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PETITIONER: AHMEDABAD MANUFACTURING& CALICO PRINTING CO. LTD & ANR.

       Vs.

RESPONDENT: A.V.JOSHI

DATE OF JUDGMENT:       01/03/1996

BENCH: KIRPAL B.N. (J) BENCH: KIRPAL B.N. (J) VERMA, JAGDISH SARAN (J) SINGH N.P. (J)

CITATION:  JT 1996 (3)    81        1996 SCALE  (2)610

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T KIRPAL,J.      In this  appeal the  only  question  which  arises  for consideration is with regard to the scope and interpretation of Section  80 K  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  undertaking by  installing  a Polyester Fibre  Plant at  Baroda in  the accounting year of 1974-73, relevant  to the  assessment year  1975-76. In  the subsequent  accounting  year  1975-76,  the  appellant  also installed a new Sulzer plant at Ahmedabad.      Both the  aforesaid plants fulfilled all the conditions for the  grant of necessary relief under Section 80 J of the Act. Accordingly,  in  the  courses  of  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  80J of  the Act, was worked out and to  the extent  that the  profit in  respect of the said plant was  not sufficient  to absorbe  the said  relief, the amounts  of   the  said   relief  were  carried  forward  to subsequent years  as provided by Section 80 J(3) of the Act. For the  said assessment  years commencing from 1975-76, the company applied  for requisite certificate under Section 80K read with  Section 197  (3) of  the Act  for the  purpose of enabling its  shareholders to  claim exemption  out  of  the dividends received  by them because the company was entitled to relief  under Section 80J for those years. The Income Tax Officer, in  respect of  the assessment  years  1975-76  and 1977-78, issued  a certificate  under  Section  80K  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  appellant  company,  the relief allowable  to the appellant under Section 80 J of the

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Act was  taken as  the total relief allowable under the said provision being  6% of  the capital employed in the said new undertakings.      During the  accounting year  relevant to the assessment year  1978-79,   the  appellant  company  declared  a  total dividend  of  Rs.  1,11,86,231/-  to  its  shareholders.  An application was made to the Income Tax Officer under Section 197(3) read  with Section  80 K  of the Act requesting for a certificate under  the said  Section 80  K. 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 appellant  with  regard  to  the  total  income  of  the appellant for  the assessment  year 1978-79  as well  as the profits of  the Polyester  Fibre Plant  and the 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, depreciation etc. in  respect of the preceding years. It also stated that the profits  of the Polyester Fibre Plant for the assessment 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 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 of Rs. 7,20,260/- as  computed under  the Act and, therefore, there could not  be any  claim for exemption under Section 80 K in respect of the said plant. It further observed that only Rs. 77,42,921/- referable  to 6%  of the capital employed in the Polyester fibre  Plant, as  computed by  the respondent, was entitled to  exemption under  Section 80-K  out of the total dividends  of   Rs.  1,11,86,231/-.   On  that   basis,  the respondent issued  a certificate  under Section  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.      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  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  Vs.  Coromandel Fertilizer Ltd.,  102 I.T.R.  533 did support the contention of the  appellant to  the  effect  that  the  benefit  under Section 80K  would be  available but  the High Court doubted the correctness of this judgment in view of the decisions of this Court  in the  cases  of  Rajapalavam  Mills  Ltd.  Vs. Commissioner of  Income Tax,  Madras,  115  I.T.R.  777  and Commissioner of  Income Tax  Vs. Patiala  Flour Mills Co. P. Ltd. 115 I.T.R. 640.

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    The decision  of this  Court in Coromandel Fertilizer’s case (supra)  related to  the interpretation of Section 80 K 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 hotel  in respect  of which  the  company  is entitled to  deduction under  Section 80J.  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  80K. Emphasis  was laid  on the  words "as is attributable  to   profits  and   gains   derived   by   the company........."  in   respect  of  which  the  company  is entitled to deduction under Section 80J 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 80K would be attracted.      The High  Court, by  an involved reasoning, came to the conclusion that  in the  light of  the interpretation placed on the  scheme of  Section 80J  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  80 K  were not  applicable when  the profits and gains  derived   by  the   company  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 dispute that there  was an  entitlement  to  the  appellant  in  the present case  under Section  80 J  and  this  being  so  the decision in Coromandel Fertilizer’s case (supra) was clearly applicable. Patiala  Flour Mills  case (supra) was concerned with Section  80 J  of the  Act and  Rajapalayam Mills’ case (supra) was essentially concerned with Section 15 (C) of the Act, 1922  and Section  84 of  the Act,  1961. In neither of these  two  cases  was  any  reference  made  to  Coromandel Fertilizer’s case  (supra) for the simple reason that it was not necessary.  When the assessee is entitled to the benefit under Section 80 K, 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 of  the Act.  The latter decisions  are essential only for determining whether the company  was entitled  to the benefit under Section 80 J 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 80K and, therefore, the High Court was clearly in error in dismissing the writ petition.      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.

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