TMI Blog1975 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act"). The 1st petitioner is the Coromandel Fertilisers Ltd., a company registered under the Companies Act and the 2nd petitioner is the shareholder in the 1st petitioner-company (hereinafter referred to as "the company") holding 200 equity shares in the paid up capital of the company out of the total number of 95,82,010 equity shares issued by the company. The company was incorporated on 16th October, 1961, for the manfacture of fertilisers at its factory at Visakapatnam. The company commenced production in December, 1967. The first year for which the company was assessed to income-tax as an industrial undertaking was the assessment year 1969-70. The assessment for that year was completed by the Income-tax Officer by his orders dated November 23, 1972, and January 4, 1973. The assessment orders disclose a sum of Rs. 11,10,176 being carried forward as unabsorbed losses to the succeeding year and a sum of Rs. 9,73,861 being carried forward as an unabsorbed depreciation to the subsequent year. It is the case of the petitioners that under section 80J an assessee is entitled to claim deduction in computing his total income of 6% of the capital employed by the assessee in a new in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended the declaration of a maiden dividend of Rs. 76,65,608 out of the profits of 1972. On 3rd March, 1973, the company addressed a letter to the Income-tax Officer (1st respondent) seeking a certificate under section 197(3) stating that the dividend payable by it would qualify for deduction under the provisions of section 80K in the hands of the shareholders of the company and, therefore, tax need not be deducted at source from the said payment. 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 request was rejected by the 1st respondent stating that the shareholders are not entitled to the benefit of section 80K. On learning from the directors of the company that the company had recommended dividend at the rate of 8% of the capital to be paid to the shareholders, 2nd petitioner, a shareholder, wrote on March 29, 1973, to the company stating that he expected that the dividends should not be taxable in computing his income by virtue of section 80K and he hoped that the company would be taking suitable steps to obtain a non-deduction of tax at source certificate under section 197(3). It is the refusal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this behalf, be allowed, in computing his total income a deduction from such income by way of dividends of an amount equal to such part thereof as is attributable to the profits and gains derived by the company from an industrial undertaking or ship or the business of a hotel, on which no tax is payable by the company under this Act for any assessment year commencing prior to the 1st day of April, 1968, or in respect of which the company is entitled to a deduction under section 80J for the assessment year commencing on the 1st day of April, 1968, or for any subsequent assessment year." Section 80J, to the extent material, reads : " 80J. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the aggregate of the deductions, if any, admissible to the assessee under section 80H and section 80-I) of so much of the amount thereof as does not exceed the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst such profits and gains for the next following assessment year and if and so far as such deficiency cannot be wholly so set off, it shall be set off against such profits and gains assessable for the next following assessment year and so on." Section 80J deals with exemption from payment of income-tax from out of the profits of new industrial undertakings, ships and hotels, up to an extent of 6% per annum on the capital employed, which fulfil certain conditions. So far as industrial undertakings are concerned, the conditions to be fulfilled by them are detailed in sub-section (4) of section 80J. Section 15C(1) of the 1922 Act corresponds to section 80J and sub-section (4) thereof corresponds to section 80K. Section 15C, to the extent material, reads : " 15C. (1) Save as otherwise hereinafter provided, the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking or hotel to which this section applies as do not exceed six per cent. per annum on the capital employed in the undertaking or hotel, computed in accordance with such rules as may be made in this behalf by the Central Board of Revenue....... (3) The profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is attributable to that part of the profits or gains on which the tax was not payable by the undertaking." In that view, it was held that the shareholders in an industrial undertaking, to which section 15C applied, were not entitled to the exemption under section 15C(4) in relation to the dividends received from the company since owing to the unabsorbed depreciation of earlier years admissible under section 10(2)(vi) and (via) the company had no taxable profits in the relevant years. The absence of the words "or in respect of which the company is entitled to a deduction under section 80J for the assessment year commencing on the 1st day of April, 1968, or for any subsequent assessment year" in section 15C(4) of the 1922 Act is very significant. It is not necessary that, in order that a shareholder should have the benefit of deduction under section 80K in respect of dividends attributable to profits or gains from new industrial undertakings, the company should have been actually allowed deduction under section 80J. It would suffice "if the company is entitled to deduction under section 80J". That was not the scheme of section 15C. As pointed out by Shah J. even if the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of which the company is entitled to. That is the scope of section 80K. We are, therefore, of the view that the shareholders are entitled to the issue of a certificate under section 197(3) as prayed for in the writ petitions. The impugned orders are, therefore, quashed and the writ petitions are allowed. No costs. JUDGMENT OF THE SUPREME COURT The judgment of the court was delivered by GOSWAMI J.- An important question of law as to the interpretation of section, 80K of the Income-tax Act, 1961 (briefly "the Act"), is raised in these four appeals by special leave. M/s. Coromandel Fertilizers Ltd. (first respondent) is a registered company incorporated on October 16, 196 1, under the Companies Act and the second respondent is one of its shareholders holding two hundred equity shares in the paid-up capital of the company out of a total number of 95,82,010 equity shares issued by it. The company was engaged in manufacture of fertilisers at its factory at Visakhapatnam and it commenced production in December, 1967. There is no dispute that the company as such fulfilled the appropriate conditions laid down under sub-section (4) of section 80J of the Act to qual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors, at their meeting held on March 14, 1973, recommended declaration of a maiden dividend of Rs. 76,65,608 out of the profits of that year. The company represented to the Income-tax Officer on March 3, 1973, seeking a certificate under section 197(3) of the Act pointing out that the dividend payable by it would qualify for deduction in the hands of the shareholders under section 80K of the Act. The company sought permission of the Income-tax Officer not to deduct tax at source out of the dividend payable to the shareholders. The request of the company was rejected by the Income-tax Officer holding that the shareholders were not entitled to the benefit of section 80K of the Act. On coming to know about the declaration of the divided by the company, even the respondent-shareholder had also requested the company to obtain the necessary certificate. The refusal of their request led to the institution of writ applications by the respondents before the High Court of Andhra Pradesh. According to the High Court the shareholders are entitled to claim deduction under section 80K of the Act and the company was entitled to an order of the Income-tax Officer under section 197(3) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at part of the profits or gains on which the tax was not payable by the undertaking. The company had no taxable profit in the year of account; it did not accordingly qualify for exemption from payment of tax under sub-section (1), and since there was no such taxable profit, the dividend received by the shareholders could not be said to be attributable to that part of the profits or gains on which the tax was not payable under sub-section (1). On the plain terms of section 15C the shareholders cannot obtain the benefit of exemption from payment of tax...... The right of the shareholders to obtain the benefit of exemption under section 15C(4) depends upon the company obtaining the benefit of exemption under sub-section (1) of section 15C, for the exemption from payment of tax on the dividend received by the shareholders is admissible only on that part of the profits or gains on which the tax is not payable by the company under sub-section (1)." As will be shown later this decision will not be of aid to the appellants in view of the changes in the law. With a view to offer incentive to investment, section 15C of the old Act was dealing with the principle of truce with tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the deductions, if any, admissible under section 80H, section 80-I and the said sub-section (1)] in respect of the previous year relevant to the next following assessment year, and, if there are no such profits and gains for that assessment year, or where the deficiency exceeds such profits and gains, the whole or balance of the deficiency, as the case may be, shall be set off against such profits and gains for the next following assessment year and if and so far as such deficiency cannot be wholly so set off, it shall be set off against such profits and gains assessable for the next following assessment year and so on: Provided that- (i) in no case shall the deficiency or any part thereof be carried forward beyond the seventh assessment year as reckoned from the end of the initial assessment year, (ii) where there is more than one deficiency and each such deficiency relates to a different assessment year, the deficiency which relates to an earlier assessment year shall be set off under this sub-section before setting off the deficiency in relation to a later assessment year : Provided further that in the case of an assessee being a co-operative society, the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount in question in the particular assessment year. As against actual deduction the company's entitlement to deduction in the relevant year is enough to answer the requirement of section 80J. Necessarily, therefore, the dividend-earner will also be entitled to invoke section 80K and obtain pari passu the benefit of the provision. It is submitted on behalf of the appellants that unless there is actual deduction under section 80J, the shareholder is not entitled to claim benefit under section 80K. The appellants further contend that section 80A(2) of the Act is a complete answer to the Claim of the respondents. By sub-section (2) of section 80A the entire amount of deduction under Chapter VI-A shall not in any case exceed the gross total income of the assessee. It was, therefore, submitted that as there were no assessable incomes of the company in the particular years, the question of deduction of the monetary benefit by the shareholder would not arise. We are unable to accept this submission. Under old section 15C, the shareholder was entitled to relief only when the company was able to get actual deduction. Both were at par. The parity has been sought to be maintained under t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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