1. The petitioner herein seeks the issue of a certiorarified mandamus from this court to quash the order of the first respondent dated June 24, 1978, and to direct the respondents to quantify the exempted portions of the dividend in accordance with r. 20 of the I.T. Rules at 100%.
2. The circumstances under which them writ petition came to be filed may be noted in brief. The petitioner is a public limited company carrying on business of manufacture and sale of cycles, tubes and other steel products. In respect of the year ended December 31, 1977, the petitioner declared a dividend of Rs. 37,50,000 at the annual general meeting held on June 29, 1978. The petitioner started a new industrial undertaking in the previous year relevant to the assessment year 1975-76, called the 'Third Tube Mill' whose profits were eligible for deduction under s. 80J of the I.T. Act, 1961, hereinafter referred to as the Act, effective from the assessment year 1975-76. The ITO quantified the exemption under s. 80J in respect of this unit for the following assessment years as follows :
Rs.1975-76 72,3591976-77 2,09,3461977-78 13,13,493----------------15,95,198----------------
3. The petitioner made an application for a certificate under s. 197(3) of the Act in respect of the dividends declared by them out of their profits for the year ended December 31, 1976. The ITO provisionally quantified the exempted portion of the dividend at 19.76% and issued a certificate on May 12, 1977. In doing so, the ITO took into consideration the profits exempt under s. 80J as per the details given below :
Rs.1975-76 72,3591976-77 2,69,3461977-78 3,99,381---------------7,41,086---------------
4. The petitioner had also started a new industrial undertaking called 'Cold Roll Mill Unit II' in February, 1967, and the question of the said unit's eligibility for exemption under s. 80J was negatived by the ITO for 1970-71 to 1972-73 initially but was finally held by the Income-tax Appellate Tribunal as eligible for such exemption by their order dated August 16, 1976. Pursuant to the said orders of the Tribunal, the ITO rectified his earlier assessments for the assessment years 1970-71 to 1972-73 and allowed deduction under s. 80J as per the details given below :
---------------------------------------------------------------Assessment year Amount of deduction allowedunder section 80J---------------------------------------------------------------Rs.1970-71 9,13,6571971-72 21,26,9381972-73 41,97,657----------------------------------------------------------------72,38,252----------------------------------------------------------------
5. The petitioner also declared dividend for the assessment years 1970-71 to 1977-78 as under :
-----------------------------------------------------------------Accounting Assessment Dividend Date of Date of paymentyear year declared declara- of dividendtion-----------------------------------------------------------------31-7-1969 1970-71 37,50,000 8-12-1969 15-12-196931-12-1970 1971-72 56,25,000 17-9-1970 17-9-1970(interim)7-5-1971 15-5-1971(Final)31-12-1971 1972-73 39,37,500 24-5-1972 7-6-197231-12-1972 1973-74 39,37,500 24-6-1973 10-7-197331-12-1973 1974-75 55,50,510 15-4-1974 30-4-197531-12-1974 1975-76 37,50,000 9-6-1975 25-6-197531-12-1975 1976-77 37,50,000 6-8-1976 9-8-197631-12-1976 1977-78 37,50,000 16-5-1977 7-6-1977---------------------------------------------------------------
6. The petitioner approached the ITO for a certificate under s. 197(3) of the Act for non-deduction of tax in respect of the dividend of Rs. 37,50,000 relatable to the calendar year ended 1976 on the ground that the dividends declared in that year were brought out of the taxable profits of the petitioner and no portion of the same could be claimed to have been paid as tax free dividend under s. 80K of the Act. The ITO, however, held relying on r. 20 of the I.T. Rules that only 13.22% of the dividend could be treated as having come out of the profits of the petitioner as is attributable to the benefit available to it under s. 80J of the Act in relation to its Third Tube Mill. Aggrieved by the certificate issued by the ITO, the company filed a revision before the Commissioner of Income-tax, the first respondent herein, under s. 263 of the Act praying that the certificate issued for the assessment year 1977-78 by the ITO be revised and the petitioner be granted a certificate under s. 197(3) to the effect that the entire dividend of Rs. 37,50,000 would be tax-free in the hands of the shareholders under s. 80K of the Act. The petitioner also filed before the Commissioner a statement showing how the entire dividend of Rs. 37,50,000 should be exempted under s. 80K. The petitioner also contended before the first respondent that the construction placed by the ITO on r. 20 of the I.T. Rules was opposed to law. However, the first respondent passed the impugned order dated June 24, 1978, declining to interfere with the certificate dated May 19, 1978, issued by the ITO. Questioning that order of the first respondent the present writ petition has been filed.
7. According to the petitioner, the order passed by the first respondent is based on a complete misconstruction or misinterpretation of r. 20 of the I.T. Rules, 1962, read with ss. 80K and 80J, and, therefore, the order is null and void. The grounds urged by the petitioner in this writ petition are : (1) As the petitioner is entitled to a certificate under s 197(3) of the Act to the effect that the entire amount of the said dividend of Rs. 37,50,000 is eligible for deduction under s. 80K of the Act, it need not deduct any tax at source when paying the said dividend to its shareholders; (2) Rule 20 of the I.T. Rules enables carry forward of the exempted profits of a year to the subsequent years and, therefore, the exempted profits were available to the petitioner as surplus without carrying forward the same to the subsequent years. From what has been stated above, it will be clear that the ease involves the interpretation of ss. 80J(3), 80K and 203 of the Act and rr. 20 and 31(4) of the I.T. Rules.
8. Sub-s. (3)(g) of s. 80J says that where the amount of profits and gains derived from an industrial undertaking included in the total income in respect of the previous year or after the first day of April 1967, falls short of the relevant amount of capital employed during the previous year, the amount of such shortfall or where there are no such profits and gains, an amount equal to the relevant amount of capital employed during the previous year shall be carried forward and set off against the profits and gains in sub-s. (1) in respect of the previous year relevant to the next following assessment year, and if there are no such profits and gains for that assessment year or where the deficiency exceeds such profits and gains, the whole or the balance of the deficiency, as the case may be, shall be set off against such profits and gains for the next following assessment year and in so far as such deficiency cannot be wholly so set off, it shall be set off against such profits and gains assessable for the next following assessment year and so on provided it would not be so carried forward beyond the seventh year as reckoned from the end of the initial assessment year and that where there is more than one deficiency relating to different assessment years, a deficiency which relates to an earlier assessment year shall be set off before setting of the deficiency in relation to a later assessment year. Section 80K provides for deduction in respect of dividends attributable to profits and gains from a new industrial undertaking in the case of the owners of the shares and that section says that where the gross total income of an assessee included that income by way of dividends in respect of shares held by him in any new industrial undertaking, in computing his total income, a deduction shall be allowed of an amount equal to such part thereof as is attributable to the profits and gains derived by the company from a new industrial undertaking on which no tax is payable by the company under the provisions of this Act for any assessment year commencing prior to the first day of April, 1968, or in respect of which the company is entitled to deduction under s. 80J for the assessment year. Section 194 dealing with dividends directs a company paying the dividends to deduct from the dividend income-tax at the rates in force provided the ITO gives a certificate in writing in the prescribed manner that the total income of the shareholders will be less than the minimum liable to income-tax, and the person responsible for paying dividend can pay the dividend without any deduction so long as the certificate is in force. Section 203 enables the person deducting tax in accordance with s. 194 to furnish to then person receiving dividend a certificate to the effect that the tax has been deducted and specifying the amount so deducted, the rate at which the tax has been deducted and such other particulars as may be prescribed. Rule 20 provides for the mode of computation of the portion of the dividend attributable to profits and gains from new industrial undertakings. That rule says that the amount of dividend paid for which deduction is allowable under s. 80K shall be determined in accordance with rules 2 to 5. Rule 31(4) shows that the certificate of deduction of tax to be furnished by a principal officer of a company under s. 203 in respect of dividend shall be in form No. 19. Note No. 4 appended to Form No. 19 shows that where no tax has been deducted in view of s. 196, or in accordance with the exemption certificate issued by the ITO under the proviso to s. 194, the amount referred to in item 3 of the certificate shall be shown as at 'nil' or at the appropriate figures and specific reason therefor should be given with details as a foot-note or annexure to the certificate. The learned counsel for the petitioner, after taking us through the said provisions of the Act and the Rules, refers to the decisions of the Supreme Court in Union of India v. Coromandel Fertilizers Ltd. : 102ITR533(SC) and South India Shipping Corporation Ltd. v. ITO : 103ITR1(Mad) . In the first case the scope and ambit of ss. 80J, 80K and 197(3) of the 1961 Act and s. 15C of the 1922 Act came up for consideration. In that case a company by name Coromandel Fertilizers Ltd., which was an industrial undertaking, was assessed to income-tax for the year 1969-70 and the assessment order disclosed a sum of Rs. 11,10,176 as the amount being carried forward as unabsorbed losses to the succeeding year and a sum of Rs. 9,73,861 being carried forward as unabsorbed depreciation to the subsequent year. The company claimed deduction under s. 80J in computing its total income of 6% of the capital employed by it in a new industrial undertaking which fulfils certain conditions. Since there was no profit for that year, the allowance under s. 80J was carried forward for adjustment during the subsequent year. Similarly, the unabsorbed allowance under s. 80J was carried forward up to the year 1973-74 and in the year 1973-74 after setting off of the brought forward allowance, the company was not assessable to any taxable income for that year. The company made a profit of Rs. 4.55 crores in 1972 and the board of directors recommended the declaration of a maiden dividend of Rs. 76,65,608 out of the profits of the year 1972. On March 3, 1973, the company addressed a letter to the ITO for a certificate under s. 197(3) of the Act stating that the dividend payable by it would qualify for deduction under the provisions of s. 80K in the hands of the shareholders of the company and, therefore, tax need not be deducted at source from the said payment on the ground that the dividend of Rs. 76,65,608 was worked out at the rate of 8% on the total share capital of Rs. 9,58,20,100 of the company. The said request of the company was rejected by the ITO stating that the shareholders are not entitled to the benefit of s. 80K. Thereafter the company and some of the shareholders filed writ petitions for quashing the order of the ITO refusing to issue a certificate under s. 197(3) of the Act. The Andhra Pradesh High Court held that the company is entitled to claim deduction under s. 80J for the assessment years in question, that, therefore, s. 80K entitles a shareholder to claim deduction in respect of which the company is entitled to and as such the shareholder is entitled to the issue of a certificate under s. 197(3). When the matter was taken to the Supreme Court, the Supreme Court affirmed the decision of the High Court holding that the expression 'or in respect of which the company is entitled to a deduction under section 80J' occurring in s. 80K introduced a new concept, that there was no legal requirement of a de facto deduction of the amount in question in the particular year, that as against the actual deduction, the company's entitlement to deduction in the relevant year was enough to answer the requirements of s. 80J and necessarily, therefore, the shareholder would also be entitled to invoke s. 80K and obtain pari passu the benefit of that provision and that the company was not required in law to deduct tax at source from the dividends and that the company was not required in law to deduct tax at source from the dividends and that it was entitled to an appropriate certificate from the ITO under s. 197(3). In the course of the judgment, the Supreme Court pointed out that there are two vital differences between the schemes of s. 15C of the Indian I.T. Act, 1922, and ss. 80J and 80K of the I.T. Act, 1961, that there was no question of 'carry forward' from one year to the succeeding year or years of the sums allowable under s. 15C of the 1922 Act whereas that feature is now prominent in s. 80J of the 1961 Act, that while s. 15C(4) of the 1922 Act grants relief in the case of only taxable profits, under s. 80K of the 1961 Act, there is no legal requirement of a de facto deduction of the amount in question in the particular assessment year and that, therefore, the decision of the Supreme Court in CIT v. S. S. Sivan Pillai : 77ITR354(SC) , dealing with s. 15C of the 1922 Act will not be of any aid in interpreting ss. 80J and 80K of the 1961 Act in view of the change of the law. Thus, the Supreme Court has taken the view that even though there has been no taxable profits and consequently there is no de facto deduction of the amount allowable under s. 80J in any particular year, the company is entitled to carry forward the allowance under s. 80J and the shareholder will be entitled to invoke s. 80K and obtain pari passu the benefit of the provision. From the said decision of the Supreme Court, it is clear that even though the company may not be able to actually claim the benefit of s. 80J in a particular year in view of paucity of profits, the shareholder will be entitled to claim the benefit of s. 80K with reference to his income by way of dividend from the said company.
9. In South India Shipping Corporation Ltd. v. ITO : 103ITR1(Mad) , a somewhat similar question arose before this court and a Division Bench of this court, to which one of us was a party, held that if in the total income of a company as computed, whether it be profit or loss, the profits and gains of a new industrial undertaking had been included, then the company is entitled to the benefit of s. 80J and it is because of this entitlement of the company to the relief under s. 80J, the deficiency has been allowed to be carried forward and set off against income of the subsequent years. In that case also, the ITO refused to issue a certificate under s. 197(3) of the Act on the ground that the sahreholder should be entitled to the benefit of 80K only if the company had actually obtained deduction under s. 80J and even then only to the extent of the actual deduction and as the company had not obtained relief under s. 80J(1) up to and inclusive of the assessment year 1969-70 in view of the paucity of profits as also the huge block of development rebate to be carried forward from the earlier years. The company filed writ petitions before this court against the refusal to grant certificate for the year 1971-72. This court allowed the writ petitions holding that when once the company is entitled to the benefit of s. 80J, the shareholders will be entitled to claim the benefit of s. 80K as the last portion thereof merely refers to entitlement of the company for relief under s 80J and not the actual allowance of the relief under that section and that, therefore, the company was entitled to a certificate under s. 197(3) which specifically requires the determination of appropriate proportion of the dividends to be deducted under the provisions of s 80K. The court further held that wherever the relief under s. 80J has been computed and carried forward in the company's assessment, the company should be taken to have been actually allowed the deduction, and once s. 80J relief is carried forward for want of taxable profits, the shareholders who get the dividends are entitled to claim the benefit of s. 80K. The view taken by this court is quite in accord with the view taken by the Supreme Court in Union of India v. Coromandel Fertilizers Ltd. : 102ITR533(SC) referred to above.
10. The learned counsel for the assessee-petitioner refers to the decision of this court in CIT v. Simpson and Co. : 122ITR283(Mad) , in support of his proposition that ss. 80J and 80K being the provisions for granting relief or exemption from tax, it has to be construed liberally. In that case, the question arose as to whether an assessee who had worked its machinery only for a few months in a year could claim the deduction of 6% of the capital under s. 80J for the full year, and this court, after construing the expression 'per annum' liberally, held that the expression cannot be understood as indicating any broken period during which the assets were used. In the course of its judgment, this court had observed that it is a well-settled principle of construction that in construing a provision for exemption or relief, it should be liberally construed, that the reason behind this rule of interpretation is that the administrative authorities or the courts should not whittle down the plenitude of the exemption or relief granted by Parliament by laying stress on any ambiguity here or there and that though ordinarily any statute would have to be construed on the language it employs in the case of a fiscal statute, the rule is that if there are two ways in which a provision could be construed, the construction most beneficial to the subject should be adopted.
11.The respondents have filed a counter-affidavit stating that the Cold Roll Mill Unit II and the Third Tube Mill are independent undertakings and the profits and gains of the Cold Roll Mill Unit II which is eligible for exemption under s. 80J have been exhausted even in the years 1970-71, 1971-72 and 1972-73 and no profits of that industrial undertaking, namely, Cold Roll Mill Unit II, is available to be carried forward and declared as dividend in any subsequent years and that after the assessment year 1975-76, Cold Roll Mill Unit II, ceased to be eligible for the relief under s. 80J, and, hence, any dividend declared subsequent to 1974-75 cannot include such profits from Cold Roll Mill Unit II which is eligible for the relief under s. 80J, since the eligible profits have already been declared as dividends in 1970-71, 1971-72 and 1972-73, and when the company declared dividend of Rs. 37,50,000 in the assessment year 1978-79, it could have included only Rs. 7,14,000 which relates to the profits of the Third Tube Mill which is eligible for the relief under s. 80J. Therefore, the ITO's certificate that only 13.22 per cent. of the dividend declared for 1977 is eligible for relief under s. 80K is perfectly in order. The learned counsel for the Revenue also referring to the decision of the Supreme Court in Union of India v. Coromandel Fertilizers Ltd. : 102ITR533(SC) and of this court in South India Shipping Corporation Ltd. v. ITO  103 ITR 1 distinguished the same and submitted that there were cases where the total income was a negative figure and s. 80J relief cold not be absorbed because of paucity of profits of back log of development rebate and allowances which are to be adjusted but dividends have, however, been declared from business profits but that in the present case, the dividends paid during the years 1970-71 to 1972-73 were in excess of the amounts eligible for s. 80J relief and, therefore, such dividends received by the shareholders to the extent that they are out of the profits and gains of Cold Roll Mill Unit II are entitled to s. 80K relief for the assessment years 1970-71 to 1972-73 as per the rulings of the Supreme Court and this court. The Revenue further submits that rule 20 is applicable only when profits of a company are not sufficient to absorb s. 80J relief and where s. 80J relief cannot be given effect to due to 'nil' assessment and in this case for the assessment years 1970-71 to 1972-73, there were sufficient profits to absorb s. 80J relief and, hence, rule 20 is not attracted as far as profits of Cold Roll Mill Unit II is concerned and that even assuming that rule 20 can be resorted to for computation of dividend attributable to profits and gains of the new industrial undertaking, on the facts of this case under rule 20(3), the amount in respect of which deduction is allowable under s. 80K will have to be excluded as s. 80K relief is allowable once the company which declares dividend is entitled to a deduction under s. 80J, and that once the allowability text is satisfied, the question whether in fact s. 80K relief was for the previous year, namely, 1970-71 to 1972-73, preceding the relevant previous year, namely, 1978-79, is not relevant. The Revenue also relies on the circulars of the Central Board of Direct Taxes making the production of the certificate under s. 203 a condition precedent for giving relief under s. 80K (sic) cannot be taken to curtail the allowability of deduction under s. 80K and the same cannot be said to be ultra vires. We are not inclined to agree with the submission of the learned counsel for the Revenue. Rule 20(2) refers to the deduction allowable under s. 80J and not to a deduction actually allowed under s. 80J. According to the Revenue, however, no amount is allowable as deduction under s. 80J as the conditions requisite for such allowance are not satisfied. It is said that no certificate has been given under s. 203 and there has been no quantification of the portion of the dividends attributable to profits and gains from new industrial undertaking as contemplated by rule 20. In this case, though the company claimed relief under s. 80J, the ITO held that the company is not entitled to that relief and, therefore, the company could not have issued a certificate at any time prior to the Tribunal decision declaring that the company is eligible for relief under s. 80J and if the company had done so notwithstanding the decision of the ITO, it would have become liable for prosecution under s. 278. Before a shareholder can claim relief under s. 80K, it must be found that the company declaring dividend is entitled to deduction under s. 80J. In this case, since the ITO held that the company is not entitled to the relief under s. 80J, it is not possible for the company to issue a certificate and it is only later the ITO's order was set aside by the Tribunal holding that the company was eligible for the relief under s. 80J. It is no doubt true that rule 31(1) contemplates a certificate being issued by the company while paying dividends to its shareholders and Form No. 19 is prescribed for the purpose under rule 31(4). But it is by an erroneous decision that the company is not entitled to the relief under s. 80J, the company was disabled in getting a certificate under s. 197(3) determining the appropriate proportion of the dividend to be deducted under the provisions of s. 80K. Thus, in view of the mistake or error committed by the ITO, the assessee company was disabled from getting a certificate under s. 197(3) from the ITO and from giving a certificate under s. 203 to the shareholder and the error committed by the ITO cannot prejudice the case of the assessee-company. Thus, we hold that the assessee company is entitled to get a certificate from the ITO under s. 197(3) quantifying the exempted portion of dividend in accordance with rule 20 of the I.T. Rules. Though the assessee-company has asked for a certificate quantifying the exempted portion of the dividend at 100%, it is for the ITO to quantify the exempted portion taking into account all the relevant material.
12. Having regard to the fact that we have expressed our view on merits, it is not necessary to go into the question whether the power of rectification under s. 154 could be invoked by the shareholders.
13. The result is, the writ petition is allowed and the ITO is directed to quantify the exempted portion of the dividend in accordance with rule 20 of the I.T. Rules, 1962. However, there will be no order as to costs.