9911796707
TMI Blog1975 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... actory 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 industrial undertaking which fulfils certain conditions. If the profits and gains are not sufficient to absorb the deduction allowable under section 80J the assessee is entitled to have, to the extent of such deduction which is not absorbed, carried forward to the subsequent year under clause (3) of section 80J. The capital employed by the company in its new industrial undertaking was Rs. 48,87,38,018 and 6% thereof amounted to Rs. 2,93,24,281. Out of this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 the certificate by the Income-tax Officer under section 197(3) that led to the filing of these four writ petitions for the issue of a writ of certiorari quashing the order of the Ist respondent in G. I. R. No. 7-C, P. A. No. 42-008-Ct-8204/Hyd/Com-A dated March 5, 1973. Mr. F. N. Kaka appearing for the petitioners contended that what has to be shown by the shareholder under section 80K is that the company is entitled to deduction under section 80J and it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year). (2) The deduction specified in sub-section (1) shall be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 profits or gains of an industrial undertaking or a hotel to which this section applies shall be computed in accordance with the provisions of section 10. (4) The tax shall not be payable by a shareholder in respect of so much of any dividend paid or deemed to be paid to him by an industrial undertaking or a hotel as is attributable to that part of the profits or gains on which the tax is not payable under this section. Explanation.-The amount of dividend in respect of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 undertaking has earned profits out of its commercial activity, if it has no taxable profits it cannot claim exemption from payment of tax under section 15C(1) and if the undertaking cannot claim the benefit under sub-section (1) the shareholders will not get the benefit under sub-section (4) for there is no dividend paid which is attributable to that part of the profits or gains on which the tax was not payable by the undertaking under sub-section (1). Therefore, having regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 qualify for deduction in respect of profits up to an extent of six per cent. per annum on the capital employed in respect of profit for the purpose of computation of tax. The company was assessed to income-tax as an industrial undertaking for the first time for the assessment year 1969-70. The orders of assessment were passed on November 23, 1972, and January 4, 1973. The said orders disclosed a sum of Rs. 11,10,176, being carried forward as unabsorbed losses to the succeeding year and a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 issuing a certificate enabling it not to deduct tax out of the dividend payable to the shareholders. It is submitted on behalf of the appellants that the question raised is governed by a decision of this court in Commissioner of Income-tax v. S. S. Sivan Pillai. In that case, this court was required to consider the provisions of section 15C of the Indian Income-tax Act, 1922 (briefly "the old Act"), which was largely different from the present sections with which we are concerned in these ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for a limited period or what is described as tax holiday benefit with which we are concerned. The Finance (No. 2) Act of 1967 substituted the earlier provisions in that behalf in Chapter VI-A in the Income-tax Act, 1961, with effect from April 1, 1968. We will, therefore, read the provisions of the material sections in this Chapter, namely, sub-sections (1) and (3) of section 80J and section 80K : "80J. (1) Where the gross total income of an assessee includes any profits and gains derived from an industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of this sub-section shall have effect as if for the words 'fourth assessment year', the words 'sixth assessment year' had been substituted." " 80K. Where the gross total income of an assessee, being the owner of any share or shares in a company.......includes any income by way of dividends paid or deemed to have been paid by the company in respect of such share or shares, there shall, subject to any rules that may be made by the Board in this behalf, be allowed, in computing his total income, a deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the amended provisions of sections 80J and 80K between the company and the shareholder. The company, when it becomes entitled to deduction under section 80J(1), gets it either in that year or by a set-off in subsequent years. If the interpretations which we have put to the new sections were not to hold good, the result will be that the shareholder will be debarred from getting any relief when dividend is declared in a year in which the company, because of section 80A(2), is not able to get actual deduction. The compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
