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South India Shipping Corporation Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberWrit Petition Nos. 1636 and 2737 to 2739 of 1971
Judge
Reported in[1976]46CompCas250(Mad); [1976]103ITR1(Mad)
ActsIncome Tax Act, 1922 - Sections 15C(4); Income Tax Act, 1961 - Sections 80J, 80J(1), 80J(3), 80K and 197(3); Income Tax Rules, 1962 - Rule 20
AppellantSouth India Shipping Corporation Ltd.
Respondentincome-tax Officer
Appellant AdvocateK.R. Ramamani and ;S.V. Subramaniam, Advs. of ;Subbaraya Aiyar and Padmanabhan
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredCoromandel Fertilisers Ltd. v. Income
Excerpt:
direct taxation - allowances - section 15 c (4) of income tax act, 1922 sections 80j and 80k of income tax act, 1961 - intention of legislature is to give relief to company as well as to shareholders - both reliefs are independent of each other and relief to shareholders under section 80k cannot be denied merely because relief under section 80j was not actually allowed to company - company should be taken to have obtained relief under section 80j so as to entitle shareholders to claim relief under section 80k - relief under section 80j having been quantified and allowed to be carried forward in company's assessment it should be taken that there has been deduction under that section as permission to carry forward for purpose of setting off against subsequent years profits is one form of.....v. ramanujam, j. 1. as the scope and ambit of section 80k of the income-tax act, 1961 (hereinafter referred to as 'the act'), arises in all the above petitions filed by the same assessee, it is convenient to dispose them of together by a common judgment. as the facts are practically the same in all the petitions, it is sufficient to narrate the facts in w.p. no. 1636 of 1971. 2. the south india shipping corporation ltd., the petitioner in all the writ petitions, is a public limited company, hereinafter referred to as the company, which commenced its business on july 20, 1964. it placed orders for and obtained delivery of five similar dry cargo bulk carriers between november, 1965, and december, 1966, all of which, since the respective dates of purchases, are engaged in the international.....
Judgment:

V. Ramanujam, J.

1. As the scope and ambit of Section 80K of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), arises in all the above petitions filed by the same assessee, it is convenient to dispose them of together by a common judgment. As the facts are practically the same in all the petitions, it is sufficient to narrate the facts in W.P. No. 1636 of 1971.

2. The South India Shipping Corporation Ltd., the petitioner in all the writ petitions, is a public limited company, hereinafter referred to as the company, which commenced its business on July 20, 1964. It placed orders for and obtained delivery of five similar dry cargo bulk carriers between November, 1965, and December, 1966, all of which, since the respective dates of purchases, are engaged in the international tramping trade currying bulk dry cargoes from and to the various ports of the world.

3. In the course of the assessment proceedings the Income-tax Officer had granted, inter alia, allowances like depreciation in terms of Section 32 and development rebate under Section 33 of the Act. Apart from the saidallowances, the company claimed relief under Section 80J of the Act, inasmuch as the conditions laid down in the said section and the Income-tax Rules, 1962 (hereinafter referred to as 'the Rules'), had been satisfied. The quantum of relief to which the company is eligible under Section 80J of the Act as determined by the Income-tax Officer in the various assessment orders is as follows:

Rs.Assessment year 1968-69 (account year - calendar year 1967)1,21,67,277Assessment year 1969-70 (account year - calendar year 1968)1,15,76,642

Total relief under section 80J as determined by the Income-tax Officer2,37,43,919

4. The company also claimed relief for the assessment year 1967-68 in a sum of Rs. 16,18,804 and for the year 1970-71 in a sum of Rs. 1,09,76,342, Thus, the aggregate of further reliefs claimed by the assessee and pending decision of the Income-tax Officer amounted to Rs. 12,25,95,146.

5. The official year of the company is the calendar year. The company distributed dividends for the various calendar years as under :

Calendar yearRate of dividendAmount

19676% on paid-up capital of Rs. 1 crore6.00 lakhs19687.5% ' ' 7.50 '19697.5% ' ' 7.50 '

6. For each of the aforesaid years for which dividends were distributed, the company applied to the Income-tax Officer for the issue of a certificate under Section 197(3) to the effect that the dividends to be distributed would be wholly exempt from tax in view of the relief provided to the shareholders under Section 80K in consequence of the company being entitled to the relief under Section 80J. The Income-tax Officer granted the certificates in respect of the three assessment years, namely, 1968-69, 1969-70 and 1970-71, exempting the company from the requirement of deduction of tax in view of the fact that the shareholders would be entitled to full relief in terms of Section 80K of the Act and Rule 20 of the Rules.

7. As in the past years, the company applied on March 29, 1971, to the Income-tax Officer for a similar certificate under Section 197(3) for the year 1970. It was pointed out by the company in the said application that the total relief under Section 80J to which the company would be entitled, in respect of the assessment years for which assessments have been completed and in respect of the pending assessment for 1970-71, would well exceed the amount of dividend proposed to be distributed togetherwith the amounts of dividends already distributed, that as per the provisions of Section 80K and Rule 20 the entire amount of dividends to be distributed would be exempt from tax in the hands of the shareholders and that as such the company is not required to deduct the tax thereon, The Income-tax Officer, however, by his order dated April 2, 1971, refused to issue the certificate applied for on the ground that the shareholders should be entitled to the benefit under Section 80K only if the company had actually obtained the deduction under Section 80J and even then only to the extent of actual deduction obtained by the company, and that up to and inclusive of the assessment year 1969-70 the company had not obtained relief under Section 80J(1) due to paucity of profits as also the huge backlog of development rebate to be carried forward from earlier years. It is this order which has been impugned in Writ Petition No. 1636 of 1971.

8. The other three writ petitions had been filed against the orders of cancellation of the certificates issued under Section 197(3) for the years 1968-69, 1969-70 and 1970-71. The reason for cancellation of the certificates is the same as has been given in the order dated April 2, 1971.

9. If the shareholders arc entitled to the relief under Section 80K and Rule 20 in each of the assessment years, then they will not be liable to pay any tax and as such the company need not deduct any tax at source on the dividends to be distributed to the shareholders in respect of the corresponding year and, therefore, the company is entitled to a certificate exempting it from the requirement of deduction of tax under Section 197(3). They are entitled to a deduction under Section 80K and Rule 20 in respect of such portion of the dividend as is attributable to the profits and gains of the company in respect of which the company is entitled to deduction under Section 80J. In this case there is no dispute that the conditions laid down in Section 80J(1) are satisfied and the gross total income of the petitioner included profits and gains derived from ships. That the company was entitled to a deduction under Section 80J cannot, therefore, be in dispute. But the controversy between the parties has arisen in view of the circumstances that the company had unabsorbed development rebate to be carried forward and set off against future profits and the relief under Section 80J could not be availed of and absorbed by the company in any of these years. Taking advantage of the factum of non-absorption by the company of the relief under Section 80J in any of the years due to paucity of profits as also the huge backlog of development rebate to be carried forward from earlier years, the revenue contends that the relief to which the shareholders will be entitled under Section 80K in any year is dependent upon the actual absorption of the allowance under Section 80J in the company's assessment, and that a combined reading of Section 80K and Rule 20 clearly establishes that the shareholder is entitled to relief if the company is entitled to relief under Section 80J irrespective of whether or not the company is able to avail of the deduction by way of absorption. Thus, the crucial question is as to whether the relief to which the shareholders will be entitled under Section 80K is dependent not only upon the entitlement of the company for relief under Section 80J but also upon the actual absorption of such relief in the company's assessments.

10. According to the revenue, the shareholders are not entitled to the benefit under Section 80K if the company itself is not in a position to actually obtain relief under Section 80J in view of paucity of profits or backlog of development rebate and other allowances yet to be adjusted. It is pointed out by the revenue that the provisions of Section 80K are not applicable to the dividends to be distributed by the company for the various years in question for the reason that there was nil gross total income for the company for any of the said years and, therefore, there would be no question at all of its gross total income including within it the profits and gains derived from ships so as to attract Section 80J, and that when the main exemption under Section 80J is itself inapplicable to any part of the profits of the company for any of the years, there is no question of any part of the dividends of the company being attributed to any exempted part of the company's profits. The revenue, in support of the said submission, relies on the decision of the Supreme Court in Commissioner of Income-tax v. S.S. Sivan Pillai, : [1970]77ITR354(SC) ..

11. The learned counsel for the petitioner would, however, submit that the decision in Commissioner of Income-tax v. S.S. Sivan Pillai was rendered with reference to Section 15C(1) and 15C(4) of the Indian Income-tax Act, 1922, corresponding to Sections 84 and 85, respectively, of the Income-tax Act of 1961, before their deletion in 1969 and that the said decision cannot be of any assistance in the interpretation of Sections 80J and 80K which are entirely different from Sections 15C(1) and 15C(4).

12. If the principle laid down in the said decision were to apply to the facts of this case, then the petitioner-company is bound to make deduction of tax at source before paying the dividends to the shareholders, as the shareholders will not be entitled to the relief under Section 80K. As the revenue entirely relies on the said decision as a defence to the claim made by the petitioner, the scope of the said decision and its applicability to the facts of this case has to be considered.

13. At this stage, it is necessary to refer to the relevant statutory provisions. Sections 15C(1) and 15C(4) of the Indian Income-tax Act of 1922 were as follows :

'15C. Exemption from tax of newly established industrial undertakings:--(1) Save as otherwise hereinafter provided, the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking (or hotel) to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking (or hotel), computed in accordance with such rules as may be made in this behalf by the Central Board of Revenue. ...

(4) The tax shall not be payable by a shareholder in respect of so much of any dividend paid or deemed to be paid to him by an industrial undertaking (or a hotel) as is attributable to that part of the profits or gains on which the tax is not payable under this section.

Explanation.--The amount of dividend in respect of which the tax is not payable under this sub-section shall be computed in accordance with such rules as may be made in this behalf by the Central Board of Revenue '.

15. Under the Income-tax Act of 1961, Sections 15C(1) and 15C(4) werereplaced by Sections 84 and 85 by the Finance (No. 2) Act of 1967. Sections 84and 85 were later replaced by Sections 80J and 80K, respectively. It -willbe clear from a comparative reading of Sections 80J and 80K with the corresponding earlier provisions in Sections 15C(1) and 15C(4) of the 1922 Actthat they were substantially different. Under the earlier provisions noincome-tax was payable by the newly established industrial undertaking onso much of the profits as do not exceed six per cent. per annum on the capitalemployed in the undertaking and no tax was payable in respect of dividends attributable to that part of the profits on which the tax is not payable by the company. Under the present provisions in Sections 80J and80K the position is different. The profits of the industrial undertakingsare entitled to exemption from income-tax to the extent of six per cent. perannum on the capital employed. Thus, a straight deduction of six per cent.of the capital employed is given from the total income of the company. Inaddition, if the profits are less than 6 per cent. in any year the deficiencyis allowed to be carried forward and set off against future year's profits.This change was brought about as a result of Bhoothalingam's reportwhich suggested that instead of rebate being given on profits on newlyestablished industrial undertakings at six per cent. of the average capitalemployed by the business, a straight deduction of six per cent. of suchcapital may be allowed every year, and that where the profits actuallyearned are less than six per cent. the difference may be allowed to becarried forward and adjusted against such profits for 6 years as in the caseof business loss.

16. Construing the earlier provision in Section 15C(4) this court in S.S. Sivan Pillai v. Commissioner of Income-tax, [1966] 61 ITR 179 (Mad).expressed the view thatthe profits and gains of a newly established industrial undertaking for the purpose of Sub-section (1) or Sub-section (4) of Section 15C have to be computed by finding the depreciation allowance under Section 10(2)(vi) and (via) in the current year without taking into account either the unabsorbed depreciation or losses of earlier years carried forward under Section 24, that the set-off of losses of earlier years under Section 24(2) and the allowances in respect of unabsorbed depreciation of earlier years both under Sections 10(2)(vi) and 10(2)(via) do not enter into the computation under Section 15C(3) and that, therefore, if the industrial undertaking has made profits as Computed under Section 15C(3) and its shareholders have been paid dividends, it cannot be denied the benefit of the exemption under Section 15C(4) on the ground that the profits of the undertaking for the purpose of adjustment of taxes would be reduced to nil in view of the unabsorbed depreciation of earlier years.

17. In Commissioner of Income-tax v. S.S. Sivan Pillai, the Supreme Court disagreed with that view and held that the shareholders were not entitled to the exemption under Section 15C(4) in relation to the dividends received from the company, as the company had no taxable profits in the relevant years in view of the unabsorbed depreciation of earlier years admissible under Section 10(2)(vi) and (via) and carried forward under Section 24 and that the view taken by this court that unabsorbed depreciation of the earlier years cannot be taken into account for computation of profits for the purpose of Section 15C(3) is contrary to the scheme of Section 15C which contemplates the determination of the profits and gains of an industrial undertaking in the manner provided by Section 10 without there being a distinction between the unabsorbed depreciation for the previous year and the depreciation for the current year. According to their Lordships of the Supreme Court the right to appropriate profits towards unabsorbed depreciation of the previous year arises by virtue of Section 10(2)(vi), proviso (b), and not under Section 24(1) and, therefore, in the computation of profits of an industrial undertaking for any year under Section 15C(3) the unabsorbed depreciation of the earlier years cannot be ignored. Exemption under Section 15C(1) from payment of income-tax on the part of the profits of a new industrial undertaking related to taxable profits and not to business profits. The taxable profits or gains of an industrial undertaking have to be determined under Section 10 of the Act. Even if an undertaking has earned profits out of its commercial activity if it has no taxable profits it cannot claim exemption from payment of tax under Section 15C(1). If the undertaking cannot claim benefit under Sub-section (1) of Section 15 the shareholders also cannot get the benefit under Sub-section (4), for there is no dividend paid which is attributable to thatpart of the profits or gains on which the tax was not payable by the undertaking under Sub-section (1).

18. The question then is whether the said principles laid down by the Supreme Court will also apply to the interpretation of Section 80J and 80K and whether the change in the statutory provisions is of any consequence

19. According to the learned counsel for the assessee the intention of the legislature is to give relief both to the company as well as to the shareholders and both reliefs are independent of each other and as such the relief due to the shareholders under Section 80K in any year cannot be denied merely because the relief under Section 80J was not actually allowed to the company in that year in view of the backlog of unabsorbed depreciation and development rebate of the earlier years. The learned counsel points out that while under Section 15C the relief to which the company will be entitled cannot be carried over, under Section 80J(3) the unabsorbed relief can be carried forward and set off against the profits of the succeeding years, that in view of this new provision under which the industrial undertaking entitled to the benefit of Section 80J(1) is permitted to be carried forward and set off against future years' profits if the current year's taxable profits are less than six per cent. of the capital employed even in the year when the taxable profits are less than six per cent. of the capital employed, the company should be taken to have obtained the relief under Section 80J in the assessment year so as to entitle the shareholders to claim the benefit of Section 80K, and that the relief under Section 80J having been quantified and allowed to be carried forward in the company's assessment it should be taken that there has been a deduction under that section as the permission to carry forward for the purpose of setting off against the subsequent year's profits is one form of deduction. He refers to Rule 20 of the Rules which provides for the method of computation of portion of dividend attributable to profits and gains from new industrial undertakings for the purpose of determining the quantum of deduction to be given to the shareholder under Section 80K. As per that rule the aggregate amount of that part of the profits and gains of the company on which no tax was payable by it under Section 80J in respect of which deduction is allowable shall first be determined. The words used in the said rule are 'deduction allowable under Section 80J' and not 'deduction actually allowed under Section 80J'. It is stated that in the company's assessment the relief to which the company will be entitled under Section 80J having been determined and allowed to be carried forward, it is clear that the relief under Section 80J has been treated as allowable in the hands of the company. Thus, it is the contention of the learned counsel that Rule 20 under which the relief given to the shareholder under Section 80K has tobe determined does not contemplate the factual absorption of the allowable deduction under Section 80J by the company.

20. The learned counsel for the revenue, on the other hand, contends that the relief to which the shareholder will be entitled under Section 80K in any year is not independent but dependent on the company actually getting the relief under Section 80J in that year, that if the company was not in a position to get the relief under Section 80J in any year, the shareholder also cannot get any relief under Section 80K in that year, that the condition precedent for the company claiming the benefit under Section 80J being the existence of a gross total income from which deduction is contemplated if there is no total income, there is no tax liability on the company and as such there is no entitlement for deduction of six per cent. of the capital employed. According to the learned counsel, unless the total income of the company is a positive figure, there is no question of deduction of six per cent. of the capital employed as contemplated by Section 80J and the decision of the Supreme Court in Commissioner of Income-tax v. S.S. Sivan Pillai holds good even in respect of the relevant statutory provisions as they exist now. He points out to paragraph 28 of the 'memorandum attached to the Finance (No. 2) Act of 1967 in support of his submission that unless there are taxable profits derived from the undertaking, there is no question of applying Section 80J. Paragraph 28(iii) of the said memorandum says :

'As industrial enterprises are generally not in a position to have adequate profits in the initial years, they are, often, not able to avail, in full, of the benefit of the 'tax holiday'. In order to make the 'tax holiday' concession more meaningful in such cases, it is proposed to allow a carryforward of the amount of the deficiency in the profits in relation to the amount of 6 per cent. of the capital employed, during each year of the five years' (in the case of a co-operative society, 7 years) period of the 'tax holiday', to the succeeding year in that period. The amount of the 'deficiency' so carried forward from a year will be added to the amount of 6 per cent. of the capital employed in the succeeding year and the assessee will be entitled to exemption from tax in that year on his or its profits to the extent of the aggregate of such 'deficiency' and the amount of 6 per cent. of the capital employed. Where such 'deficiency' is not fully absorbed by the fifth year (seventh year in the case of a co-operative society), the unabsorbed 'deficiency' will be carried forward to the succeeding year and in that year, the assessee will be exempt from tax on his profits to the extent of such unabsorbed 'deficiency' and so on, for succeeding years, up to the eighth year as reckoned from the year in which theundertaking commenced its operations or the ship was first brought into use.'

21. Paragraph 44 of the same memorandum so far as it is relevant says:

'44. New provisions for deduction, in the computation of the total income, of the full amount of incomes at present qualifying for rebate of tax. --In the following cases, it is sought to provide for a deduction, in the computation of the total income, or the full amount of income, qualifying under the existing law for a rebate of tax :...

'Tax holiday' profits (covering also the element of 'deficiency' or 'unabsorbed deficiency' referred to in paragraph 28 hereinabove) from newly set-up industrial undertakings owned by any assessee and hotels and ships owned by Indian companies.

(v) In the case of any shareholder of a company, dividends attributable to the 'tax holiday' profits of the company.'

22. We are not able to see how the memorandum helps the contention of the revenue that Section 80K can be invoked by a shareholder only in respect of the dividends declared by a company which had taxable profits and not in respect of the dividends paid by the company out of its business profits. Paragraph 44(iv) seems to suggest that a deduction in the computation of total income is contemplated of the 'tax holiday' profits (covering also the element of deficiency or unabsorbed deficiency referred to in paragraph 28) and that the benefit of 'tax holiday' can be claimed by the company even when there was no taxable profits by way of carryforward of the deficiency or the unabsorbed deficiency. Unlike the situation which obtained earlier when the benefit of 'tax holiday' can be claimed only from the profits of the relevant assessment year, under the existing provisions of Section 80J the benefit of 'tax holiday' is given by allowing a carry-forward of the amount of deficiency. The question is whether a company, which is not able to absorb the exemption conferred by Section 80J in the assessment year, either due to lack of profit or due to existence of unabsorbed depreciation allowance or development rebate and carried forward the unabsorbed exemption to the subsequent year, can be said to have not availed of the benefit of Section 80J.

23. In Orissa Cement Ltd. v. Commissioner of Income-tax, : [1971]80ITR101(Delhi) , the Delhi High Court held that the scheme of Section 80J of the 1961 Act is different from that of Section 15C of the 1922 Act and that the said difference lies in the fact that under Section 15C the benefit of unabsorbed exemption of an earlier year cannot be availed of in a subsequent year and it was not possible to allow the said benefit to be carried forward and set off against the taxable profits of the subsequent years, unlike the provision in Section80J, which applied the principle of carry-forward and set-off of the 'tax holiday' profits of the newly established industrial undertakings and confers the benefit of unabsorbed exemption of an earlier year being availed of in a subsequent year.

24. Sampath Iyengar in his Treatise on Income-tax, 6th edition, volume II, at page 1317, points out that though the decision of the court in S.S. Sivan Pillai v. Commissioner of Income-tax, : [1966]61ITR179(Mad) was reversed by the Supreme Court in Commissioner of Income-tax v. S.S. Sivan Pillai, in the context of the provisions in Section 15C(3) and (4) the line of reasoning in the former decision that even where the set-off of unabsorbed depreciation and of losses of earlier years may ultimately wipe out the taxable profits of the industrial undertaking, the shareholders can claim exemption in respect of the dividends distributed by the company out of its profits gets support from the following expression in Section 80K 'or in respect of which the company is entitled to deduction under Section 80J'. Section 80K appears to cover two types of situations, (1) where the company has made more than the statutory percentage of profits and has distributed dividends partly out of the taxed profits and partly out of untaxed profits, the shareholders should be entitled to pro rata exemption, (2) where the company has not suffered any tax at all the exemption can be claimed by a shareholder from his total income in respect of dividends equal to so much part as is attributable to the profits derived by the industrial undertaking ; (i) on which no tax is payable by the industrial undertaking prior to April 1, 1968 ; or (ii) in respect of which the company is entitled to deduction under Section 80J subsequent to the said date. A close reading of Section 80K shows that in respect of the assessment year 1968-69 onwards the shareholder will be entitled to the benefit of Section 80K if the company was entitled to deduction under Section 80J whether it actually got the deduction or not. From a comparison of Section 15C(4) of the 1922 Act and the present Section 80J of the 1961 Act it is clear that the same phraseology is used in both the sections in respect of the company's profits assessable for the assessment years prior to 1968-69. But Section 80K specifically provided for the shareholders' right to deduction by a reference to the company's profits assessable for 1968-69 onwards 'in respect of which the company is entitled to deduction under Section 80J'. These words seem to cover cases where the deduction is not actually allowed to the company on account of inadequacy of profits but it is allowed to carry forward the deficiency under Section 80J(3). Unlike Section 15C(4) of the 1922 Act, in order to entitle the shareholder to the benefit of Section 80K in or after the assessment year 1968-69, it is not necessary that the company should have actuallyobtained deduction under Section 80J and it is enough if the company is entitled to such deduction.

25. Mr. Balasubrahmanyan, for the revenue, submits that unless there is total income from which the deduction of the 6 per cent. of the capital employed is contemplated, the benefit of Section 80J(1) cannot be claimed, that even the deficiency contemplated in Section 80J(3) has to be set off only against the total income, that if there is no total income, there is no tax liability and as such the company cannot claim any deduction under Section 80J when there is no tax liability, and that, therefore, if there are no profits, there is no entitlement to the deduction under Section 80J. Mr. Balasubrahmanyan is right when he says that there should be a total income for the application of Section 80J, for the deduction under that section of 6 per cent. of the capital employed is from the total income of the company. But the point is whether the company can be said to have no total income merely because it has no taxable profits. Section 80J uses the words 'gross total income of an assessee' and 'gross total income' has been defined under Section 80B(5) as the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter 6A. 'Total income' has been defined under Section 2(45) as the total amount of income referred to in Section 5, computed in the manner laid down in the Act. It is in the light of these definitions Section 80J has to be construed. If so construed, Section 80J provides for a deduction of an amount not exceeding 6 per cent. of the capital employed if the total income as computed under the provisions of the Income-tax Act includes any profits and gains derived from an industrial undertaking. From the fact that the total income as computed is a negative figure, it cannot be said that it did not include the profits and gains derived from the industrial undertaking.

26. In Ambika Silk Mills Co. Ltd. v. Commissioner of Income-tax, : [1952]22ITR58(Bom) , while construing the scope of the rebate under Section 17(7), this court held that under that section the relief to which a company is entitled in respect of super-tax is on the amount of 'capital gains', that consequently when the total income in any year of a company consists entirely of a residue of capital gains remaining after set off against the total capital gains of that year of loss from business, the amount by which the super-tax payable by them should be reduced should be computed on the total amount of the' capital gains and not on the residue of capital gains remaining after set-off. In Commissioner of Income-tax v. C.S. Sastri, : [1959]35ITR476(Mad) .an assessee, a chartered accountant, got for the calendar year 1950 a sum of Rs. 31,006, from the practice of his profession as also Rs. 741 from other sources. He had incurred a loss of Rs. 15,598 in respect of his properties. The result wasthat his total income for the year was only Rs. 16,149. He claimed one-fifth of Rs. 31,006 as earned income relief in accordance with Section 2(2) of the Finance Act of 1950. But the revenue allowed the relief only to the extent of one-fifth of Rs. 16,149. The court held that the earned income relief to which the assessee will be entitled will be one-fifth of Rs. 31,006 as the said earned income enters into the computation of the total income.

27. On the principle laid down in the above decisions, if in the total income of the undertaking as computed, whether it be profit or loss, the profits and gains of the new industrial undertaking had been included, then the undertaking is entitled to the benefit of Section 80J. It is because of this entitlement of the company to the relief under Section 80J, the deficiency has been allowed to be carried forward and set off against income of the subsequent years in the assessee's case. The Income-tax Officer having determined the amount of relief to which the undertaking will be entitled under Section 80J and allowed the same to be carried forward and set off against the subsequent years' profits, it is not possible to hold that the undertaking was not entitled to the relief under Section 80J.

28. The learned counsel for the assessee says that the computation and carry forward of the deficiency of the relief under Section 80J is one form of deduction, that this position is also made clear by Rule 20 which uses the word 'allowable' instead of the words 'actually allowed', and that Rule 20 does not contemplate the factual absorption of deficiency in the particular year. Reference is made to the decision in Allied Publishers Pvt. Ltd. v. Commissioner of Income-tax, [1968] 68 ITR 549 in support of his submission that the benefit of carrying forward of the deficiency given under Section 80J(3) to the assessee in the assessment year in question should be taken to be the actual allowance of the relief under Section 80J. In construing the scope of the words 'depreciation actually allowed' in Section 10(5)(b), the court said that the words mean the depreciation of which the assessee had received effective advantage or benefit and not merely depreciation which is notionally allowed or which is allowable. The court compared the Explanation to Section 10(5)(b) with the Explanation to Section 10(2)(b) and held that the legislature had made a clear-cut distinction between depreciation actually allowed and an allowance which shall be deemed to be a depreciation actually allowed. The Explanation to Section 10(2)(b) provided that any depreciation carried forward under Clause (b) under the proviso to Clause (vi) of Sub-section (2) shall be deemed to be the depreciation actually allowed. We are not, however, inclined to take the view that wherever the relief under Section 80J has been computed and carriedforward in the company's assessment, the company should be taken to have been actually allowed the deduction. The deduction referred to above proceeds on the basis of a special provision in Section 10(2)(b). Deduction is actually allowed only in the year when there are sufficient profits to absorb the entire carried forward benefit under Section 80J.

29. However, as already stated, the company is entitled to the benefit under Section 80J. This entitles the shareholders who got the dividends to claim benefit under Section 80K as the last portion of that section merely refers to entitlement of the company for relief under Section 80J and not the actual allowance of the relief under that section. This is also the view taken by the Andhra Pradesh High Court in an unreported decision in W.P. No. 2279 of 1973, etc., in Coromandel Fertilisers Ltd. v. Income-tax Officer, [1976] 46 Comp Cas 169 (A) We, therefore, hold that the company is entitled to the certificates under Section 197(3) which specifically enjoins the Income-tax Officer to determine the appropriate proportion of the dividend to be deducted under the provisions of Section 80K.

30. The writ petitions, are, therefore, allowed and the rule nisi is made absolute. The petitioner will have its costs in W.P. No. 1636 of 1971 only. Counsel's fee Rs. 250. There will, however, be no order as to costs in the other writ petitions.


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