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PETITIONER: RAJAPALAYAM MILLS LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, MADRAS

DATE OF JUDGMENT06/10/1978

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. TULZAPURKAR, V.D. PATHAK, R.S.

CITATION:  1979 AIR  117            1979 SCR  (1)1138  1978 SCC  (4) 322  CITATOR INFO :  MV         1985 SC 421  (5)  F          1991 SC1322  (17)

ACT:      Income Tax  Act, 1922,  Sec. 15C  and Sec. 84 of Income Tax Act, 1961, interpretation of.

HEADNOTE:      The  appellant   assessee,  a  public  limited  company carrying on business in manufacture and sale of yarn, set up a new  industrial  undertaking  during  the  financial  year ending 31st  March, 1959  being the accounting year relevant to  the  assessment  year  1959-60.  The  entire  amount  of depreciation and  development rebate  in respect of this new unit for  the assessment  years 1959-60 and 1960-61 were set off against  the total profit of the assessee arising out of all units  old  and  new,  and  therefore  nothing  remained unabsorbed to be carried forward to the next assessment year 1961-62. In  the assessment year 1961-62 the assessee earned a net  business income  of Rs.  12,69,403/- which included a sum of  Rs. 1,36,822/-  representing the income from the new unit. 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 of the Income Tax Act 1922. Taking the view that the benefit of Sec. 15(c) sub-section (1) could be claimed by the assessee only if there was any profit derived from the  new unit  and since  the profit  was, by reason of sub-section (3)  of Sec.  15C required  to  be  computed  in accordance with  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 that there was  a loss  in the  working of  the new  unit in  the assessment year  1961-62, the  Income Tax  Officer held that the benefit of exemption under Sec. 15C, sub-section (1) was not available  to the  assessee and  thus the  claim of  the assessee  for   exemption  was   rejected.  In  appeal,  the Appellate Assistant  Commissioner set aside the order of the Income Tax  Officer but  on further appeal by the Revenue to the Tribunal  the  order  of  the  Income  Tax  Officer  was restored. The  same view was taken by the Tribunal in regard

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to the  assessment in the year 1962-63. The High Court, on a reference, agreed with the view taken by the Tribunal. Hence the appeals  by special  leave in  respect of the assessment years 1961-62 and 1962-63.      Allowing the appeals, the Court, ^      HELD: (1)  The law of income tax in a modern society is intended to  achieve various  social and economic objectives and is  used as  an  instrument  for  accelerating  economic growth and  development. Sec.  15C is a provision introduced in the  Indian Income  Tax Act, 1922 with a view to carrying out this objective and it is calculated to encourage setting up of new industrial undertakings. [1147 A-B]      Sub-section (1) of Sec. 15C exempts from tax so much of the  profits   or  gains   derived  from  a  new  industrial undertaking as  do not  exceed 6%  per annum  of the capital employed in the undertaking and, therefore, there must 1139 be  profits   or  gains  derived  from  the  new  industrial undertaking in  the assessment  year in  question before any claim for  exemption can  be sustained  under Sec. 15C, sub- sec. (1).  If there are no profits or gains derived from the new industrial  undertaking  in  any  particular  assessment year, there  can be no question of any exemption, because it is only  where there  are such  profits or gains that to the extent of  6% per annum of the capital employed, they become eligible for exemption [1147 B, C-D]      (2)  Though  the  profits  of  each  distinct  business carried on by an assessee have to be computed separately, in accordance with  the provisions  of  Sec.  10,  the  tax  is chargeable under  that section not separately on the profits of each business, but on the aggregate of the profits of all the business  carried on  by the  assessee. Therefore, where the assessee carries on several he is entitled under section 10 to  set off  loss in  one  business  against  profits  of another. If  there is  any loss  in a business carried on by the assessee  by reason  of the profits of such business not being sufficient  to absorb the depreciation allowance, such loss can  be set off against the profits of another business carried on by the assessee. If, however there are no profits chargeable under the head ’Business or profession’ or if the profits chargeable under that head are insufficient to cover the depreciation  allowance, the  amount of the allowance to the extent  to which  it is  not absolved  can  be  set  off against profits  chargeable under  any other  head  for  the assessment year.  This is  the plain and undoubted effect of Section 24 sub-section (1). [1148 A-E]      Anglo-French Textile Co. Ltd. v. Commissioner of Income Tax, 23  ITR 82  at 86;  Commissioner of Income Tax v. Indo- Mercantile Bank  Ltd., 36  ITR 1 at 6; at 6; Commissioner of Income Tax v. Muthuraman Chettiar 44 ITR 710 at 713 referred to.      (3) It  is clear  on a plain reading of the language of proviso (b) to clause (vi) of Section 10 of the Act, that it comes into  operation only where full effect cannot be given to the  depreciation allowance  for the  assessment year  in question owing to there being no profits or gains chargeable for that year or profits or gains chargeable being less than the depreciation allowance. [1149 B-C]      (4) The  words ’no profits or gains chargeable for that year’ are not confined to profits and gains derived from the business whose  income is  being computed  under section 10, but they  refer to  the totality  of the  profits  or  gains computed under  the various  heads and chargeable to tax. It is,  therefore,   clear  that   effect  must   be  given  to

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depreciation allowance first against the profits or gains of the particular business whose income is being computed under section 10  and if  the profits  of that  business  are  not sufficient  to   absorb  the   depreciation  allowance,  the allowance to the extent to which it is not absorbed would be set off  against the  profits of any other business and if a part of the depreciation allowance still remains unabsorbed, it would  be liable  to be  set off  against the  profits or gains chargeable  under any  other head  and it  its only if some  part  of  the  depreciation  allowance  still  remains unabsorbed that  it can  be  carried  forward  to  the  next assessment year.  Obviously, therefore,  there would  be  no scope for the applicability of proviso (b) to clause (vi) if the total  income of  the  assessee  chargeable  to  tax  is sufficient to  absorb the  depreciation allowance,  for then there would  not be any unabsorbed depreciation allowance to be carried  forward to  the following  assessment year.  But where any part of 1140 the depreciation  allowance remains  unabsorbed after  being set off  against the  total income chargeable to tax, it can be carried  forward under  proviso (b) to clause (vi) to the following year and set off against that year’s income and so on for  succeeding years.  The method adopted by the statute for achieving  this  result  is  that  the  carried  forward depreciation allowance is deemed to be part of and stands on exactly the  same footing  as, the  current depreciation for the assessment  year and  is this  allowable as  a deduction under clause (vi). Therefore, when the profits or gains of a business for a particular assessment year are to be computed under Sec.  10, the  current depreciation  allowance for the assessment year  in question is deductible under clause (vi) but the  depreciation allowance of the preceding years would be liable  to be  taken into  account only  if, and  to  the extent to  which, it  is not absorbed by the total income of the assessee  computed under  different heads and chargeable to tax for those assessment years. [1149 D-H, 1150 A-B]      Commissioner of  Income  Tax  v.  Jaipuria  China  Clay Mines, 59 ITR 555 followed.      (5) Though  the amount  of the  development rebate  is, under the  main provisions in sub-clause (ii) of clause (vi- b), allowable  in the  first instance against the profits or gains of  the particular business whose profits or gains are being computed, clause (i) of Explanation (1) makes it clear that  if   any  part   of  the  development  rebate  remains unabsorbed, it  is to be set off against the other income of the assessee  under any  of the  chargeable heads  and it is only if  some part  of the  development rebate still remains outstanding that  it can be carried forward to the following assessment year  and set off against the total income of the assessee for that year. The amount of the development rebate is to  be set  off against  the total income of the assessee and  not   merely  against  the  profits  or  gains  of  the particular business  in respect  of  which  the  development rebate is  granted and  so also the development rebate which remains unabsorbed  and  is  carried  forward  to  the  next assessment year is by reason of clause (ii) of Explanation 1 to be set off not merely against the profits or gains of the particular business  but against  the total  income  of  the assessee for  that year.  Therefore it  is  only  where  the amount of  development rebate  has not  been fully  set  off against the  total  income  of  the  assessee  in  the  past assessment years  and a  part of it still remains unabsorbed and is  carried forward  to the  assessment year in question that it  can be  allowed against the profits or gains of the

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business for  the particular assessment year and if there is still is  some balance  outstanding, then  against the other income of  the assessee for that assessment year. But if the amount of  the development  rebate is wholly set off against the total  income of  the assessee  in the  past  assessment years and  there is  no unabsorbed  development rebate to be carried forward  to the  assessment year  in question, there would be  nothing in  respect of the past development rebate to be  set off  against the profits or gains of the business under clause (ii) of Explanation 1. [1151 D-H, 1152 A-B]      (6) As  sub-section (3)  of Sec.  15C provides that the profits or  gains of  a new  industrial undertaking shall be computed under  Sec. 10,  and therefore, according to clause (vi)  read   with  proviso  (b),  no  part  of  depreciation allowance and  according to  clause (vi-b) Explanation 1, no part of  the  development  rebate  in  respect  of  the  new industrial undertaking  for the past assessment years can be allowed as  a deduction  in computing the profits and gains, unless 1141 it has  remained unabsorbed  by reason  of inadequacy of the total income chargeable to tax in the post assessment years, and is  carried forward  to the assessment year in question. Total income  means not  only profits  or gains derived from the new  industrial undertaking  but the totality of profits or gains computed  under various heads.[1152 F-G]      (7) There  is nothing in sub-section (3) of Sec. 15C or in any  other provision  of the  Act which  requires that in computing  the   profits  or   gains  of  a  new  industrial undertaking under  section  10,  depreciation  allowance  or development  rebate   in  respect   of  the  new  industrial undertaking for  the past  assessment years  should be taken into account.  even if  it has been set off    fully against the profits or gains of any other business carried on by the aesessee or against income under any other head and there is no unabsorbed  depreciation allowance  or development rebate to be carried forward. [1152 G-H, 1153 A]      (8) Effect  cannot be  given to  depreciation allowance and development    rebate  twice  over,  once  in  the  past assessment  years  and  again  in  the  assessment  year  in question.  To  give  effect  to  depreciation  allowance  or development   rebate for  the past  assessment years    even though it  has been  set off and absorbed completely against the total  income of the assessee for those assessment years would be to allow a deduction not warranted by any provision of the  Act and  indeed it  would be  going contrary  to the express  provision   of  proviso  (b)  to  clause  (vi)  and Explanation 1  to clause (vi-b). Sub-section (3) of Sec. 15C clearly does  not have  any such  effect. What it does is no more than  provide as  to how  "the profits or gains derived from new  industrial undertaking" referred to in sub-section (i) of Section 15C shall be computed. [1153 A-D]      (9) Sub-section  (3) of  Sec. 15C   does  not enact any legal fiction  providing   that the  profits or gains of the now industrial  undertaking shall  be computed as if the new industrial  undertaking   were  the  only  business  of  the assessee from  the date  of its  establishment or  the  past years depreciation  or development  rebate had  not been set off against  other income of the assessee The new industrial undertaking is  not retrospectively  quarantined or isolated from the  other income  producing activities  of the assesee for determining  its profits  or gains  for the  purpose  of applicability of  sub-section (1)  of section 15C. What sub- section (3)  of section  15C does  is meanly to lay down the same rule  of computations for the profits or gains of a new

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industrial undertaking  as in  respect of any other business and,   therefore,   neither   depreciation   allowance   nor development  rebate   in  respect   of  the  new  industrial undertaking for the past assessment year can be allowed as a deduction  in   computing  the  profits  or  gains  for  the assessment year  in question, except where and to the extent to which,  it has  not been set off against the total income of the  assessee for those assessment years and has remained unabsorbed. This  is the  plain and  undoubted effect of the language used  in sub-section (3) of section 15C. Indeed the language is  so clear  and unambiguous that it is impossible to place  any other construction upon it.    [1153 E-H  1154 A]      (10) Apart  from the  language of  the section,  if the construction contended  for on  behalf   of the  Revenue and upheld by  the High  Court. as   well  as the  Tribunal were accepted, it  would lead to the highly anomalous result that though, for  the purpose  of computing    the  total  income chargeable  to   tax.   the   depreciation   allowance   and development rebate which have been set off against 1142 the other  income of  the assessee  for the  past assessment years would  not be  liable to  be taking into account, they would have  to be deducted in computing the profits or gains of  the   business  for  the  purpose  of  applicability  of subsection (1)  of Section  15C. Thus,  there would  be  two different modes  of determining  the profits or gains of the business, one  for computing  the total income chargeable to tax and  the other for applying the provisions of subsection (1) of Section 15C. Such a consequence could never have been intended by the legislature [1154 A-C]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION :  Civil Appeal Nos. 1989 and 2418/77.      From the  Judgments and orders dated 3-1-1970 and 18-1- 1973 of  the Madras  High Court in Tax Case Nos. 112 of 1966 and 84 of 1971 respectively.      T. A.  Ramachandra   for the  Appellant in C.A.1989 and Inter-vener-Sepapati Whitely.      P. 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.      J. Ramamurthi  and Miss  R. Vaigai for the Appellant in C.A. 2418/77.      B. B.  Ahuja and  Miss A. Subhashini for the Respondent in C.A. 2418/77.      R. 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. These two sections are in material respects in identical terms and the interpretation we  place on  section 15C  is bound  to apply equally to  section 84.  We will, therefore, first deal with Civil Appeal  1989 of 1972 which involves the interpretation of section  15C and  then turn  to Civil Appeal 2418 of 1977 which deals with section 84.      The assessee  in Civil  Appeal 1989 of 1972 is a public

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limited company carrying on business in manufacture and sale of yarn.  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. 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/-    Rs. 1,44, 361/-                                  Rs. 5,07, 336/-(Development                                  rebate)      1960-61     Rs. 3,64, 672/- Rs. 3,19, 591/-                                  Rs. 1,17, 205/-(Development                                  rebate)           ----------------------------------------------                 Rs. 3, 97, 790/- Rs. 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. 2,42,432/-, including  Rs. 33,118/-  in respect  of the  new unit and  the total  depreciation amounted  to Rs.  2,66,651 including 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. The entire development  rebate which  included Rs. 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. The  total profit of the assessee in respect of its old and  new units  for the  assessment year 1960-61 was Rs. 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 year’s depreciation  and development  rebate in  respect  of both  the   units.  In  fact,  after  setting  off  of  such depreciation and development rebate, a sum of Rs. 3,25,176/- remained as  the taxable  income of  the assessee and it was assessed to tax in its hands. The result was that no part 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 position  in the  assessment year  1961-62 was that the assessee earned a net business income of Rs. 12,69,403/- which included sum of Rs. 1,36,822/- representing the income from the new unit. 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:           (1)  Save as  otherwise hereinafter  provided, the                tax shall not 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 not exceed six per                cent per annum on the capital 1144                employed  in   the  undertaking  (or  hotel),                computed in accordance with such rules as may                be made  in this  behalf by the Central Board                of Revenue.           (2)  x      x      x      x      x     x           (3)  The  profits   or  gains   of  an  industrial

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              undertaking  (or   a  hotel)  to  which  this                section  applies   shall   be   computed   in                accordance with the provisions of section 10.           (4)  The tax shall not 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 not payable under this section.                (EXPLANATION-The  amount   of   dividend   in                respect of which the tax is not payable under                this  sub   section  shall   be  computed  in                accordance with  such rules as may be made in                this  behalf     by   the  Central  Board  of                Revenue.)           (5)  x     x     x     x     x     x           (6)  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)  could  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 computed 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 computation made by the Income Tax Officer was as under. The total depreciation  and development rebate in respect of the new unit  for the  assessment years  1959-60 and 1960-61 was Rs. 10,88,493/-,  while the  profit for these two assessment years came  to only  Rs. 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. 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.   If   this   carried   forward depreciation  and   development  rebate   amounting  to  Rs. 6,90,703/- were allowed against the profit of Rs. 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 not available to  the assessee and the claim of the assessee for exemption was rejected.      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).   The  Appellate   Assistant  Commissioner pointed out  in a  brief but precise order: "The loss of 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. There is no question 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. It is

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only when  there is  a loss  of  the  earlier  year  due  to depreciation attributable  to the new industrial undertaking which could  not be  set off  against  the  profits  of  the earlier years,  it has  to be  carried forward  and set  off against the  income of  the current  year in working out the income liable  to  tax  under  section  10".  The  Appellate Assistant Commissioner  accordingly allowed  the  claim  for exemption and  directed the Income Tax Officer to modify the assessment in conformity with his decision.      The Revenue  being aggrieved  by the  decision  of  the Appellate Assistant  Commissioner preferred an appeal before the Income Tax Appellate Tribunal. The appeal was successful and the  Tribunal set  aside  the  order  of  the  Appellate Assistant Commissioner  and restored  that of the Income Tax Officer. The  Tribunal took the view that the trading result of the new unit must be considered 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. 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. 1,36,822/- leaving a resultant loss in the new unit  for the  assessment years 1961-62. The Tribunal in this view  held that  the benefit  of  the  exemption  under section 15C,  sub-section (1)  was  not  available  and  the Income Tax  officer was  justified in refusing to grant such exemption. 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.           "Whether on  the facts and in the circumstances of      the case  the assessee  company  was  entitled  to  the      relief under section 15C(2)". 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  no other  income producing activity was carried on by the  assessee,  the  High  Court  observed  that  there  was unabsorbed  depreciation   and  development  rebate  of  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. 1,36,822/- 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 not entitled to claim the benefit of the exemption under section 15C, sub-section (1). The High Court accordingly answered the question referred by the Tribunal  in favour  of  the  Revenue  and  against  the assessee. The assessee thereupon preferred the present Civil Appeal No.  1989 of  1972  after  obtaining  certificate  of fitness from the High Court.      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 come  into force with effect from 1st April, 1962. The  corresponding provision  in section 84 of the new Act was  however, in  material respects in the same terms as section 15C  of the old Act. 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

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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. The High  Court   in  view  of  its  decision  for  the  earlier assessment year, decided against the assessee and hence, the present Civil  Appeal No.  2418 of  1977 was  brought by the assessee after  obtaining certificate  of fitness  from  the High Court.  Since both  sections 15C  and 84  are, for  all material purposes,  in identical  terms, we will discuss the interpretation and  applicability of  section 15C  in  Civil Appeal No.  1989 of 1972 and the view we take in that appeal with equally govern the decision of Civil Appeal No. 2418 of 1977. 1147      The law  of income  tax in a modern society is intended to achieve  various social  and economic  objectives. It  is often used as an instrument for accelerating economic growth and development.  Section 15C  is a  provision introduced in the Indian  Income Tax Act, 1922 with a view to carrying out this objective  and it is calculated to encourage setting up of new  industrial undertakings  in the country. Sub-section (1) of  this section exempts from tax so much of the profits or gains derived from a new industrial undertaking as do not exceed  6%   per  annum  of  the  capital  employed  in  the undertaking.  There   are  rules  made  under  the  Act  for computing  the   capital  employed   in  a   new  industrial undertaking but we are not concerned with these rules in the present appeals.  What is material is only the provision for exemption and  according to  this provision, the profits and gains of a new industrial undertaking are exempt from tax to the extent  of 6%  per annum  of the  capital employed,  and obviously, therefore  there must be profits or gains derived from the  new industrial  undertaking in the assessment year in question  before any claim for exemption can be sustained under section  15C, sub-section  (1). If there are no profit or gains  derived from the new industrial undertaking in any particular assessment  year, there can be no question of any exemption, because  it is  only where there are such profits or gains  that to  the extent of 6% per annum of the capital employed, they  become eligible  for  exemption.  The  first question which  must, therefore,  arise for consideration in every case where a claim for exemption is made under section 15C, sub-section(1)  is whether  there are  any  profits  or gains derived  from the  new industrial  undertaking in  the assessment year  in question, and if so, what is the quantum of such  profits or  gains. Now,  sub-section (3) of section 15C says  that the  profits or  gains of  a  new  industrial undertaking  shall   be  computed  in  accordance  with  the provisions of section 10 and since under the income tax law, every assessment  year is  a self-contained  period, profits and gains  of the  new undertaking  must be computed for the particular assessment year in respect of which the claim for exemption is made, by applying the provisions of section 10. Sub-section  (2)   of  that  section  provides  for  various allowances to  be made  in computing  profits and gains of a business and  amongst such  allowances are one in respect of depreciation and the other in respect of development rebate. Clause (vi)  of sub-section  (2) deals  with  allowance  for depreciation and  it says  that in  computing the profits or gains of  a business  allowance shall be made, in respect of depreciation of  building,  machinery,  plant  or  furniture belonging to  the assessee  and used  for the purpose of the business, a  sum  equivalent  to  "such  percentage  on  the written down  value thereof  as may  in any case or class of cases be prescribed". Depreciation cal-

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1148 culated in  accordance with the provisions of clause (vi) is thus allowable  in computing  the profits  and  gains  of  a business chargeable  to tax  and if the profits and gains of the business  are insufficient  to absorb  such depreciation allowance, the  amount of  the allowance to the extent it is unabsorbed, must,  like any  other business  loss by set off against the profits of any other business. It is settled law that though the profits of each distinct business carried on by an  assessee have to be computed separately in accordance with the  provisions of  section 10,  the tax  is chargeable under that  section not  separately on  the profits  of each business, but  on the  aggregate of  the profits  of all the businesses carried  on by  the assessee.  Vide  Anglo-French Textile Co.  Ltd. v. Commissioner of Income-tax Commissioner of Income  tax v. Indo-Mercantile Bank Ltd. and Commissioner of Income-tax v. Muthuraman Chettiar. It follows, therefore, that where the assessee carries on several businesses, he is entitled under  section 10  to set  off loss in one business against profits  in another.  If there  is  any  loss  in  a business carried  on by  the asessee by reason of the profit of another  business carried  by the  assessee. If, however, there are  no profits chargeable under the head ’Business or profession’ or if the profits chargeable under that head are insufficient to cover the depreciation allowance, the amount of the  allowance to  the extent to which it is not absorbed can be  set off  against profits  chargeable under any other head for  that  assessment  year.  This  is  the  plain  and undoubted effect of section 24, sub-section (1) as explained in Commissioner  of Income-tax  v. Indo-Mercantile Bank Ltd. (supra). But  what would  happen if  still some  part of the depreciation allowance  remains unabsorbed.  The  answer  is provided by  proviso (b)  to clause (vi) of section 10 which reads as follows:           "Provided that-           (a)                              X               X X           (b)  Where, (in  the assessment of the assessee or                if the  assessee is a registered firm, in the                assessment  of  its  partners,)  full  effect                cannot be  given to any such allowance in any                year (not  being a  year which ended prior to                the 1st  day of  April, 1939), owing to there                being no profits or gains chargeable for that                year  or   owing  to  the  profits  or  gains                chargeable being less than 1149                the  allowance,   (then,   subject   to   the                provisions of  clause (b)  of the  proviso to                sub-section (2) of section 24), the allowance                or part of the allowance, to which effect has                not been  given as  the case may be, shall be                added to  the amount  of  the  allowance  for                depreciation  for   the  following  year  and                deemed to  be part  of that  allowance or  if                there is  no such allowance for that year, be                deemed to  be the  allowance for that a year,                and so on for succeeding years: It is  clear on  a plain  reading of the language of proviso (b) to  clause (vi)  that it comes into operation only where full effect  cannot be  given to  the depreciation allowance for the  assessment year in question owing to there being no profits or  gains chargeable  for that  year or  profits  or gains chargeable being less than the depreciation allowance. Now, it is well settled, as a result of the decision of this

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Court in  Commissioner of  Income-tax v. Jaipuria China Clay Mines that  the words  ’no profits  or gains  chargeable for that year’  are not  confined to  profits and  gains derived from the  business whose  income  is  being  computed  under section 10, but they refer to the totality of the profits or gains computed  under the  various heads  and chargeable  to tax. It  is, therefore,  clear that  effect must be given to depreciation allowance first against the profits or gains of the particular business whose income is being computed under section 10  and if  the profits  of that  business  are  not sufficient  to   absorb  the   depreciation  allowance,  the allowance to the extent to which it is not absorbed would be set off  against the  profits of any other business and if a part of the depreciation allowance still remains unabsorbed, it would  be liable  to be  set off  against the  profits or gains chargeable under any other head and it is only if some part of  the depreciation allowance still remains unabsorbed that it  can be carried forward to the next assessment year. Obviously, therefore,  there  would  be  no  scope  for  the applicability of  proviso (b)  to clause  (vi) if  the total income of  the assessee.  chargeable to tax is sufficient to absorb the  depreciation allowance, for then there would not be any  unabsorbed  depreciation  allowance  to  be  carried forward to the following assessment year. But where any part of the depreciation allowance remains unabsorbed after being set off  against the  total income chargeable to tax, it can be carried  forward under  proviso (b) to clause (vi) to the following year and set off against that years’ income and so on for  succeeding years.  The method adopted by the statute for achieving  this  result  is  that  the  carried  forward depreciation allowance is deemed to be part of and stands on exactly the  same footing  as, the  current depreciation for the assessment year and is thus 1150 allowable as  a  deduction  under  clause  (vi).  It  would, therefore, be  seen that  when the  profits or  gains  of  a business for a particular assessment year are to be computed under section 10, the current depreciation allowance for the assessment year  in question is deductible under clause (vi) but the  depreciation allowance of the preceding years would be liable  to be  taken into  account only  if, and  to  the extent to  which, it  is not absorbed by the total income of the assessee  computed under  different heads and chargeable to tax for those assessment years.      The position  in regard  to development  rebate is  the same. The  relevant provision  in that behalf is to be found in clause  (vi-b) of  sub-section (2)  of section  10.  That clause, insofar as material, provides as follows:           "10(2). Such  profits and  gains shall be computed      after making the following allowances, namely,      (vi-b) in  respect of  new machinery or plant installed      after the 31st day of March, 1954, which is wholly used      for the  purposes of  the business  carried on  by  the      assessee, a sum by way of development rebate in respect      of the  year of  the installation  of the  machinery or      plant, equivalent to,-           (i)        .                 .              .           (ii) in the  case of  machinery or plant installed                before the  1st day  of April,  1961, twenty-                five per cent and in the case of machinery or                plant installed  after  31st  day  of  March,                1961, twenty  per cent  of the actual cost of                the machinery or plant to the assessee;           Explanation 1.  In the  case of machinery or plant                installed after  the 31st  day  of  December,

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              1957, where  the total income of the assessee                for  the  year  of  installation  (the  total                income  for   this  purpose   being  computed                without  making   any  allowance  under  this                clause) is  nil or  is  less  than  the  full                amount of  the development  rebate calculated                at the  rate applicable  thereto  under  this                clause,-           (i)  the sum  to be  allowed by way of development                rebate for  that year under this clause shall                be only  such  amount  as  is  sufficient  to                reduce the said total in come to nil; and           (ii) the amount  of the development rebate, to the                extent to  which it  has not  been allowed as                aforesaid, shall be 1151                carried forward  to the  following year,  and                the development  rebate to be allowed for the                following year  shall be  such amount  as  is                sufficient to  reduce the total income of the                assessee  for  that  year,  computed  in  the                manner aforesaid,  to nil, and the balance of                the  development   rebate,  if   any,   still                outstanding shall  be carried  forward to the                following year  and so on, so however that no                portion of  the development  rebate shall  be                carried forward for more than eight years; The amount of development rebate in respect of new machinery used for  the purpose  of the  business is  allowable in the year of  installation of the machinery under sub-clause (ii) of clause  (vi-b), but  Explanation (1) provides that if the total income of the assessee for the year of installation is nil or  is less  than the  full amount  of  the  development rebate, the  amount of the development rebate, to the extent to which  it is  not absorbed, may be carried forward to the following year  and set  off against the total income of the assessee for that year and if even thereafter, a part of the development   rebate   remains   unabsorbed,   the   balance outstanding may be carried forward to the following year and so on  for an  aggregate period  not exceeding  eight years. Though the  amount of  the development  rebate is, under the main  provision   in  sub-clause   (ii)  of  clause  (vi-b), allowable in the first instance against the profits or gains of the  particular business whose profits or gains are being computed, clause  (i) of Explanation (1) makes it clear that if any part of the development rebate remains unabsorbed, it is to  be set  off against  the other income of the assessee under any  of the  chargeable heads  and it  is only if some part of  the development  rebate still  remains  outstanding that it  can be  carried forward to the following assessment year and  set off  against the  total income of the assessee for that year. The amount of the development rebate is to be set off  against the  total income  of the  assessee and not merely against  the  profits  or  gains  of  the  particular business in  respect of  which  the  development  rebate  is granted and  so also  the development  rebate which  remains unabsorbed and  is carried  forward to  the next  assessment year is, by reason of clause (ii) of Explanation 1 to be set off  not   merely  against  the  profits  or  gains  of  the particular business  but against  the total  income  of  the assessee for that year. It would, therefore, be seen that it is only  where the amount of development rebate has not been fully set  off against  the total  income of the assessee in the past  assessment years  and a  part of  it still remains unabsorbed and  is carried forward to the assessment year in

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question that it can be allowed against the profits 1152 or gains  of the business for the particular assessment year and if there is still some balance outstanding, then against the other  income of  the assessee for that assessment year. But if  the amount  of the  development rebate is wholly set off against  the total  income of  the assessee  in the past assessment years  and there  is  no  unabsorbed  development rebate to  be carried  forward to  the  assessment  year  in question, there  would be  nothing in  respect of  the  past development rebate to be set off against the profit or gains of the  business under  clause (ii) of Explanation 1. It is, therefore, necessary,  when the profits or gains of business are being  computed under  section 10  to ask  the  question whether the  machinery in  respect of  which the development rebate is  admissible has  been installed  in the assessment year in  question, and  if it  is found  that  it  has  been installed earlier,  whether  any  part  of  the  development rebate has  remained unabsorbed  against the total income of the assessee  in the  past assessment  years and  is carried forward to  the present assessment year. In a case where the machinery is  installed in an earlier assessment year, it is only if  the whole  of the  development rebate  has not been fully set  off against  the total income of the passessee in the past  assessment years  and a  part of  it has  remained unabsorbed and  is carried  forward that  it can  be set off against the  profits  or  gains  of  the  business  for  the particular  assessment   year  But   if  the  whole  of  the development rebate  has been  absorbed and  no part of it is carried forward,  there can  be no  question of  allowing it against the  profits’ or  gains  of  the  business  for  the assessment year in question.      Now, sub-section  (3) of  section 15C provides that the profits or  gains of  a new  industrial undertaking shall be computed under  section  10  and,  therefore,  according  to clause  (vi)   read  with   proviso  (b),  no  part  of  the depreciation  allowance   and  according  to  clause  (vi-b) Explanation 1,  no part of the development rebate in respect of the  new industrial  undertaking for  the past assessment years can be allowed as a deduction in computing the profits and gains,  unless it  has remained  unabsorbed by reason of inadequacy of the total income chargeable to tax in the past assessment years-and,  as pointed out above, by total income we mean  not only  profits or  gains derived  from  the  new industrial undertaking but the totality of profit’s or gains computed under  various heads-and  is carried forward to the assessment year in question. There is nothing in sub-section (3) of  section 15C  or in  any other  provision of  the Act which requires  that in  computing the profits or gains of a new industrial  undertaking under  section 10,  depreciation allowance or  development  rebate  in  respect  of  the  new industrial undertaking  for the past assessment years should be taken  into account,  even if  it has  been set off fully against the profits or gains. 1153 of any  other business carried on by the assessee or against income under  any other  head and  there  is  no  unabsorbed depreciation allowance  or development  rebate to be carried forward. It  is indeed  difficult to  see how  effect can be given to depreciation allowance and development rebate twice over, once  in the  past assessment  years and  again in the assessment year  in question. To give effect to depreciation allowance or  development rebate  for  the  past  assessment years,  even  though  it  has  been  set  off  and  absorbed completely against  the total  income of  the  assessee  for

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those assessment  years would  be to  allow a  deduction not warranted by any provision of the Act and indeed it would be going, contrary  to the  express provision of proviso (b) to clause (vi)  and Explanation 1 to clause (vi-b). Sub-section (3) of  section 15C  clearly does  not have any such effect. What it  does is no more than provide as to how "the profits or gains  derived from  new industrial undertaking" referred to in  sub-section (1)  of section 15C shall be computed. If sub-section (3)  of section  15C had  not been  enacted,  it might have  been a  matter of some controversy as to what is meant by  the expression  "the profits  or derived  from new industrial undertaking".  Does it mean commercial profits or gains or  profits or gains chargeable to tax or does it have any other  connotation? It  was to  set this  controversy at rest that  sub-section (3)  of section  15C enacted that the profits or  gains of the new industrial undertaking shall be computed in accordance with the provisions of section 10. It may be  noted that  sub-section (3)  of section 15C does not enact any  legal fiction providing that the profits or gains of the  new industrial  undertaking shall  be computed as if the new industrial undertaking were the only business of the assessee from  the date  of its  establishment or  the  past years depreciation  or development  rebate had  not been set off against other income of the assessee. The new industrial undertaking is  not retrospectively  quarantined or isolated from the  other income  producing activities of the assessee for determining  its profits  or gains  for the  purpose  of applicability of  sub-section (1)  of section 15C. What sub- section (3)  of section  15C does  is merely to lay down the same rule  of computation  for the profits or gains of a new industrial undertaking  as in  respect of any other business and,   therefore,   neither   depreciation   allowance   nor development  rebate   in  respect   of  the  new  industrial undertaking for  the past assessment years can be allowed as a deduction  in computing  the  profits  or  gains  for  the assessment year  in question, except where and to the extent to which,  it has  not been set off against the total income of the  assessee for those assessment years and has remained unabsorbed. This  is the  plain and  undoubted effect of the language used in sub-section (3) of section 15C. Indeed 1154 the  language  is  so  clear  and  unambiguous  that  it  is impossible to  place any  other construction  upon  it.  But apart from the language of the section, it may be noted that if the  construction contended  for on behalf of the Revenue and upheld by the High Court as well as by the Tribunal were accepted, it  would lead  to the  highly  anomaIous  results that, though,  for the purpose of computing the total income chargeable  to   tax,   the   depreciation   allowance   and development rebate which have been set off against the other income of  the assessee  for the past assessment years would not be  liable to  be taken into account, they would have to be deducted  in  computing  the  profits  or  gains  of  the business for the purpose of applicability of sub-section (1) of section  15C. Thus, there would be two different modes of determining the  profits or  gains of  the business, one for computing the  total income  chargeable to tax and the other for applying  the provisions  of sub-section  (1) of section 15C. We  cannot imagine  that such  a consequence would ever have been intended by the Legislature.      We find in the present case from the undisputed figures on record  that the  whole of  the depreciation allowance of Rs. 1,44,361/-  in respect of the new industrial undertaking for the  assessment year 1959-60 could not be absorbed owing to the total profit of the assessee being insufficient and a

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sum of  Rs. 24,183/-  remained  as  unabsorbed  depreciation which was  carried forward  to the  assessment year 1960-61. The  entire   development  rebate  of  Rs.  5,07,336/-  also remained unabsorbed  and had  to be  carried forward  to the assessment year  1960-61. But  during  the  assessment  year 1960-61 the  total  profit  of  the  assessee  came  to  Rs. 14,13,604/- and  this was  sufficient to absorb not only the carried forward depreciation of Rs. 24,183/- and the current year’s  depreciation,   but   also   the   carried   forward development rebate  of Rs.  5,07,336/- and  the  development rebate of  Rs. 1,17,205/-  in respect of machinery installed in that  assessment year. The result was that no part of the depreciation  allowance   or  development   rebate  remained unabsorbed to  be carried  forward to  the  assessment  year 1961-62. If  that be so, it is difficult to see how any part of the  depreciation allowance  or development  rebate could possibly be  allowed as a deduction in computing the profits or  gains   of  the   new  industrial  undertaking  for  the assessment year  1961-62. It  is  only  if  a  part  of  the depreciation allowance  or development  rebate had  remained unabsorbed against  the total  income of the assessee in the past assessment  years that  it could be carried forward and set off  against the  profits or gains of the new industrial undertaking  for  the  assessment  year  1961-62.  But  when admittedly entire  depreciation  allowance  and  development rebate for the past 1155 assessment years were fully set off against the total income of the  assessee for  those assessment  years and no part of the depreciation  allowance or  development rebate  remained unabsorbed, nothing could be deducted in respect thereof and hence, for the purpose of sub-section (1) of section 15C the profits or  gains of  the new industrial undertaking for the assessment year  1961-62 came  to  Rs.  1,36,822/-  and  the assessee was  in the  circumstances, entitled to the benefit of the exemption under section 15C, sub-section (1). We are, therefore, of  the view  that the  High Court as well as the Tribunal were  in error  in  refusing  the  benefit  of  the exemption under section 15C, sub-section (1) to the assessee for the  assessment year  1961-62. The  same view  must also prevail in  regard to the assessment year 1962-63 for, as we have pointed  out above,  section 84  of the  new Act is, in material respects,  identical as section 15C of the old Act. The reasoning  which has  weighed with us must apply equally in regard  to  the  assessment  year  1962-63  and  we  must likewise hold  that the assessee was entitled to the benefit of the  exemption under  section  15C,  sub-section  (1)  in respect of the assessment year 1962-63 also.      We accordingly  allow  these  appeals,  set  aside  the judgments  of  the  High  Court  and  answer  the  questions referred by  the Tribunal  in both  the appeals in favour of the assessee  and against  the Revenue. The Revenue will pay the costs of the assessee in both the appeals. S.R.                                        Appeals allowed. 1