Case: Union Of India &amp; Others Vs. Coromandel Fertilizers Limited &amp; Anr

M/s Coromandel Fertilesers Limited (First Respondent) is a registered company incorporated on October 16, 1961, under the Companies Act and the 2nd Respondent is one of its shareholders holding two hundred equity shares in the paidup capital of the company out of a total number of 95, 82, 010 equity shares issued by it. The company was engaged in manufacture of fertilisers at its factory at Vishakhapatnam and it commenced production in Decemberis no dispute that the company as such fulfilled the appropriate conditions laid down under sub-section 4 of section 80J of the Act to qualify for deduction in respect of profits upto an extent of six per cent per annum on the capital employed in respect of profit for the purpose of computation ofcompany was assessed to income-tax as an industrial undertaking for the first time for the assessment year 1969- 70. The orders of assessment were passed on 23-11-1972 and 4-1-1973. The said orders disclosed a sum of Rs. 11, 10, 176/- being carried forward as unabsorbed losses to the succeeding year and a sum of Rs. 9, 73, 93, 861/- being carried forward as unabsorbed depreciation to the subsequentcapital employed by the company in its new industrial undertaking was Rs. 48, 87, 38, 018/- and 6% thereof under section 80J(1) amounted to Rs. 2, 93, 24, 281/-. Out of this amount, the amount relating to the ten months of the year confined to the period during which the industrial undertaking was in operation was determined by the Income- tax Officer at Rs. 2, 44, 36, 901/-. As no profit was made in the assessment year 1969-70 the aforesaid "deficiency" within the meaning of section 80J(3) was carried forward to the succeeding year 1970-71. Similarly for the next assessment year 1971-72 it was recorded in the assessment order that the company was entitled to deduction of Rs. 2, 58, 31, 806/- under section 80J. As there were no profits to be absorbed, the said amount has been carried forward under section 80J(3) to the succeeding assessment year 1971-72. The returns filed for the assessment year 1971-72 by the company have not been finalised. But all t he same the company, as per its books, had made a profit of Rs. 4.55 crores approximately in the accounting year 1972 corresponding to the assessment year 1973-74. It does not appear to be disputed that for the assessment year 1973-74 , the companys income after deducting depreciation for that year would come to Rs. 6.16 crores. This amount would be subject to set off against unabsorbed depreciation and business losses which would exceed the said Rs. 6.16 crores resulting in nil total income with some unabsorbed depreciation and business loss to be carried forward to the next assessment year 1974-75. It is not disputed that after setting off the brought-forward allowances the company will not be assessable to any income-tax upto the assessment year 1973-74.The company made business profit of Rs. 4.55 crores in the year 1972. The Board of Directors at their meeting held on March 14, 1973, recommended declaration of a maiden dividend of Rs. 76, 65, 608 /- out of the profits of that year. The company represented to the Income-tax Officer on March 3, 1973, seeking a certificate under section 197(3) of the Act pointing out that the dividend payable by it would qualify for deduction in the hands of the shareholders under section 80K of the Act., The company sought permission of the Income-tax Officer not to deduct tax at source out of the dividend payable to the shareholders. The request of the company was rejected by the Income-tax Officer holding that the shareholders were not entitled to the benefit of section 80K of the Act. On coming to know about the declaration of the dividend by the company, even the Respondent-shareholders had also requested the company to obtain the necessary certificate. The refusal of their request led to the institution of writ applications by the respondents before the High Court of Andhrato the High Court the shareholders are entitled to claim deduction under section 8 0K of the Act and the company was entitled to an order of the Income-tax officer under section 197(3) for issuing a certificate enabling it not to deduct tax out of the dividend payable to the shareholders.

Court's reasoning:
A perusal of sections 80J(3) and 15C would clearly show the difference in the scheme of the two provisions. Broadly speaking, there was no question of "carry forward" from one accounting year to the succeeding year or years the sums allowable under sectionis another vital distinction. While section 15C(4) refers to relief in case of only taxable profits, section 80K provides that in computing the total income of an assessee whose gross total income includes any income by way of dividends, 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 under taking on which no tax is payable by the company under the Act or in respect of which the company is entitled to deduction under section 80J (emphasis supplied). T he expression "or in respect of which the company is entitled to a deduction under section 80J" introduces a new concept. There is no legal requirement of a de facto deduction of the amount in question in the particular assessment y ear. As against actual deduction the companys entitlement to deduction in the relevant year is enough to answer the requirement of section 80J. Necessarily, therefore, the dividend-earner will also be entitled to invoke section 80K and obtain pari passu the benefit of theare unable to accept this submission. Under old section 15C, the shareholder was entitled to relief only when the company was able to get actual deduction. Both were at par. The parity has been sought to be maintained under the amended provisions of sections 80J and 80K between the company and the shareholder. The company, when becomes entitled to deductions under section 80J(1), gets it either in that year or by a set off in subsequent years. If the interpretations which we have put to the new sections were not to hold good, the result will be that the shareholder will be debarred from getting any relief when dividend is declared in a year in which the company, because of section 80A(2), is not able to get actual deduction. The company will reap the advantage of set off under section 80J(3) in subsequent years, while the shareholder for the dividend declared in the past, will get no relief, under section 80K. This anomaly is avoided, and the legislature intended to avoid it, by use of the expression "the company is entitled to a deduction" in section 80K and on the interpretation we have put above.We are, therefore, clearly of opinion that the company was not required under the law to deduct at source tax from the dividends which they were declaring to the shareholder. The company was entitled to an appropriate certificate from the Income-tax Officer under section