1. RANGANATHAN, J. -The question raised in this reference is somewhat interesting and perhaps a little novel, but we have come to the conclusion that the view taken by the Tribunal was substantially correct. The ref--erence arises in the following circumstances: The respondent-assessee, Indian Drugs and Pharmaceuticals Ltd., is a Government undertaking promoted to start the manufacture of drugs and pharmaceuticals. The assessment year in question is the year 1965-66, the corresponding previous year being the year which ended on 31st March, 1965. It is common ground that during the previous year the fac--tory building of the assessee was in the process of construction and the plant and machinery wire in the process of installation. The business had not been set tip and none of the units had commenced production.
2. During the previous year, the assessee had certain types of miscel--laneous receipts. It supplied tender forms regarding construction and erection of plant and machinery to contractors on payment of charges. The gross receipts amounted to Rs. 50,540 and after deduction of estimated expenditure, the net receipts come to Rs. 40,540. The Company also rea--lised amounts of Rs.
3. 28.241 by way of sale proceeds of trees, grass. Etc., and a sum of Rs. 17,818 by way of sale proceeds of stones and boulders. This was consequential to the pieces of -land being cleared for the purpose of construction of the factory. The assessee also supplied water and elec--tricity to the contractor engaged in the task of constructing the factor and installing the machinery. The total receipts were Rs. 76,201 and the I.T.O. Estimated a profit of 10 per. Cent of these charges amounting t Rs. 7,520 as the assessee's profits on the supply of water and electricity. The I.T.O. Was of the opinion that the sums of Rs. 40,540, Rs. 28,241, Rs. 17,818 and Rs. 7,520 represented income taxable in the hands of the assessee under the head "Income from other sources".
4. The assessee appealed to the A.A.C. The A.A.C. Pointed out that these items of receipts had also been there in the two earlier years and that in the appellate orders for those years he had that held that these items of receipts wore not revenue receipts chargeable to tax. In the appellate order for 1963-64, the AA.C. Bad held that the receipts in respect of tender forms was a part of the construction activities undertaken by the Company and that if the receipt from, the sale of tender forms was to be taken as revenue in nature, all the expenses involved at the different stages of construction should also be allowed as expenses. In respect of sale of trees, he point--ed out that the trees had to be removed not with the intention of carrying on any business in timber but because their removal was necessitated by other circumstances. The trees, he pointed out, formed capital assets and their removal was a casual happening in the course of operations in the clearance of the site. It appears that, in dealing with the appeal for 1964-65, the A.A.C. Had held that--ilka receipts by way of water and electricity charges and on the sale of boulders and stones could not be considered as income. But a copy of that order is not available to us. Following the orders for the earlier assessm ent years, the A.A.C. Deleted the above additions from the assessm ent for 1965-66.
5. The Revenue preferred an appeal to the Income-tax Appellate Tribu--nal. It tray be mentioned here that for the earlier assessm ent years 1963-64 and 1964-65, appeals had been preferred to the Tribunal by the I.T.O. The Tribunal had agreed with the reasoning given by the A.A.C. And rejected the Department's contentions. However, when the appeal for the assessment year 1965-66 came up before them, the Tribunal considered the matter afresh and again came to the conclusion that the items in question were not taxable ones. The reasoning of the Tribunal is contained in the following paragraph of its order, which may be usefully extracted "We do not find any ground for interfering with the order, of the Appellate Assistant Commissioner.
6. Any receipt or payment by an assessee had necessarily to be related to a source of income and if it can be related to a specific source, it cannot be related to the residuary source. In the present case, the impugned amounts were clearly referable to the source of income under the head `Business, profession and vocation'. The fact that the business was not yet completely set up did not detract from the existence of the source. The business was in the process of being set up and the receipts and payments in respect of that source, while the business was being set up, must necessarily by related to that source. Since the business was not still fully set up, the receipts and payments would be clearly on capital account. The receipts on account of sale of tender forms and on account of excess realised for electri--city and water charges were, in fact, from contractors engaged in the task of constructing the factory building and erecting the machinery.
7. The receipts, therefore, directly went to reduce the cost of construction and erection and should be treated as deduct Fund was not leviable on it as the total income of the asses--ses was a loss. The learned Appellate Assistant Commissioner without any elaborate discussion allowed the relief with the passing observation: "Keeping the above fact in view the levy of Workers 'Welfare Fund is not justified. The same is accordingly cancelled". The learned Departmental Representative vehemently urged that the income-tax Officer has rightly computed the income of the assessee and since income-tax in respect of the income derived from rental of looms has been subjected to tax the assesses could not escape the liability to contribute to the Workers Welfare Fund. The learned Authorised Representative of the assessee, on the other hand, submitted that the expression "total income" is defined in section 2 (5) of the income Tax Act and notwithstanding the fact that for tax purpose the income derived from rentals of looms was subject--ted to tax under section 12 the overall position of business acti--vity bad resulted in a loss inasmuch as the Income-tax Officer bbd himself carried forward the loss of Rs. 8,02,908, whereas t e income derived from other sources and taxed under section 12 is only of Rs. 2,27,400.
11. Under section 4 of the Workers Welfare Fund Ordinance, 1971, every Industrial Establishment, the total income of which is not less than Rs. I lac, is obliged to contribute to the said Fund a sum equal to 2% of so much of its total income as in assessable under the Income Tax Act, 1922. In the assessm ent order for the charge year 1978-79 the Income tax Officer held the income of Rs.
8. 2,27,400 assessable under section 12 ok the Income Tax Act. 'This action of the Income-tax Officer has been accepted to be correct by the assessee. The Income-tax Officer has ad--mittedly determined the amount of Workers Welfare Fund due from the assess-appellant on the basis of the income so assessed. In doing so, the Income-tax Officer did not, in our opinion fall into any error. The learn--ed Appellate Assistant Commissioner has pertinently failed to keep this aspect of the matter in view and consequently, she has allowed relief to the assessee on untenable ground.
9. We would; therefore, vacate her order in this behalf and restore that of the Income-tax Officer.
12. In the result, the departmental appeal for the charge year 1978-79 succeeds and is allowed as indicated above.