(1) The assessment years in this reference are 1952-53 and 1953-54. The assessee company had suffered a loss of Rs. 1,15,220, in the assessment year 1950-51 and this loss was carried forward to the next assessment year. The company was also unable fully to avail of the depreciation allowance in 1950-51 and 1951-52. The assessee was a newly established industrial undertaking and was entitled to exemption from payment of tax to the extent prescribed by S. 15-C of the Income-tax Act. In the year of account 1951-52 the assessee made a profit of Rs. 3,65,000 odd, but after making allowance for the unabsorbed depreciation of the previous years and also the losses carried forward from the previous years, there remained no taxable income and accordingly no demand for tax was made for the assessment year of 1952-53. In assessing the total income, the Income-tax Officer did not give the benefit of exemption from payment of tax under Section 15C of the Income-tax Act to the assessee. The Income-tax Officer deducted out of the net profits the unabsorbed loss of the previous years and the depreciation and when it was found that the total income of the assessment year 1952-53 was exhausted, the benefit of S. 15-C by providing exemption to the extent of tax on 6 per cent of the capital employed was not given. It is evident that if the benefit of exemption from payment of tax under S. 15-C was given to the assessee before loss carried forward from the previous year and were allowed out of the profits, full provision could not be made for the latter allowances in the year of assessment. But the assessee would have been permitted to carry forward the loss to the next assessment year and the unabsorbed depreciation could be treated as depreciation for the subsequent year. When, however, the assessee was not given the benefit of exemption under S. 15-C in the assessment year, the shortfall could not under the law be carried forward to the next assessment year.
(2) The order passed by the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. In the view of the Income-tax Appellate Tribunal, in assessing the taxable income certain deductions under Section 24 (2) were allowable under the law because the assessee had suffered a loss in the previous year but the Income-tax Officer was bound in the first instance to allow to the assessee the benefit of exemption from payment of tax under Section 15C before setting off the loss carried forward from the previous year. The Tribunal accordingly set aside the order of the taxing authorities and directed the Income-tax Officer to give the benefit of exemption from payment of tax to the assessee under Section 15C before setting off the loss brought forward from the preceding year.
(3) The Tribunal has at the instance of the Commissioner referred the following question:
'Whether on the facts and circumstances of the case, the loss brought forward from the preceding year amounting to Rs. 1,15,220 should be set off against the profits of the year of account without allowing the assessee the benefit of Section 15C of the Income-tax Act?'
(4) The question debated before us is as to the priority between the benefit of exemption from payment of tax under Section 15C and the set off in respect of loss of previous year under Section 24(2), when the set off does not leave adequate taxable income to make the exemption under Section 15C from payment of tax real. Evidently, under the scheme of the Income-tax Act, assessable income of the assessee has to be computed by aggregating the various heads of taxable income subject to permissible deductions and thereafter by Section 24 the losses suffered whether in the year of account or carried forward from the previous year to the permissile extent have to be deducted in assessing the total income and it is only after the total income is ascertained and tax is computed thereon that the benefit is to be allowed to the assessee by exempting him from payment of tax on such profits or gains derived from the industrial undertaking as do not exceed 6 per cent on the capital employed in the undertaking. In other words, according to the scheme envisaged by the Act, the total income can be ascertained after allowing from the income of the year of account the unabsorbed depreciation of the previous year as well as the permitted set off of losses of the current and previous years and it is only after the total income is computed and the liability to tax ascertained that the benefit of Section 15C can be provided to the assessee. The forms of return of income prescribed under Rule 19 framed under the Act, clearly indicate that the income accrued from various sources such as salaries, interest on securities, business, property and other sources has to be aggregated and on the income so aggregated, the tax has to be ascertained and against the tax so ascertained credit has to be given for the amounts exempted to the extent permissible under Section 15C as well as under Sections 15A and 15B. Apparently by enacting Section 15C the Legislature has not prescribed for exclusion of a percentage from the head of profits of a new industrial undertaking in the computation of total income but has merely provided a partial exemption from payment of tax by newly established undertakings and in the natural sequence of computation of tax, the amount of losses carried forward is liable to be deducted out of the income of the year of account and it is only after the quantum of tax is ascertained, exemption from payment to the prescribed extent will be given by the taxing authorities.
(5) The contention of the assessee that by S. 15-C so much of the profits derived from the newly established undertaking to which the section applies as do not exceed 6 per cent per annum on the capital employed in the undertaking are to be excluded in the computation of total income and this exclusion is to be made irrespective of any set off which is permissible under Section 24(2), has in our judgment no force. It is true that in order to give a fillip to new industrial undertakings and to secure speedy industrialization, the legislature has provided for exemption from payment of tax on a percentage of the capital employed in the undertaking, but thereby the true nature of the exemption is not altered. The exemption is in terms from payment of tax and it is not an exclusion of income in the computation of total income. It is true that under proviso (b) to section 24 (2) it is expressly enacted that where depreciation allowance under clause (b) of section 10 is to be carried forward, effect shall first be given to the provisions of Section 24 (2). If the profits or gains in respect on any business, profession or vocation are insufficient in the assessment year to permit full allowance for unabsorbed depreciation of the previous year under S. 10 (2) (vi) Proviso (b), the set off of losses for provisos years permitted under Section 24 (2) is to be given in the first instance and the unabsorbed depreciation is to be treated as depreciation in the subsequent years. No similar provision is made giving priority to set off in respect of losses of the previous years over the exemption from payment of tax under s. 15-C. But proviso (b) to S. (2) (vi) was enacted to cover cases of competing rival claims for deduction from income in computing the taxable income. The exemption from payment of tax under S. 15-C and the privilege of carrying forward loses, are, however, not benefits of the sane category and become allowable o the assessee at different stages of assessment. It is difficult then to visualise a competition between these two benefits. The absence of an express provision postponing the exemption from tax under S. 15-C to set off for losses of previous years carried forward does not therefore justify the view that the scheme of computation of total income for purposes of assessment was intended to be reversed.
(6) By sub-section (3) of S. 15-C profits or gains of an industrial undertaking to which that section applies have to be computed in accordance with the provisions of Section 10. Every industrial undertaking may, however, be regarded as a business and the computation of profits and gains has to be made even apart from sub-section (3) of Section 15C in accordance with the provisions of Section 10, and the necessity of incorporating that provision in S. 15-C may not be easily appreciated; but we are on that account unable to hold that it was intended by enacting that provision by implication to relegate the set off of loss to the exemption of tax under S. 15-C. There is no such express provision made, and we do not think that any implication of that nature is permissible. Nor does clause (5) of Section 15C which provides that nothing in the section shall affect the application of Section 23A in relation to profits or gains of an industrial undertaking to which the section applies affect the interpretation of the operative part of Section 15-C.
(7) In our view, whereas Section 24 (2) deals with a permissible deduction from the totally of assessable income, Section 15-C provides only for an exemption from payment of tax; an if in computing the total income liable to tax and the rates at which the tax is payable set off of losses of the previous years is to be allowed, it would be difficult to hold that the set off will be postponed to the benefit of Section 15C. The Legislature undoubtedly intended to confer certain benefits upon industrial undertakings to which Section 15C applies but we will not on that account be justified in holding that, when the Legislature has not provided that the benefit of Section 15C is to be allowed as a deduction from income, deduction substantially of that nature should still be made on the assumption that an absence of an express provision dealing with priority implied that intention.
(8) We reframe the question by substituting the word 'before' for the word 'without' and answer the question in the affirmative.
(9) Assessee to pay the costs of the Commissioner.
(10) Answer in the affirmative.