TMI Blog1972 (8) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... led to the benefit of tax exemption under section 84 of the Income-tax Act, 1961 (hereinafter called "the Act") as it stood before the section was deleted by the Finance Act, 1967. The original assessment was taken up in appeal by the assessee before the Appellate Assistant Commissioner who modified the Income-tax Officer's order and as a consequence of the order on appeal, the Income-tax Officer passed an order under section 155 in which the total income was determined at Rs. 2,07,466 as shown below : Rs. Rs. Profit from valves division... 11,27,000 Loss from : Equipment division 3,43,534 Transistor " 2,86,000 Capacitor " 2,90,000 ---------------- 9,19,534 ----------------- Net income 2,07,466 ----------------- S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the Tribunal allowed the department's appeal and restored the order of the Income-tax Officer. On the application of the assessee under section 256(1) of the Act, the Tribunal has referred the following question to this court : " Whether, on the facts of the case, it has been rightly held that the assessee-company was not entitled to relief under section 84 of a sum of Rs. 4,19,040 on the basis of the interpretation of section 84 and section 110 of the Income-tax Act, 1961, but only entitled to a relief of Rs. 2,11,574 ?" Section 84 of the Act which has been deleted by the Finance Act of 1967 with effect from 1st April, 1968, provided that : "......income-tax shall not be payable by an assessee on so much of the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red firm. During the relevant period the registered firms incurred losses and the unregistered firm showed profit which was taxed on the firm in accordance with section 23(5)(b) of the 1922 Act. The share of the assessee in the profit of the unregistered firm amounted to Rs. 26,110 and his share of the losses in the registered firms amounted to Rs. 13,167. The assessee had a small income of Rs. 262 which had to be taxed at the rate applicable to his total income. The assessee contended that his share of the profit in the unregistered firm should be ignored entirely in ascertaining his total income and that he was entitled to carry forward the loss of Rs. 13,167 to the succeeding year under section 24(2) of the 1922 Act. It was held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years and the depreciation and when it was found that the total income for the assessment year 1952-53 was exhausted, the benefit of section 15C was not given. If the benefit of exemption from payment of tax was given to the assessee before the loss carried forward from the previous year and the unabsorbed depreciation of the previous year were allowed out of the profits, full provision could not be made for the latter allowances in the year of assessment. But the assessee would have been permitted to carry forward the loss to the next assessment year and the unabsorbed depreciation could be treated as depreciation for the subsequent year. The question referred was "whether, on the facts and circumstances of the case, the loss brought forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the affirmative and against the assessee. In Orissa Cement case the question was whether the balance of unabsorbed exemption computed under section 15C could be carried forward to be set off against future profits. The court observed that there is a well-recognised distinction between a permissible deduction from income and exemption of a certain income from taxation and that the two are not benefits of the same category and become allowable to the assessee at different stages of assessment. It was pointed out that the basis of eligibility for exemption is the existence of profits and gains from a newly established industrial undertaking and that the benefit of exemption cannot be extended to the year when it does not make any prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 20(10) as follows : " 'average rate of income-tax' means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income." In other words, section 110 provides for allowing rebate on income on which no income-tax is payable. Where the total income includes income on which no tax is payable, as under section 84, the mode of calculation of tax is as under section 110 by working out the tax payable as well as the rebate to be given on the exempted income. Section 84 was deleted by the Finance Act of 1967 and substituted by section 80J with effect from April 1, 1968. In section 80J, the legislature has expressly provided for deduction of six per cent. on the capital employed in the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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