TMI Blog1983 (11) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, hereinafter referred to as the Act, effective from the assessment year 1975-76. The ITO quantified the exemption under s. 80J in respect of this unit for the following assessment years as follows : Rs. 1975-76 72,359 1976-77 2,09,346 1977-78 13,13,493 ------------ 15,95,198 ------------ The petitioner made an application for a certificate under s. 197(3) of the Act in respect of the dividends declared by them out of their profits for the year ended December 31, 1976. The ITO provisionally quantified the exempted portion of the dividend at 19.76% and issued a certificate on May 12, 1977. In doing so, the ITO took into consideration the profits exempt under s. 80-J as per the details given below : Rs. 1975-76 72,359 1976-77 2,69,346 1977-78 3,99,381 ---------- 7,41,086 ---------- The petitioner had also started a new industrial undertaking called "Cold Roll Mill Unit II" in February, 1967, and the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les that only 13.22% of the dividend could be treated as having come out of the profits of the petitioner as is attributable to the benefit available to it under s. 80J of the Act in relation to its Third Tube Mill. Aggrieved by the certificate issued by the ITO, the company filed a revision before the Commissioner of Income-tax, the first respondent herein, under s. 263 of the Act praying that the certificate issued for the assessment year 1977-78 by the ITO be revised and the petitioner be granted a certificate under s. 197(3) to the effect that the entire dividend of Rs. 37,50,000 would be tax-free in the hands of the shareholders under s. 80K of the Act. The petitioner also filed before the Commissioner statement showing how the entire dividend of Rs. 37,50,000 should be exempted under s. 80K. The petitioner also contended before the first respondent that the construction placed by the ITO on r. 20 of the I.T. Rules was opposed to law. However, the first respondent passed the impugned order dated June 24, 1978, declining to interfere with the certificate dated May 19, 1978, issued by the ITO. Questioning that order of the first respondent the present writ petition has been file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy in relation to a later assessment year. Section 80K provides for deduction in respect of dividends attributable to profits and gains from a new industrial undertaking in the case of the owners of the shares and that section says that where the gross total income of an assessee included that income by way of dividends in respect of shares held by him in any new industrial undertaking, in computing his total income, a deduction shall be allowed of an amount equal to such part thereof as is attributable to the profits and gains derived by the company from a new industrial undertaking on which no tax is payable by the company under the provisions of this Act for any assessment year commencing prior to the first day of April, 1968, or in respect of which the company is entitled to deduction under s. 80J for the assessment year commencing on the first day of April, 1968, or for any subsequent assessment year. Section 194 dealing with dividends directs a company paying the dividends to deduct from the dividend income-tax at the rates in force provided the ITO gives a certificate in writing in the prescribed manner that the total income of the shareholders will be less than the minimum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward for adjustment during the subsequent year. Similarly, the unabsorbed allowance under s. 80J was carried forward up to the year 1973-74 and in the year 1973-74 after setting off of the brought-forward allowance, the company was not assessable to any taxable income for that year. The company made a profit of Rs. 4.55 crores in 1972 and the board of directors recommended the declaration of a maiden dividend of Rs. 76,65,608 out of the profits of the year 1972. On March 3, 1973, the company addressed letter to the ITO for a certificate under s. 197(3) of the Act stating that the dividend payable by it would qualify for deduction under the provisions of s. 80K in the hands of the shareholders of the company and, therefore, tax need not be deducted at source from the said payment on the ground that 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 said request of the company was rejected by the ITO stating that the shareholders are not entitled to the benefit of s. 80K. Thereafter the company and some of the shareholders filed writ petitions for quashing the order of the ITO refusing to issue a certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80K and obtain pari passu the benefit of that provision. From the said decision of the Supreme Court, it is clear that even though the company may not be able to actually claim the benefit of s. 80J in a particular year in view of paucity of profits, the shareholder will be entitled to claim the benefit of s. 80K with reference to his income by way of dividend from the said company. In South India Shipping Corporation Ltd. v. ITO [1976] 103 ITR (Mad), a somewhat similar question arose before this court and a Division Bench of this court, to which one of us was a party, held that if in the total income of a company as computed, whether it be profit or loss, the profits and gains of a new industrial undertaking had been included, then the company is entitled to the benefit of s. 80J and it is because of this entitlement of the company to the relief under s. 80J, the deficiency has been allowed to be carried forward and set off against income of the subsequent years. In that case also, the ITO refused to issue a certificate under s. 197(3) of the Act on the ground that the shareholder should be entitled to the benefit of 80K only if the company had actually obtained deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation is that the administrative authorities or the courts should not whittle down the plenitude of the exemption or relief granted by Parliament by laying stress on any ambiguity here or there and that though ordinarily any statute would have to be construed on the language it employs in the case of a fiscal statute, the rule is that if there are two ways in which a provision could be construed, the construction most beneficial to the subject should be adopted. The respondents have filed a counter-affidavit stating that the Cold Roll Mill Unit II and the Third Tube Mill are independent undertakings and the profits and gains of the Cold Roll Mill Unit II which is eligible for exemption under s. 80J have been exhausted even in the years 1970-71, 1971-72 and 1972-73 and no profits of that industrial undertaking, namely, Cold Roll Mill Unit II, is available to be carried forward and declared as dividend in any subsequent years and that after the assessment year 1975-76, Cold Roll Mill Unit II ceased to be eligible for the relief under s. 80J, and, hence, any dividend declared subsequent to 1974-75 cannot include such profits from Cold Roll Mill Unit II which is eligible for the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, namely, 1970-71 to 1972-73, preceding the relevant previous year, namely, 1978-79, is not relevant. The Revenue also relies on the circulars of the Central Board of Direct Taxes making the production of the certificate under s. 203 a condition precedent for giving relief under s. 80K (sic) cannot be taken to curtail the allowability of deduction under s. 80K and the same cannot be said to be ultra vires. We are not inclined to agree with the submission of the learned counsel for the Revenue. Rule 20(2) refers to the deduction allowable under s. 80J and not to a deduction actually allowed under s. 80J. According to the Revenue, however, no amount is allowable as deduction under s. 80J as the conditions requisite for such allowance are not satisfied. It is said that no certificate has been given under s. 203 and there has been no quantification of the portion of the dividends attributable to profits and gains from new industrial undertaking as contemplated by rule 20. In this case, though the company claimed relief under s. 80J, the ITO held that the company is not entitled to that relief and, therefore, the company could not have issued a certificate at any time prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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