AHMEDABAD MANUFACTURING AND CALICO PRINTING CO. LTD. AND ANR.versusA.V. JOSHI

A                 AHMEDABAD MANUFACTURING AND
                  CALICO PRINTING CO. LTD. AND ANR.
                                         v.
                                   A.V. JOSHI

                                  MARCH 1, 1996
B
              (J.S. VERMA, N.P. SINGH AND B.N. KIRPAL. JJ.]

          Income Tax Act, 1961.

C         Ss. 80!, SOK, 197(3)-New Industrial Undertakings-Deduction in
    respect of dividends-Losses and depreciation of earlier year carried for-
    ward--Company declared dividend during subsequent year in which no tax
    was payable by it-Entitlement of company to certificate under S.SOK--Held,
    even if new industrial undertaking had no profit and gains assessable in
    relevant assessment yeai--Company would be entitled to benefit under S.SOK
D
         The assessee-Com pany established new industrial undertakings,
  namely, a Polyster Fibre Plant in the accounting year 1975-76 and a Sulzer
                                                                                   y
  Plant in the subsequent accounting year 1976-77. The assessee applied for
  and was issued certificates under s.80K of the Income Tax Act, 1961 in
E respect of the assessment years 1975-76 and 1977-78. During the account·
  ing year relevant to the assessment year 1978-79, the assessee declared a
  total dividend of Rs.1,11,86,231 to its share holders, and made an applica·
  ti on under s. 197 (3) read with s.80K for a certificate under s.80K claiming
  relief to an extent of Rs. 1,00,35,434 for Polyster Fibre Plant and Rs.
  24,07,536 for Sulzer Plant. It was stated that total income of the assessee
F for the said assessment year was nil and there were carried forward losses,
  depreciation etc. in respect of the preceding year; and that the profits of
  Polyster Fibre Plant were Rs. 4,66,73,159 and in respect of Sulzer Plant
  there was no profit. The Revenue held that only Rs. 77,42,921 referable to
  6% of the capital employed in the Polyster Fibre Plant, was entitled to
G exemption under s.80K, and issued a certificate aecordingly. However,
  relief in respect of the Sulzer Plant was refused on the ground that it
  showed a business loss.

          The assessee med a writ petition before the High Court contending
    that the Revenue should be directed to issue a certificate for Rs. 95,50,889
H   in respect of the Polyster Fibre Plant and the Sulzer Plant. The High Court
                                         150
)
                   AHMED ABAD MFG. AND CALICO v. AV. JOSHI                   151

     though observed that Coromondel Fertilizer's case* did support the conte9- A
     tion of the assessee, but relying upon two other decisions of this Court**
i    declined to grant the relief. Aggrieved, the assessee filed the appeal.

             Allowing the appeal, this Court

             HELD : 1.1. The High Court erred in dismissing the writ petition       B
      filed by the assessee. It is not disputed that there was an entitlement to
      the assessee under s.SOJ of the Income Tax Act, 1961, and as per the
      decision in Coromondel Fertilizer's case• the assessee would he entitled to
    · the benefit of s.SOK. [155-C; 154-G; 155-A]

            1.2. Even if the new industrial undertaking had no profits or gains C
     assessable to income tax during the relevant assessment year, the assessee
     was entitled to the relief under Section SOK. The High Court was not
     justified in not following the decision in Coromondel Fertilizer's case•, and
     it should not have applied the ratio of the other decisions** which related
     to the interpretation of different sections of the Act. (154-C, G; 155-A-B] D

             *Union of India v. Coromondel Fertilizer Ltd., 102 l.T.R. 533, ex-
Y    plained and held applicable.

           Rajapalavam Mills Ltd. v. Commissioner of Income Tax Madras, 115
     I.T.R. 777 and Commissioner of Income Tax v. Patiala Flour Mills Co. P. E
     Ltd., 115 I. T.R. 640, held in applicable.

          2. The Revenue is directed to issue a certificate to the appellant in
     accordance with law, showing therein the portion of exempted dividend in
     respect of Polyster Fibre Plant and Sulzer Plant. [155-D]
                                                                                    F
             CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1044 of
     1979.

          From the Judgment and Oi-d~r dated 29-1-79 of the Gujarat High
     Court in S.C.A. N<;i. 2401 of 1978.
                                                                                    G
           E.R. Kumar and Ms. Bina ·Madhavan, for P.H. Parekh for the
     appellants.

             B.S. Ahuja for S.N. Terdol, for the Respondents.

             The Judgment of the Court was delivered by                             H
    152                   SUPREME COURT REPORTS                  [1996] 3 S.C.R.

A         KIRPAL, J. In this appeal the only question which arises for con-
    sideration is with regard to the scope and interpretation of Section BOK of
    the Income Tax Act. 1961 (hereinafter referred to as 'the Act').
                                                                                   •
          The appellant is a public limited company and is engaged in
    manufacturing of textiles, chemicals etc. It established a new industrial
B   undertaking by installing a Polyester Fibre Plant at Baroda in the account-
    ing year of 1974-75, relevant to the assessment year 1975-76. In the sub-
    sequent accounting year 1975- 76, the appellant also installed a new Sulzer
    plant at Ahmedabad.
                                                                                   •
C        Both the aforesaid plants fulfilled all the conditions for the grant of
  necessary relief under Section BO J of the Act. Accordingly, in the course
  assessment of the company for the assessment years commencing from the
  assessment year 1975-76, the relief to which the appellant was entitled
  under Section BOJ of the Act, was worked out and, to the extent that the
D profit in respect of the said plant was not sufficient to absorve the said
  relief, the amounts of the said relief were carried forward to subsequent
  years as provided by Section BO J(3) of the Act. For the said assessment
  years commencing from 1975-76, the company applied for requisite certifi-
  cate under Section BOK read with Section 197 (3) of the Act for the purpose
  of enabling its shareholders to claim exemption out of the dividends
E received by them because the company was entitled to relief under Section
  BOJ for those years. The Income Tax Officer, in respect of the assessment
  years 1975-76 and 1977-7B, issued a certificate under Section BOK of the
  Act and in this certificate, for the purpose of determining the exempted
  portion of the dividend out of the total dividend amount declared by the
F appellant company, the relief allowable to the appellant under Section BOJ
  of the Act was taken as the total relief allowable under the said provision
  be;ng 6% of the capital employed in the said new undertaking.

          During the accounting year relevant to the assessment year 197B-79,
    the appellant company declared a total dividend of Rs. 1,11,B6,231 to its
G   shareholders. An application was made to the Income Tax Officer under
    Section 197(3) read with Section BOK of the Act requesting for certificate         •
    under the said Section BOK. According to the appellant, the relief claimed
    was Rs. 1,00,35,434 for Baroda Plant and Rs. 24,07,556 for Sulzer Plant.
    The respondent, thereupon called for certain information from the appel-
H   !ant with regard to the total income of the appellant for the assessment



                      •
      AHMEDABADMFG.ANDCALlCOv. AV.JOSH! [KIRPAL,J.]                        153

year 1978-79 as well as the profits of the Polyester Fibre Plant and the          A
Sulzer Plant for the accounting year relevant to the assessment years
1977-78 and 1978-79. The appellant company replied that the total income
of the company for the assessment year 1978-79 was nil and there were
carried forward losses, depriciation etc. in respect of the preceding years.
It also stated that the profits of the Polyester Fibre Plant for the assessment   B
year 1978-79 were Rs. 4,66,73,159. In respect of Sulzer plant it was pointed
out that there was no profit.·

       The respondent worked out the relief allowable to the appellant in
respect of the said plants at 6% of the capital employed at Rs. 77,42,921
in respect of the Polyester Fibre Plant and Rs. 18,07,968 in respect of the C
Sulzer Plant. On that basis the exempted percentage of the dividend
according to the respondent worked out at Rs. 85.38% as against 100%
which had been indicated by the appellant. The respondent further held
that the appellant was not entitled to have the certificate on that footing
of 85.38% because the working of the Sulzer Plant shows a business loss D
of Rs. 7,20,260 as computed under the Act and, therefore, there could not
be any claim for exemption under Section 80K in respect of the said plant.
It further observed that only Rs. 77,42,921 referrable to 6% of the capital
employed in the Polyester Fibre Plant, as computed by the respondent, was
entitled to exemption under Section SOK out of the total dividends of Rs.
1,11,86,231. On that basis, the respondent issued a certificate under Section E
80-K dated 24.8:1978 which was designated as a provisional certificate. On
the appellant's company request for reconsideration being turned down, a
writ petition was filed in the High Court of Gujarat, contending that the
respondent should be directed to issue a certificate for Rs. 95,50,889 in
respect of the Polyester Fibre Plant and the Sulzer Plant.
                                                                                  F
       The High Court of Gujarat, by the impugned judgment dated
29.1.1979, came to the conclusion that in respect of the previous year
relevant to the assessment year 1978-79 the Sulzer Plant, which was a new
undertaking, had no assessable profits and gains and, therefore, the benefit
under Section 80-K could not be granted in respect of the relevant amount G
of capital employed in that plant during that particular previous year. In
arriving at the aforesaid conclusion the High Court observed that the
decision of this Court in the case of Union of India v. Coromande/ Fertilizer
Ltd., 102 I.T.R. 533 did support the contention of the appellant to the effect
that the benefit under Section BOK would be available but the High Court H
    154                   SUPREME COURT REPORTS                  [1996] 3 S.C.R.

A doubted the correctness of this judgment in view of the decisions of this
    Court in the cases of Rajapalavam Mills Ltd. v. Commissioner of Income
    Tax Madras, 115 l.T.R. 777 and Commissioner of Income Tax v. Patia/a            Ir ·
    Flour Mills Co. P. Ltd., 115 l.T.R. 640.

          The decision of the this Court m Coromandel Fertilizer's case
B (supra) related to the interpretation of Section SOK of the Act. The
    material portion of the section was there shall be allowed in computing his
    total income a deduction from such income by way of dividends an amount
    equal to such part thereof as is attributable to profits and gains derived by
    the company from an industrial undertaking or ship or the business of a
C   hotel in respect of which the company is entitled to deduction under
    Section SOJ. It was held that even if the new industrial undertaking had no
    profits or gains assessable to the income tax during the assessment years
    in question the assessee was entitled to the relief under Section SOK.
    Emphasis was laid on the words "as is attributable to profits and gains
D   derived by the company......... " in respect of which the company is entitled
    to deduction under Section SOJ and it was held that even if deduction under
    Section 80J was not actually allowed but the entitlement was there, then
    the provision of Section SOK would be attracted.

          The High Court, by an involved reasoning, came to the conclusion
E that in the light of the interpretation placed on the scheme ofsection SOJ
    by the three Judges Bench in Patiala Flour Mills Co.'s case & Rajapalayam
    Mills' case (supra) which interpretation was not present when this Court
    decided Coromandel Fertilizer's case (supra), the provisions of Section
    SOK were not applicable when the profits and gains derived by the company
F   from a new industrial undertaking when computed under the provisions of
    Income Tax Act are nil or show a loss.

          In our opinion there is no justification for the High Court not to have
  followed the decision of this Court in Coromandel Fertilizer's case (supra).
  It is not in disputed that there was an entitlement to the appellant in the
G present case under Section SOJ and this being so the decision in Coroman-
  del Fertilizer's case (supra) was clearly applicable. Patiala Flour Mills case
  (supra) was concerned with Section SOJ of the Act and Rajapalayam Mills'
  case (supra) was essentially concerned with Section 15(C) of the Act, 1922
  and Section S4 of the Act, 1961. In neither of these two cases was any
H reference made to Coromandel Fertilizer's case (supra) for the smiple
JI
            AHMED ABAD MFG. AND CALICOv. A.V. JOSHI [KIRPAL, J.]             155

     reason that it was not necessary. When the assessee is entitled to the benefit A
     under Section SOK, on the plain reading of the said section as interpreted
     by this Court, there should have been no occasion for the High Court to
     have referred to or applied the ratio of the decisions of Patiala Flour Mills
     case (supra) and Rajapalayam Mills Case (supra) which related to the
     interpretation of different sections o' the Act. The latter decisions are B
     essential only for determining whether the company was entitled to the
     benefit under Section SOJ or not. On this aspect, there is no dispute in the
     present case. The entitlement was there. Once this is not disputed, then
     automatically as per the decision in Coromandel Fertilizer's case (supra),
     the appellant would be entitled to the benefit of Section SOK and, there-
     fore, the High Court was clearly in error in dismissing the writ petition.     C

           For the aforesaid reasons, this appeal is allowed, the impugned
     judgment of the High Court is set aside and the respondent is directed to
     issue a certificate to the appellants, in accordance with law, showing therein
     the portion of exempted dividend in respect of Polyester Fibre Plant and
     Sulzer Plant. The appellants are also entitled to costs.                       D
     R.P.                                                       Appeal allowed.




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