1974 (11) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Scope and ambit of Section 80K of the Income-tax Act, 1961.
2. Entitlement and actual absorption of relief under Section 80J of the Income-tax Act, 1961.
3. Validity of certificates issued under Section 197(3) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Scope and Ambit of Section 80K of the Income-tax Act, 1961:

The primary issue revolves around whether shareholders are entitled to relief under Section 80K if the company is entitled to relief under Section 80J, irrespective of the actual absorption of such relief. The court noted that the shareholders 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. The court emphasized that the crucial question is 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.

2. Entitlement and Actual Absorption of Relief under Section 80J:

The court examined whether the company's entitlement to relief under Section 80J is sufficient for shareholders to claim relief under Section 80K, or if the actual absorption of the relief is necessary. The revenue contended that 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 due to paucity of profits or backlog of development rebate. The court referred to the Supreme Court decision in Commissioner of Income-tax v. S. S. Sivan Pillai, which held that shareholders were not entitled to exemption under Section 15C(4) if the company had no taxable profits due to unabsorbed depreciation. However, the court distinguished the current provisions of Sections 80J and 80K from the earlier provisions of Section 15C, highlighting that under the present provisions, the relief under Section 80J can be carried forward and set off against future profits, thus allowing for a different interpretation.

3. Validity of Certificates Issued under Section 197(3):

The court addressed the validity of the Income-tax Officer's refusal to issue certificates under Section 197(3) for the year 1970 and the cancellation of certificates for the years 1968-69, 1969-70, and 1970-71. The court held that the company is entitled to the certificates under Section 197(3) as the shareholders are entitled to relief under Section 80K if the company is entitled to relief under Section 80J, irrespective of whether the relief was actually absorbed by the company. The court emphasized that the company's entitlement to relief under Section 80J should be sufficient for shareholders to claim relief under Section 80K, and the Income-tax Officer should determine the appropriate proportion of the dividend to be deducted under the provisions of Section 80K.

Conclusion:

The writ petitions were allowed, and the rule nisi was made absolute. The court concluded that the company is entitled to the certificates under Section 197(3), and the shareholders are entitled to relief under Section 80K based on the company's entitlement to relief under Section 80J, irrespective of the actual absorption of such relief. The petitioner was awarded costs in W.P. No. 1636 of 1971, with no order as to costs in the other writ petitions.