1959 (6) TMI 30 - HC - Income Tax

Summary

Issues:
1. Priority between exemption under section 15C and set-off of loss under section 24(2) in income tax assessment.

Analysis:
The case involved the assessment years 1952-53 and 1953-54, where the assessee company, a newly established industrial undertaking, had suffered a loss in the previous year and was entitled to exemption under section 15C of the Income Tax Act. The Income Tax Officer did not grant the benefit of exemption to the assessee before setting off the loss carried forward from the previous year and unabsorbed depreciation. The Appellate Tribunal directed the Income Tax Officer to provide the benefit of exemption under section 15C before setting off the loss from the previous year.

The primary question was the priority between the benefit of exemption under section 15C and the set-off of loss under section 24(2) when the set-off did not leave adequate taxable income for the exemption to be realized. The court analyzed the scheme of the Income Tax Act, emphasizing that the total income must be computed first, including deductions and losses, before granting the benefit of exemption under section 15C. The court clarified that the exemption under section 15C is not an exclusion of income but a partial exemption from tax for newly established undertakings.

The court rejected the contention that the exemption under section 15C should be given priority over the set-off of losses from previous years. It highlighted that there was no provision in the Act giving priority to set-off of losses over the exemption under section 15C. The court emphasized that while section 24(2) dealt with deductions from assessable income, section 15C provided for an exemption from tax, and set-off of losses should not be postponed for the benefit of section 15C.

Ultimately, the court reframed the question and answered in the affirmative, stating that the benefit of exemption under section 15C should be provided before setting off the loss from the previous year. The court held the assessee liable to pay the costs of the Commissioner, and the reference was answered accordingly.