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TMI Blog1978 (10) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ttedly satisfied the requirement of s. 15C(2) of the Indian I.T. Act, 1922. The profit, depreciation and development rebate in respect of this new unit for the assessment years 1959-60 and 1960-61 were as follows : Year Profit Depreciation and development rebate Rs. Rs. 1959-60 33,118 1,44,361 5,07,336 (development rebate) 1960-61 3,64,672 3,19,591 1,17,205 (development rebate) 3,97,790 10,88,493 In the assessment year 1959-60, the total profit of the assessee in respect of its old and new units came to Rs. 2,42,432, including Rs. 33,118 in respect of the new unit and the total depreciation amounted to Rs. 2,66,651 including Rs. 1,44,361 in respect of the new unit and after setting off the amount of depreciation against the total profit, a sum of Rs. 24,183 remained as unabsorbed depreciation which was carried forward to the next year. The entire development rebate, which included Rs. 5,07,336 in respect of the new unit, also remained unabsorbed owing to the smallness of the profit and that too had to be carried forward. The total profit of the assessee in respect of its old and new units for the assessment year 1960-61 was Rs. 14,13,604 inclusive o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ITO took the view that the benefit of s. 15C, sub-s. (1), could be claimed by the assessee only if there was any profit derived from the new unit and since this profit was, by reason of sub-s. (3) of s. 15C, required to be computed in accordance with the provisions of s. 10, it was necessary to work out the trading result of the new unit without reference to any other activity carried on by the assessee and if that was done, the result would clearly show that there was a loss in the working of the new unit in the assessment year 1961-62. The computation made by the ITO was as under. The total depreciation and development rebate in respect of the new unit for the assessment years 1959-60 and 1960-61 was Rs. 10,88,493, while the profit for these two assessment years came to only Rs. 3,97,790 so that, taking into account only the trading result of the new unit as if that was the only source of income of the assessee during the assessment years 1959-60 and 1960-61, a sum of Rs. 6,90,703 representing the excess of depreciation and development rebate over profit remained unabsorbed to be carried forward to the next assessment year 1961-62. If this carried forward depreciation and dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reference by the assessee and on the application, the Tribunal stated a case and referred the following question of law for the opinion of the High Court : " Whether, on the facts and in the circumstances of the case, the assessee-company was entitled to the relief under s. 15C(2). " The High Court agreed with the view taken by the Tribunal and proceeding on the assumption that for the purpose of determining the applicability of s. 15C, sub-s. (1), the new unit was required to be treated in isolation, as if no other income producing activity was carried on by the assessee, the High Court observed that there was unabsorbed depreciation and development rebate of Rs. 6,90,703 in respect of the new unit which was required to be carried forward and set off against the profit of Rs. 1,36,822 derived from the new unit in the assessment year 1961-62 and since that left the new unit in a, resultant position of loss, the assessee was not entitled to claim the benefit of the exemption under s. 15C , sub-s. (1). The High Court accordingly answered the question referred by the Tribunal in favour of the revenue and against the assessee. The assessee thereupon preferred the present Civil App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains derived from the new industrial undertaking in the assessment year in question before any claim for exemption can be sustained under s. 15C, sub-s. (1). If there are no profits or gains derived from the new industrial undertaking in any particular assessment year, there can be no question of any exemption, because it is only where there are such profits or gains that to the extent of 6% per annum of the capital employed, they become eligible for exemption. The first question which must, therefore, arise for consideration in every case where a claim for exemption is made under s. 15C, sub-s. (1), is whether there are any profits or gains derived from the new industrial undertaking in the assessment year in question, and if so, what is the quantum of such profits or gains. Now, sub-s. (3) of s. 15C says that the profits or gains of a new industrial undertaking shall be computed in accordance with the provisions of s. 10 and since, under the income-tax law, every assessment year is a self-contained period, the profits and gains of the new industrial undertaking must be computed for the particular assessment year in respect of which the claim for exemption is made, by applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubted effect of s. 24, sub-s. (1), as explained in CIT v. Indo-Mercantile Bank Ltd. [1959] 36 ITR 1, 6 (SC). But what would happen if still some part of the depreciation allowance remains unabsorbed. The answer is provided by prov. (b) to cl. (vi) of s. 10(2), which reads as follows : " Provided that--...... (b) Where (in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its partners), full effect cannot be given to any such allowance in any year (not being a year which ended prior to the 1st day of April, 1939), owing to their being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance (then, subject to the provisions of clause (b) of the proviso to sub-section (2) of section 24), the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years. " It is clear on a plain reading of the language ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar are to be computed under s. 10, the current depreciation allowance for the assessment year in question is deductible under cl. (vi), but the depreciation allowance of the preceding years would be liable to be taken into account only if, and to the extent to which, it is not absorbed by the total income of the assessee computed under different heads and chargeable to tax for those assessment years. The position in regard to development rebate is the same. The relevant provision in that behalf is to be found in cl. (vib) of sub-s. (2) of s. 10 That clause, in so far as material, provides as follows : " 10. (2) Such profits or gains shall be computed after making the following allowances, namely :--... (vib) in respect of...... new machinery or plant installed after the 31st day of March, 1954, which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year...... of the installation of the machinery or plant, equivalent (ii) in the case of machinery or plant installed before the 1st day of April, 1961, twenty-five per cent. and in the case of machinery or plant installed after the 31st day of March, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under any of the chargeable heads and it is only if some part of the development rebate still remains outstanding that it can be carried forward to the following assessment year and set off against the total income of the assessee for that year. The amount of the development rebate is to be set off against the total income of the assessee and not merely against the profits or gains of the particular business in respect of which the development rebate is granted and so also the development rebate which remains unabsorbed and is carried forward to the next assessment year is, by reason of cl. (ii) of Expl. 1, to be set off not merely against the profits or gains of the particular business but against the total income of the assessee for that year. It would, therefore, be seen that it is only where the amount of development rebate has not been fully set off against the total income of the assessee in the past assessment years and a part of it still remains unabsorbed and is carried forward to the assessment year ill question that it can be allowed against the profits or gains of the business for the particular assessment year and if there is still some balance outstanding, then again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 15C or in any other provision of the Act which requires that in computing the profits or gains of a new industrial undertaking under s. 10, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years should be taken into account, even if it has been set off fully against the profits or gains of any other business carried on by the assessee or against income under any other head and there is no unabsorbed depreciation allowance or development rebate to be carried forward. It is indeed difficult to see how effect can be given to depreciation allowance and development rebate twice over, once in the past assessment years and again in the assessment year in question. To give effect to depreciation allowance or development rebate for the past assessment years, even though it has been set off and absorbed completely against the total income of the assessee for those assessment years would be to allow a deduction not warranted by any provision of the Act and indeed it would be going contrary to the express provision of prov. (b) to cl. (vi) and Expl. 1 to cl. (vib). Sub-s. (3) of s. 15C clearly does not have any such effect. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation allowance and development rebate which have been set off against the other income of the assessee for the past assessment years would not be liable to be taken into account, they would have to be deducted in computing the profits or gains of the business for the purpose of applicability of sub-s. (1) of s. 15C. Thus, there would be two different modes of determining the profits or gains of the business, one for computing the total income chargeable to tax and the other for applying the provisions of sub-s. (1) of s. 15C. We cannot imagine that such a consequence could ever have been intended by the legislature. We find in the present case from the undisputed figures on record that the whole of the depreciation allowance of Rs. 1,44,361 in respect of the new industrial undertaking for the assessment year 1959-60 could not be absorbed owing to the total profit of the assessee being insufficient and a sum of Rs. 24,183 remained as unabsorbed depreciation which was carried forward to the assessment year 1960-61. The entire development rebate of Rs. 5,07,336 also remained unabsorbed and had to be carried forward to the assessment year 1960-61. But during the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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