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TMI Blog1974 (11) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ious ports of the world. 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 said allowances, 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) 1,21,67,277 Assessment year 1969-70 (account year-calendar year 1968) 1,15,76,642 -------------------- Total relief under section 80J as determined by the Income-tax Officer 2,37,43,919 -------------------- 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this order which has been impugned in Writ Petition No. 1636 of 1971. 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. If the shareholders are 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits. 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. 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). 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. At this stage, it is necessary to refer to the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alingam's report which suggested that instead of, rebate being given on profits on newly established industrial undertakings at six per cent. of the average capital employed by the business, a straight deduction of six per cent. of such capital may be allowed every year, and that where the profits actually earned are less than six per cent. the difference may be allowed to be carried forward and adjusted against such profits for 6 years as in the case of business loss. Construing the earlier provision in section 15C(4) this court in S. S. Sivan Pillai v. Commissioner of Income-tax expressed the view that the 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 computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits or gains on which the tax was not payable by the undertaking under sub-section (1). 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 ? 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 forwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency 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 carry-forward 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. In Orissa Cement Ltd. v. Commissioner of Income-tax, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany'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 actually obtained deduction under section 80J and it is enough if the company is entitled to such deduction. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that 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. 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 undert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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