K. Veeraswami, J.
1. These four references involve the interpretation of Section 15-C of the Income-tax Act, 1922, and the scope of exemption available to shareholders in receipt of dividends The assessment proceedings right through have proceeded on the assumption that Sri Ganapathy Mills Company Limited, Tirunelveli, is a new industrial undertaking as defined by Section 15-C (2). but the status of the company as such has not been determined so far in the assessment proceedings. The four assessees before us are shareholders of this company and received dividends from it during the calendar years 19'4 and 1955, relevant to the assessment years 1955-56 and 1956-57. These dividends were included by the Income-tax Officer in the assessments of the shareholders notwithstanding their claim that they were entitled to exemption from tax under Section 15-C in their hands. They preferred appeals and the first series of them relating to the assessment year 195 -56 were allowed by the Appellate Assistant Commissioner on the view that set-off of earlier losses was not part of the computation of the income under Section 10 and should not affect the applicability of Section 15-C. He, therefore, directed rectification of the assessments after the Income-tax Officer satisfying himself that the company was an industrial undertaking entitled to the benefit of exemption under Section 15-C and that the computation of the company's income under Section 10 for the relevant assessment year resulted in a positive figure. Another set of appeals relating to the next assessment year were disposed of by a different Appellate Assistant Commissioner who, however, did not agree with that conclusion of his predecessor but held that Section 15-C (4) would be attracted only if there was income of the industrial undertaking on which tax was not payable. He considered that, in the computation of the income of the company, the Unabsorbed depreciation that fell to be allowed under Section 24 had to be taken as having been allowed under Section 10 itself. On that view, he dismissed the appeals. Both the Department and the assessees filed further appeals before the Tribunal For the assessees it was contended that computation of income or profits for purposes of Section 15-C should be made only in accordance with Section 10 as directed by Section 15-C (3), and into such computation the carry forward losses, including previous years' unabsorbed depreciation under Section 10(2)(vi-a) would not enter. On the other hand, for the Department it was stated before the Tribunal that it was unnecessary to look into the provisions of Section 15-C(3) when Section 15-C(4) itself provided the basis for the grant of relief and that when in both the years only losses had; accrued and there was no profit or gain on which tax was payable, the assessees were not entitled to the benefit under Section 15-C(4). In support of this contention the Department relied on Indo-Commercial Bank Limited v. Commissioner of Income-tax, Madras : 44ITR22(Mad) . The Tribunal substantially accepted the contention for the Department and disposed of the appeals on that basis. The Tribunal's reasoning: is as follows:
It is clear that the condition precedent for availability of relief to the assessee under Section 15-C is as stated in Section 15-C(1). It is also manifest that in the two relevant years, there is no amount on which the company is exempt from tax. If only out of this amount, dividends are paid or they are attributable to profits, by themselves, exempt under Section 15-C(1), that the benefit of Section 15-C(4) accrues to the assessee. When there is no such amount, there is no exemption under Section 15-C(4).
2. In taking that view, the Tribunal also considered Sub-section (3) of Section 15-C, and in its view its effect was only this:
No doubt it is true that Section 15-C(3) requires the profits and gains of an industrial undertaking, to which that section applies, to be made in accordance with the provisions of Section 10. But, as pointed out by the Appellate Assistant Commissioner, in arriving at the final profits, the carry forward of losses under Section 24(2) is mandatory. In other words, the fact of such carry forward of an unabsorbed depreciation under Section 10(2)(vi) of other losses would in effect amount to computation of income under Section 10.
3. In the circumstances, at the instance of the assessees, the Tribunal has referred to us the following question:
Whether on the facts and in the circumstances of the case, the assessees are entitled to the-benefit of Section 15-C(4) in respect of the dividend income received from Sri Ganapathy Mills. Company Limited, Tirunelveli
4. For the assessment years 1954-55 and 1955-56, the company was held in the assessment proceedings not to be entitled to the benefit of Section 15-C, as its applicability did not arise because the net result in the assessment was a loss after carry forward of previous years' losses. For the first year it was found that the company made a profit of Rs. 88,184 after allowing depreciation admissible under Section 10. But this was reduced to 'nil' amount in view of allowances of depreciation losses of previous years and the net result was a sum of Rs. 1,96,159 was carried forward on account of the depreciation losses. For the second assessment year too, the company made a profit and after giving depreciation allowances, it came to Rs. 1,95,012. Setting off the unabsorbed depreciation, a sum of Rs. 1,147 had still to be carried forward. Thus, in both the years the net result of the assessments showed 'nil' profits.
5. The contention for the assessees is that they are entitled to the benefit of Section 15-C (4) on the basis of computation made under Sub-section (3) of that section, which means, that in arriving at the profit no allowance should be made for carry forward losses, including unabsorbed depreciation for previous years under Section 10(2)(vi). Their learned Counsel further argues that merely because in the assessment of the company ''nil' profit was arrived at, and therefore, there was no occasion for the application of Section 15-C(1) to it, it does not necessarily follow from it that the assessees are not entitled to the benefit of Section 15-C(4). So far as they are concerned, they having nothing to do with the assessed profits or losses of the company; for purposes of exemption to them under Section 15-C, not the overall result of the assessment but a part of it relating to the new industry and that too as computed in accordance only with the provisions of Section 10 should be taken as the basis. On the other hand, learned Counsel for the Revenue has reiterated the contention before the Tribunal. He has pressed before us that the scope of exemption under Section 15-C(4) is dependent upon and conditioned by there being profits of the industrial undertaking on which tax is payable but for the exemption under Section 15-C (1), subject, of course, to the ceiling fixed by that provision and that if the assessment of the company resulted in a loss, there is no question of the application of Section 15-C at all. In such a case, he urges, no exemption is contemplated by Section 15-C(4). This submission for the Revenue obviously involves the idea that profits or gains of an industrial undertaking under Sub-section (1) of Section 15-C would be what have been arrived at after applying the entire machinery of assessment, including Section 10 and the set-offs and carry forward under Section 24.
6. We must confess that we have not found it easy to determine the precise scope of the exemption under Section 15-C(1) and (4) and the true significance of 'Sub-section (3). Section 15-C relates to exemption from tax of newly established industrial undertakings. The policy behind the section appears to be to grant tax concessions to such industries subject to prescribed limits, apparently with a view to encourage and sustain them. The exemption contemplated by the section is of tax on so much of the profits or gains derived from any industrial undertaking to which the section applies as did not exceed 6 per cent, per annum on the capital employed in the undertaking, the capital being computed in accordance with such rules as may be made for the purpose by the Central Board of Revenue. What sort of industrial undertaking would be entitled to the benefit of Section 15-C is defined by Sub-section (2) and the proviso to this Sub-section empowers the Central Government to direct by notification that the exemption conferred by the section shall not apply to any particular industrial undertaking. Sub-section (3) says that profits or gains of an industrial undertaking to which the section applies shall be computed in accordance with Section 10. Then comes Sub-section (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 undertakings is attributable to that part of the profits or gains on which the tax is not payable under this section.
7. It may be seen that Section 15-C(1) is confined to a part of the profits or gains of an assessee which relates to those of an industrial undertaking and is therefore, limited to a segment of the computation for purposes of total assessment. Sub-section (3) clearly points to that and directs that the profits or gains of an industrial undertaking to which the section applies, should be computed in accordance with the provisions of Section 10. We are aware that Section 10 is a general section not confined to the computation of profits or gains of an industrial undertaking. Section 10 pertains to the computation of income under the head of profits and gains of business, profession or vocation. Even without a provision like Sub-section (3) of Section 15-C, Section 10 would have been applicable to the computation of such income. If so, why does Sub-section (3) of Section 15 specifically direct that the profits or gains of an industrial undertaking, to which the section is applicable, should be computed in accordance with Section 10 In our opinion, the intention of the Sub-section appears to be that for purposes of computing the profits or gains of an industrial undertaking to which Section 15-C applies, the computation thereof should only be confined to the provisions of Section 10, that is to say, the profits or gains of an industrial undertaking should be computed in accordance with the provisions of Section 10. To put it differently, no other consideration, like Section 24, can enter into the computation of the profits or gains of an industrial undertaking to which Section 15-C applies. Profits or gains, for purposes of this section, therefore, in our view, are not net result of a computation on an application of the entire machinery of assessment. When the section speaks of profits or gains derived from an industrial undertaking, it does not appear to us that it has relation to the total results of assessment on the company, which are arrived at after making deductions, allowances and set-off of carry forward losses.
8. It is contended for the Department that the words ' tax is not payable (under this section ' in Sub-section (4) of Section 15-C contain an unmistakable indication that profits or gains of an industrial undertaking are related to the assessed profits or gains of such an undertaking, and that therefore if the assessment results in a negative figure or loss, there is no occasion for the application of Section 15-C (1). It must follow from this that there would be equally no occasion to the application of Sub-section (4) of that section in that event. Learned Counsel for the Reveuue argues that it is only where dividends have been paid out of profits or gains of an industrial undertaking which are exempt from tax subject to the limit, that exemption under Sub-section (4) of Section 15-C would come into play. We are unable to accept these contentions. Neither Sub-section (1) nor Sub-section (4) is a charging provision. Both of them relate to exemption from tax within limits. The words 'tax is not payable under this section' in Sub-section (4) are merely indicative of the scope of the exemption under Sub-section (4) which is no different or no less or more than that under Sub-section (1). On our view of the effect of Sub-section (3), it would follow that profits or gains of an industrial undertaking, for purposes of Section 15-C (1) and (4) have to be computed only in accordance with Section 10, and this is, confining the allowances to Section 10(2)(v) and (vi)(a), and without taking into account either the unabsorbed depreciation for the previous years under Section 10(2)(vi) or (vi)(a) or the unabsorbed losses under Section 24. We are of the view that even the unabsorbed depreciation under 10(2)(vi) cannot be allowed in computing the profits or gains, because proviso (b) to that clause explicitly makes the deemed allowances subject to Clause (b) of the proviso to Sub-section (2) of Section 24. In effect, in computing the profits or gains, for the purpose of Section 15-C (1) and (4) the only allowances that could be made in respect of current profits are current year's depreciation under Section 10(2)(vi) and current year's additional or extra depreciation under Section 10(2)(vi-a). The set-off of losses under Section 24(2) and allowances in respect of unabsorbed depreciation both under Section 10(2)(vi) and 10(2)(vi)(a) would not enter into the computation under Section 15, (3).
9. It is true that when the net result of assessment on the company is takers there is 'nil' profit and there might be no occasion at all for the application of Section 15-C. But, in our view, it does not follow from it that on that ground the benefit of that section can be denied to the shareholders if on a computation-of the profits and gains of the industrial undertaking under Section 15-C (3) the company had made profits out of which dividends had been paid to its shareholders. Where the company has 'nil' profits under its final assessment, the non-application of Section 15-C is not due to the fact that it made no profits and it was-not entitled to the benefit of Section 15-C (1). But, in view of the overall result of the assessment, there is no need for the company to claim exemption under that provision, as there is no tax liability at all. Viewed from this angle, we consider that the shareholders are entitled to take the position of the profits or gains of the company as computed under Sub-section (3) of Section 15-C and subject to the limits provided by that Sub-section, and claim the benefit under Section 15-C (4).
10. Learned Counsel for the Revenue strongly relied on Indo-Commercial Bank Ltd. v. Commissioner of Income-tax, Madras : 44ITR22(Mad) and pressed before us that 'profits' in Sub-section (4) of Section 15-C refer only to assessed profits attributable to the industrial undertaking, whose profits are exempt from tax under Section 15 C(1). We do not think that this case is of assistance to the Revenue. The scope of Sub-section (3) of Section 15-C and its bearing on the computation of profits and gains of an industrial undertaking, for the purpose of that section, did not arise and has not been considered in that case. It does not appear from the facts in? that case that there was any question of carry forward losses or even unabsorbed depreciation under Section 10(2)(vi-a) entering into the computation of profits or gains of the industrial undertaking there. In that case the assessee held certain ordinary and preference shares in India Cements Limited, from which it received certain dividends for the current years 1951 and 1952. They were assessed by the Income-tax Officer as income from 'other sources' for the assessment years 1952-53 and 1953-54. On appeal the Appellate Assistant Commissioner held that since the dividends were declared out of commercial profits of the company, and as the company did not suffer any tax as all its profits had been wiped off by depreciation, and there was no assessment on the company, the question of granting exemption to the dividends did not arise. It is not clear from the report whether this wiping off by depreciation related to unabsorbed depreciation or current depreciation. The question this Court had to consider in that case was whether the dividends received from the company, no part of whose income has been specifically exempted under Section 15-C, was exempt in the hands of the assessee under Section 15-C(4).
11. The answer was in those words:
What is exempted by Section 15-C(4) is dividends paid out of or attributable to profits which are themselves exempted from taxation under Section 15-C(1). The expression 'profits or gains on which the tax is not payable under this section' in Section 15-C(4) can refer only to assessed profits, the assessed profits attributable to the industrial undertaking, whose profits are exempt from tax under Section 15-C(1).
12. These observations, if we may say so with respect, should be understood in the context of the facts in that case. We do not understand the learned Judges in that case as laying down that the position would be the same even in cases where the profits of the company had been absorbed by making allowances for unabsorbed depreciation, both normal and extra, under Section 10(2)(vi) and (vi-a) and setting off carry forward losses of either category. In any case, on the facts in that case, the learned Judges had not to consider the scope of computation of profits or gains of an industrial undertaking under Sub-section (3) of Section 15-C.
13. The other cases cited before us Ashok Motors Ltd. v. Commissioner of Income-tax : 41ITR397(Mad) and Commissioner of Income-tax, Madras v. Standard Motor Products of India Limited : 46ITR14(Cal) do not bear precisely on the question we are called upon to answer. Commissioner of Income-tax v. National Electrical Industries Limited : AIR1959Bom421 only laid down that Section 15-C did not provide for any deduction from the income the contention of the assessee in that case being that so much of the profits derived from the newly established undertaking to which that section applied as did not exceed six per cent, per annum on the capital employed in the undertaking were to be excluded in the computation of total income.
14. We answer the question referred to us against the Department and in favour of the assessees with costs, which include the institution fee paid by the assessees. Counsel's fee Rs. 250 one set.
15. We have not considered the question whether Sri Ganapathy Mills Co., Ltd. is a new industrial undertaking within the meaning of Section 15-C (2). That is-a matter for independent determination by the appropriate authority.