Hardayal Hardy, J.
1. This is a consolidated reference under Section 66(1) of the Indian Income-tax Act, 1922, relating to three assessment years 1953-54, 1955-56 and 1956-57 corresponding to previous years ending December 31, 1952, December 31, 1954 and December 31, 1955, respectively. The questions of law, though worded slightly differently in respect of each year of assessment, involve the same common point, namely, the construction of Section 15C of the Income-tax Act, hereafter called 'the Act'. The questions read as under :
'Assessment year 1953-54 :
(1) Whether the unutilised portion of the tax exemption computed under Section 15C of the Indian Income-tax Act, 1922, could be carried forward to be set of against the future profits Assessment year 1955-56:
(2) Whether the unutilised portion of the exemption granted under Section 15C of the Indian Income-tax Act, 1922, could be carried forward to be set off against the future profits Assessment year 1956-57 : (3) Whether the assessed is entitled to the set-off of the tax exemption under Section 15C of the Indian Income-tax Act, 1922, to which effect could not be given owing to insufficiency of profits in the assessment years 1952-53 to 1955-56?'
2. The assessed is a public limited company incorporated on October 11, 1949. It owns a cement factory at Rajgangpur, District Sundergarh, Orissa, which started production from December 22, 1951, The assessment year 1952-53 (the relevant accounting period being January 1, 1951, to December 31, 1951) was thus the first year in which production was commenced for the first time, although the first assessment of the company was made in the assessment year 1951-52, when its income from interest alone was taxed.
3. In this case we are concerned with the assessment years 1953-54, 1955-56 and 1956-57 only. The following table gives the assessment history of the assessed during the relevant years.
Assessment YearTotal Income ReturnedTotal Income after set off brought forward lossExemption Claimed By the Company Under Section 15C1953-54Loss Rs 1,14,481Rs 8,87,477Rs 6,36,2641954-55Loss Rs 2,99,142 (Subject to adjustment brought forward lossRs 27,14,653Rs 7,70,0931955-56Rs 29,76,561(Subject as above)Rs 8,66,921Rs 11,44,427(being final figures as computed underTribunal's order)1956-1957Rs 34,05,375Rs 38,00,455Rs 10,62,609 (being Final Figures as computed under the Tribunal's order.
4. It is common ground that the cement factory is an industrial undertaking as contemplated under Section I5C of the Act. The assessed claimed exemption up to 6% of the capital employed in the said industrial undertaking. It will be seen that up to the assessment year 1954-55 there was no profit. On the other hand there was a resulting loss. In the assessment year 1955-56, however, the total income of the assessed was finally determined by the Income-tax Appellate Tribunal at Rs. 8,66,921 (sic Rs. 8,69,645) and the quantum of exempted income at Rs. 11,44,427. The figure of exempted income being more than the figure of total assessed income, there was obviously no question of actual taxation. The assessed, however, claimed that the exemption granted under Section 15C was cumulative, i.e., if there was a balance of unabsorbed exemption either due to losses or due to insufficiency of profits, then the assessed was entitled to carry over the balance to be set off against future profits. The Tribunal appreciated the assessed's contention and even sympathized with its view point, but felt bound to give effect to the plain language of the section and held against the assessed.
5. While rejecting the assessed's contention the Tribunal gave some striking illustrations of what it regarded as inequity resulting from the view it was taking and thereforee referred the question of law stated above. As those very illustrations have been given by Mr. Natesan, the learned counsel for the company appearing before us, we shall advert to them when we come to deal with the main contention urged by Mr. Natesan.
6. It may be mentioned here that, although Section 15C has been on the statute book since 1949 and has also undergone some changes, there is no decided case in which the question raised in this case has come up for discussion. The question is thereforee rest integra. It is apparent that the object of the section is to give impetus to the establishment of new industrial undertakings by exempting from tax, income-tax as well as super-tax, the profits of the industrial undertakings to which the section applies to the extent of six per cent. per annum on the capital employed in the undertaking. Relief under the section is available for the first five years after the undertaking goes into production.
7. We have already seen that it was in the assessment year 1955-56 only that the assessed made profits and thereforee the question of granting exemption under Section 15C was raised by the assessed before the Income-tax Officer and it was contended that on the basis of the average capital employed in each earlier year, exemption should be computed and effect thereof given in the assessment relating to the year 1955-56 because the benefit of exemption had not been given to it in the earlier years owing to losses. The claim was rejected and the decision of the Income-tax Officer was upheld not only by the Appellate Assistant Commissioner but also by the Income-tax Appellate Tribunal. The same was the result in relation to the assessment year 1956-57.
8. The contention urged by Mr. Natesan is that the authorities under the Act have failed to correctly appreciate the object and the scheme of Section 15C. According to the learned counsel, Sub-section (6) of Section 15C extends the benefit of exemption to the assessment for the financial year next following the previous year in which the assessed begins to manufacture or produce articles and for the four assessments immediately succeeding. The object being to foster and encourage the growth of new industrial units, if the exemption from tax is held to be confined only to the years in which the unit makes profits, regardless of the years in which it has suffered losses, the very object of the section will be defeated. It does not need much argument to show that generally the first 2 or 3 years in the life of every industrial undertaking are most difficult and there is hardly any undertaking which can make any profits. Very often the result is heavy losses in the first few years. If the benefit of the section is limited to the years of profits only, it will mean restricting the duration of the benefit to one or two years instead of five years.
9. Mr. Natesan argued that the combined effect of Sub-section (1) and Sub-section (6) is as if the section were to be read as follows :
'In relation to an industrial undertaking, to which this section applies, for the financial year next following the previous year in which the assessed begins to manufacture or produce articles and for the four assessments immediately succeeding, tax shall not be payable by an assessed on so much of the profits or gains as do not exceed six per cent. per annum on the capital employed.'
10. It appears to us that we cannot rewrite the section in the way the learned counsel would have it, for in doing so we would be out-stepping the bounds of legitimate construction and would be arrogating to ourselves the functions of legislature which we obviously do not possess. The plain meaning of Sub-section (6) is to make the relief under this section available to the industrial unit to which the section applies for the first five years after production commences and not to carry forward the benefit from one year to another so as to give it a cumulative effect. As regards Sub-section (1) all it says is that the assessed shall not have to pay tax on the profits or gains derived from the industrial undertaking owned by it to the extent of six per cent. per annum on its capital outlay in the undertaking. Since the profits or gains derived from the undertaking are the very basis of its eligibility to claim exemption, the benefit of exemption cannot possibly be extended to a year when it does not make any profits.
11. It cannot be disputed that for the purpose of assessment to tax each year of assessment is a self-contained unit. Computation of tax is, thereforee, to be made on the basis of total assessable income of the previous year and the loss of profits or gains in any year can be carried forward for the purpose of set-off to the following year under the conditions and in the manner specifically provided for in Section 24 of the Act. There is no such provision in Section 15C for carrying forward the quantum of exempted tax from one year to another when the exemption itself is founded on profits and there is also no provision for adding the exempted tax of one year to the figure of exempted tax of the following year even when there are profits in both the years.
12. In support of his argument Mr. Natesan invited our attention to the examples given by the Tribunal in its order to illustrate the so-called iniquity arising from giving a rigid meaning to the section as contended for by the revenue. It was urged : Take the case of an undertaking with a capital outlay of rupees one crore. The profits exempted from tax would be rupees 6 lakhs every year. Now assume that the undertaking makes a profit of rupees 7 lakhs for the first 4 years while its profits for the fifth year is rupees 8 lakhs. Its total profits in five years would thus be rupees 36 lakhs. There is no problem in this case. The company would be taxed on an income of rupees one lakh in each of the first four years and on rupees 2 lakhs in the fifth year, i.e., out of an income of 36 lakhs in five years it would pay tax on an income of rupees 6 lakhs only and thus save tax on the remaining 30 lakhs.
13. Now take another case. The company earns no income in the first four years but in the fifth year it earns a profit of rupees 36 lakhs. In this case, according to the revenue, the exemption of rupees 6 lakhs only is available to the assessed and the balance of rupees 30 lakhs wilt be taxed in the fifth year. The iniquity of the two cases is apparent.
14. Let us, however, take another example. Suppose the company make a profit of rupees 36 lakhs in the first year but in the subsequent four years, it has no income at all. Obviously, the company will avail itself of the exemption of rupees 6 lakhs in the first year and pay tax on rupees 30 lakhs. But it will receive no exemption during the next four years. In other words, even if there could be a carry forward of the exemptions, there could be no carrying back of the same.
15. Likewise, take the other example considered by the Tribunal. Supposing the company does not earn any income in all the five years but in the sixth year it makes a profit of rupees 36 lakhs. In that case it will have to. pay tax on the entire amount and thus get no benefit of the tax holiday at all.
16. We, thereforee, agree with the Tribunal that without express words regarding the 'carry forward' or 'carry back' of the exemption one cannot speculate on the supposed intention of the legislature.
17. Mr. Natesan next referred to Section 80J of the Income-tax Act, 1961 where by Sub-section (3) the principle of 'carry-forward' and 'set-off'' has been made applicable to profits and gains from a newly established, industrial undertaking or ships or hotel business in certain cases and submitted on the authority of a, decision by Vaughan Williams J. in Attorney-General v. Wood,  2 Q.B. 102 that the provision in the Act of 1961 would appear to be merely declaratory of the law as it stood under the Act of 1922. The argument does not appear to us to be well-founded. The scheme of Section 80J is entirely different from that of Section 15C. Apart from the fact that the section has introduced two other categories of income-earning units, e.g., ships and hotel business, the concession given therein is in the form of deduction from profits and gains for the purpose of computing the total income of the assessed and not in the form of exemption from tax. There is a well-recognised distinction between a permissible deduction from income and exemption of a certain income from taxation. The two are not, benefits of the same category and become allowable to the assessed at different stages of assessment.
18. Mr. Natesan finally referred to the observations of Falshaw J. in a:Bench decision of the Punjab High Court in Webbing and Belting Factory P. Ltd. v. Commissioner of Income-tax, which was remanded by the SupremeCourt in Commissioner of Income-tax v. Webbing and Belting Factory Ltd., : 68ITR186(SC) on another ground, where it was said that a provision like Section 15C which is, intended to encourage the setting up of new industrial enterprises must be construed liberally.
19. Mr. Kirpal, learned counsel for the Commissioner of Income-tax, contended on the other hand that it was undeniable that before an assessed could be held to be eligible for any exemption under Section 15C with respect to any industrial undertaking there should be profits which should be derived from the undertaking. If there are no profits, no question of granting exemption arises. Even the profits derived by the assessed from its other business activities would be of no avail for that purpose.
20. As regards the argument based on the concept of 'carry forward' and 'set off', Mr. Kirpal urged that the concept was relevant for the purpose of computation of the real income of assessed and was the creation of express provision in the Act. In the absence of express words authorising the extension of the benefit of exemption to an Industrial undertaking which instead of making any profits has been running at a loss or has not been earning any income at all, on the ground that the provision should receive liberal construction or that is literal construction would result in iniquity or in the denial of the benefit to a newly established enterprise would, according to the learned counsel, amount to stretching the meaning of the provision beyond permissible limits.
21. There is a great deal of force in the argument of Mr. Kirpal. A bare reading of Section 15C makes it plain that the legislature did not intend to confer the benefit of unabsorbed exemption of an earlier year being availed of in a subsequent year. We are, thereforee, in whole-hearted agreement with the Tribunal in holding that in the absence of any express words it is not possible to allow the benefit of 'carry-forward' claimed by the assessed.
22. To reinforce his argument, Mr. Kirpal drew our attention to Section 15 of the Act which relates to exemption in the case of life insurance and submitted that the exemption is evidently restricted to the years of assessment and it is not open to an assessed to claim the benefit of carry forward to a subsequent year or to accumulate the unabsorbed exemption to earlier lean years for being availed of against the income of subsequent years. Even as regards the deduction in Section 80J of the of Act of 1968, Mr. Kirpal urged that the section had been inserted in place of original Section 84 which was deleted by the Finance (No. 2) Act, 1967 with effect from April 1, 1968, but its benefit was made effective from April 1, 1967, only by expressly providing for the same. Similar language was used in other provisions also wherever the legislature wanted to give retrospective effect to them. See Section 31 of the Indian Income-tax (Amendment) Act, 1953 (25 of 1955), which provided for validating certain notices and assessments under Section 34 of the Income-tax Act, 1922, with respect to an earlier period or Clause (iii) of Section 2(m) defining the expression 'net wealth' in the Wealth-tax Act, 1957.
23. No such provision is to be found in Section 80J of the Act of 1961.
24. The result of the foregoing discussion is that the questions for all the three years are answered in the negative. The Commissioner will also have his costs. Counsel's fee is assessed at Rs. 250.