases are tales that never die. One such is Textile Machinery Corporation Ltd, Kolkata vs. The Commissioner of Income Tax, West Bengal case, decided by the Supreme Court more than a quarter century ago. It is suddenly in limelight as a useful crutch that Wipro could use in defending itself against the taxman's calculations, and save itself a few hundred crores of rupees as tax.

Names of justices Mr H.R. Khanna, Mr P.K. Goswami and Mr P.S. Kailasam figure in the judgment copy. And Mr Palkhivala pitted his argument against that of the Additional Solicitor General in the case that had as its core a discussion of Section 15C of the Indian Income-Tax Act, 1922. Thus begins a travel back in time machine.

"The principal object of Section 15C is to encourage setting up of new industrial undertakings by offering tax incentive within a period of 13 years from April 1, 1948," noted the apex court. "After the country had gained independence in 1947, it was most essential to give fillip to trade and industry from all quarters. That seems to be the background for insertion of Section 15C."

The assessee was a heavy engineering concern manufacturing boilers, wagons and so on. It had a boiler division for the purpose. Then it started a steel foundry division and a jute mill division. When the assessee claimed tax benefit for the two subsequent divisions as `new industrial undertaking', the Department said no. The later divisions were only "expansion and reconstruction of the business already existing," said the taxman, making the assessee ineligible for Section 15C benefit for the same.

It is understandable that any tax provision that has as its rationale the promotion of investment would bar from its favourite treatment instances such as `splitting up', `reconstruction', or `transfer to a new business' of a business already in existence. These were, in fact, the three categories that were `not' new industrial undertakings for the purpose of Section 15C.

Now, if you fast-forward to 2004, and see Section 10A of the current tax statute, these prohibitions are found in sub-Section 2 thereof. A baggage, one may say, that has survived, from the old smokestack days to the present infotech age.

But `reconstruction' was a word that engaged the apex court's attention in many paragraphs, because the legislature had "advisedly refrained from inserting a definition of the word". So, the court had to draw help from interpretation found in the South African Supply and Cold Storage Company case and several others.

Common man may wonder why things are not spelt in black and white in tax law. If only everything were clear like geometric lines there would be no disputes. But that is not practical. As the Supreme Court observed in this case, when resolving the `reconstruction' knot, "Indeed, in the infinite variety of instances of reconstructing of industry in the course of strides in technology and of other developments, the question has to be left for decision on the peculiar facts of each case."

More Stories on : Courts/Legal Issues | Income Tax

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page



Stories in this Section
Coke offers to supply water at Plachimada


TNPL stops production due to water shortage
Mercedes hits the road on biodiesel
Deccan Gold Mines finds deposits at Dharwad-Shimoga basin
Shriram Transport to consider pref issue on Friday
IIEL gets Rs 55-cr credit line from German bank
Madras HC orders payment for small depositors of MCC Finance
Some smokestack wisdom for infotech age
Eco concern over Chemplast's Krishnapatnam plant
`More corporate governance practices must be adopted'
Pfizer finds new facility in Maharashtra to manufacture Gelusil
Tata Power in pact with Gail, BP on Dabhol project
Toyota may launch Daihatsu for Indian roads
No takers yet for BHEL supercritical boilers
Finolex set to double PVC resin capacity
TeamLease consolidating recruitment services
Steel prices, VRS impact BHEL Tiruchi unit
DaimlerChrysler to drive in jeeps, Mercedes CVs
NTPC net up 36 pc; records 100 pc billing collection
Essar Steel posts 11% volume growth
Nuke row: UAE freezes accounts of SMB Computers
GFCL appoints company secy



The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line