Case: Ahmedabad Manufacturing and Calico Printing Company Limited and Another Vs. A. V. Joshi

B.N. KIRPAL J. In this appeal (Guj)), the only question which arises for consideration is with regard to the scope and interpretation of section 80K of the Income-tax Act, 1961 (hereinafter referred to as "the Act") The appellant is a public limited company and is engaged in the manufacturing of textiles, chemicals, etc. It established a new industrial undertaking by installing a polyester fibre plant at Baroda in the accounting year of 1974-75, 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 80J of the Act. Accordingly, in the course 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 absorb the said relief, the amounts of the said relief were carried forward to the subsequent years as provided by section 80J(3) of the Act. For the said assessment years commencing from 1975-76, the company applied for the 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 80J of the Act was taken as the total relief allowable under the said provision being six per cent. of the capital employed in the said new undertakingDuring 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 80K of the Act requesting for a certificate under the said section 80K. According to the appellant, the relief claimed was Rs. 1, 00, 35, 434 for the Baroda plant and Rs. 24, 07, 556 for the 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 the 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 six per cent. 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 85.38 as against 100 per cent. 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 per cent. 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 80K in respect of the said plant. It further observed that only Rs. 77, 42, 921 referable to six per cent. of the capital employed in the polyester fibre plant, as computed by the respondent, was entitled to exemption under section 80K out of the total dividends of Rs. 1, 11, 86, 231. On that basis, the respondent issued a certificate under section 80K dated August 24, 1978, which was designated as a provisional certificate. On the appellants 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 plantThe High Court of Gujarat, by the impugned judgment dated January 29, 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 80K 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 v. Coromandel Fertilizers Ltd. 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 Rajapalayam Mills Ltd. v. CIT and CIT v. Patiala Flour Mills Co. P. Ltd. The decision of this court in Coromandel Fertilizers case related to the interpretation of section 80K 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 a 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 attractedThe 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-judge Bench in Patiala Flour Mills Co.s case (SC) and Rajapalayam Mills case (SC) which interpretation was not present when this court decided Coromandel Fertilizers case, the provisions of section 80K were not applicable when the profits and gains derived by the company from a new industrial undertaking when computed under the provisions of the 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 Fertilizers case. It is not in dispute that there was an entitlement to the appellant in the present case under section 80J and this being so the decision in Coromandel Fertilizers case (SC) was clearly applicable. Patiala Flour Mills case 1970 (115) ITR 640 (SC) was concerned with section 80J of the Act and Rajapalayam Mills case (SC) was essentially concerned with section 15C of the Act of 1922, and section 84 of the Act of 1961. In neither of these two cases was any reference made to Coromandel Fertilizers case (SC) for the simple reason that it was not necessary. When the assessee is entitled to the benefit under section 80K 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 (SC) and Rajapalayam Mills case (SC) 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 80J 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 Fertilizers case (SC), 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

Decision reasoning: 1[ds]In our opinion, there is no justification for the High Court not to have followed the decision of this court in Coromandel Fertilizers case. It is not in dispute that there was an entitlement to the appellant in the present case under section 80J and this being so the decision in Coromandel Fertilizers case (SC) was clearly applicable. Patiala Flour Mills case 1970 (115) ITR 640 (SC) was concerned with section 80J of the Act and Rajapalayam Mills case (SC) was essentially concerned with section 15C of the Act of 1922, and section 84 of the Act of 1961. In neither of these two cases was any reference made to Coromandel Fertilizers case (SC) for the simple reason that it was not necessary. When the assessee is entitled to the benefit under section 80K 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 (SC) and Rajapalayam Mills case (SC) 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 80J 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 Fertilizers case (SC), 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