9911796707
TMI Blog1983 (11) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 72,359 1976-77 2,09,346 1977-78 13,13,493 ------------ 15,95,198 ------------ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 21,26,938 1972-73 41,97,657 ------------ 72,38,252 The petitioner also declared dividend for the assessment years 1970-71 to 1977-78 as under : ------------------------------------------------------------------- Accounting Assessment Dividend Date of Date of payment year declared declaration of divid- Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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. According to the petitioner, the order passed by the first respondent is based on a complete misconstruction or misinterpretation Of T. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 commencing on the first day of April, 1968, or for any subsequent 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 the person receiving dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be entitled to claim the benefit of s. 80K with reference to his income by way of dividend from the said company. In South India Shipping Corporation Ltd. v. ITO [1976] 103 ITR (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 shareholder 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguage 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. 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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's 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 the shareholder can claim relief under s. 80K, it m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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