The result was that numberpart of the depreciation or development rebate for the assessment years 1959 60 and 1960 61 remained unabsorbed to be carried forward to the next assessment year 1961 62.
The assessee thereupon preferred the present Civil Appeal No.
From the Judgments and orders dated 3 1 1970 and 18 1 1973 of the Madras High Court in Tax Case Nos.
B. Ahuja and Miss A. Subhashini for the Respondent in C.A. 2418/77.
1,36,822/ representing the income from the new unit.
12,69,403/ which included sum of Rs.
The Tribunal took the view that the trading result of the new unit must be companysidered as if it stood by itself, ignoring every other income producing activity of the assesse and if that was done, it was clear that there was an unabsorbed depreciation and development rebate of Rs.
Ramamurthi and Miss R. Vaigai for the Appellant in A. 2418/77.
The High Court in view of its decision for the earlier assessment year, decided against the assessee and hence, the present Civil Appeal No.
The appeal was successful and the Tribunal set aside the order of the Appellate Assistant Commissioner and restored that of the Income Tax Officer.
EXPLANATION The amount of dividend in respect of which the tax is number payable under this sub section shall be companyputed in accordance with such rules as may be made in this behalf by the Central Board of Revenue.
N. Bajoria, P. V. Kapur, U. K. Khaitan, Praveen Kumar and R. K. Chaudhary for the Intervener M s Orient Paper Mills Ltd. The Judgment of the Court was delivered by BHAGWATI J., These two appeals by special leave raise a short but interesting question of Law relating to the interpretation of sections 15C of the Indian Income Tax Act, 1922 and section 84 of the Income Tax Act, 1961.
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 section 15C, sub section 1 , the new unit was required to be treated in isolation, as if numberother income producing activity was carried on by the assessee, the High Court observed that there was unabsorbed depreciation and development rebate of Rs.
The same question also arose in the assessment of the assessee to tax for the assessment year 1962 63, but in this assessment year the law in force was the Income Tax Act, 1961 which had companye into force with effect from 1st April, 1962.
The position in the assessment year 1961 62 was that the assessee earned a net business income of Rs.
10,88,493/ , while the profit for these two assessment years came to only Rs.
6,90,703/ being depreciation in excess of the income made by the new mill was set off against the income of the old mill in both the years and the net result for the assessment year 1960 61 was a positive figure which was assessed to tax.
The assessee in Civil Appeal 1989 of 1972 is a public limited companypany carrying on business in manufacture and sale of yarn.
112 of 1966 and 84 of 1971 respectively.
The High Court accordingly answered the question referred by the Tribunal in favour of the Revenue and against the assessee.
The companyputation made by the Income Tax Officer was as under.
33,118/ Rs.
1146 This led to the filing of an application for 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.
During the financial year ending 31st March, 1959, being the accounting year relevant to the assessment year 1959 60, the assessee set up a new industrial undertaking which admittedly satisfied the requirement of section 15C 2 of the Indian Income Tax Act, 1922.
1989 of 1972 after obtaining certificate of fitness from the High Court.
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 number entitled to claim the benefit of the exemption under section 15C, sub section 1 .
The Revenue being aggrieved by the decision of the Appellate Assistant Commissioner preferred an appeal before the Income Tax Appellate Tribunal.
2418 of 1977 was brought by the assessee after obtaining certificate of fitness from the High Court.
CIVIL APPELLATE JURISDICTION Civil Appeal Nos.
3,64, 672/ Rs.
A. Francis and Miss A. Subhashini for the Respondent in C.A. 1969/72 Devi Pal, S. Swarup and J. B. Dadachanji for the Intervener The Indian Aluminium Co. in C.A. 1989/72.
1,36,822/ derived from the new unit in the assessment year 1961 62, there would be a resultant loss and hence the benefit of the exemption under section 15C, sub section 1 was held number available to the assessee and the claim of the assessee for exemption was rejected.
The total depreciation and development rebate in respect of the new unit for the assessment years 1959 60 and 1960 61 was Rs.
There is numberquestion of once again carrying forward the depreciation of the new mill to the assessment year 1961 62 and allowing it against the income of the new mill.
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.
6,90,703/ were allowed against the profit of Rs.
The tax shall number 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 number payable under this section.
5 x x x x x x The provisions of this section shall, in relation to an industrial undertaking, apply to the assessment for the financial year next following the previous year in which the assessee begins to manufacture or produce articles and for the four assessments immediately succeeding .
The Income Tax Officer took the view that the benefit of section 15C, sub section 1 companyld 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 section 3 of section 15C, required to be companyputed in accordance with the provisions of section 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 there was a loss in the working of the new unit in the assessment year 1961 62.
The Appellate Assistant Commissioner accordingly allowed the claim for exemption and directed the Income Tax Officer to modify the assessment in companyformity with his decision.
3, 97, 790/ 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.
1,44,361 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.
6,90,703/ in respect of the new unit which was required to be carried forward and treated as part of the allowance for the assessment year 1961 62 and that would wholly wipe out the profit of Rs.
The assessee in its assessment to tax for this assessment year claimed exemption of the income from the new unit to the extent of 6 of the average capital employed in it under section 15C. This section insofar as material read as follows Save as otherwise hereinafter provided, the tax shall number 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 number exceed six per cent per annum on the capital 1144 employed in the undertaking or hotel , companyputed in accordance with such rules as may be made in this behalf by the Central Board of Revenue.
The profit, 1143 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 1959 60 Rs.
33,118/ in respect of the new unit and the total depreciation amounted to Rs.
If this carried forward depreciation and development rebate amounting to Rs.
3,25,176/ remained as the taxable income of the assessee and it was assessed to tax in its hands.
5,07, 336/ Development rebate 1960 61 Rs.
2,42,432/ , including Rs.
1,36,822/ leaving a resultant loss in the new unit for the assessment years 1961 62.
6,90,703/ representing 1145 the excess of depreciation and development rebate over profit remained unabsorbed to be carried forward to the next assessment year 1961 62.
3,19, 591/ Rs.
The assessee carried the matter in appeal and before the Appellate Assistant Commissioner, the assesses succeeded in making good its claim for exemption under section 15C, sub section 1 .
3,97,790/ so that, taking, into account only the trading result of the new unit as that was the only source or income of the assessee during the assessment years 1959 60 and 1960 61, a sum of Rs.
2,66,651 including Rs.
1,44, 361/ Rs.
The claim for exemption made by the assessee under section 84 for the assessment year 1962 63 met with the same fluctuating vicissitudes of fortune as the claim for the earlier assessment year and ultimately, the Tribunal having decided against the assessee, a reference of the question whether on the facts and the circumstances of the case the assessee was entitled to exemption under section 84 was made to the High Court.
1,17, 205/ Development rebate Rs.
The entire development rebate which included Rs.
1989 and 2418/77.
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.
14,13,604/ inclusive of Rs 3,64,672/ in respect of the new unit and this was large enough to absorb the carried forward depreciation and development rebate as also the current years depreciation and development rebate in respect of both the units.
A. Ramachandra for the Appellant in C.A.1989 and Inter vener Sepapati Whitely.
The total profit of the assessee in respect of its old and new units for the assessment year 1960 61 was Rs.
In fact, after setting off of such depreciation and development rebate, a sum of Rs.
