DIVAN, C. J. -
(1.) THE question that arises for consideration in the present case is the scope and interpretation of s. 80K of the IT Act, 1961. THE special civil application has been filed by the two petitioners challenging the decision of the respondent herein, ITO, Company Circle-IV, Ahmedabad, in deciding to grant relief under s. 80K only to that portion of the exempted dividend which has been worked out at Rs. 77,42,921 and it is prayed that the respondent should be directed to issue a certificate in accordance with law showing therein the portion of the exempted dividend of Rs. 95,50,889 in respect of the Polyester Fibre plant and the Sulzer plant of the first petitioner-company. THE decision of the respondent is dated August 24, 1978.
(2.) THE first petitioner-company is a limited company and is engaged in manufacture of textiles, chemicals, plastics and polyester fibre. THE petitioner company's shareholders number about 52,000. THE relevant accounting period for the purpose of s. 80K of the IT Act, 1961, is the year ended 31st March, 1978, corresponding to the asst. yr. 1978-79. THE second petitioner is a wholetime director of the petitioner-company and also holds thirteen ordinary shares of the first petitioner-company.
The first petitioner-company had established new industrial undertakings by installingPolyester fibre plant at Baroda in the asst. yr. 1975-76, the corresponding accounting period being 1974- 75. The petitioner had also installed Sulzer plant in the accounting year 1975-76 the assessment year being 1976-77. The said plant fulfilled all the conditions for the grant of necessary relief under s. 80J of the Act of 1961. Accordingly, in the course of assessment of the petitioner-company for the assessment years commencing from the asst. yr. 1975-76, the relief to which the petitioner- company was entitled under s. 80J of the Act was being worked out and to the extent that the profit in respect of the said plant was not sufficient to absorb the saidrelief, the amounts of the said relief were carried forward to the subsequent years as provided by s.80J(3). In this manner, in respect of the said assessment years commencing from asst. yr. 1975-76, the 1st petitioner- company had applied for the requisite certificates under s. 80K r/w s. 197(3) for the purpose of enabling the shareholders of the petitioner-company to claim exemption out of the dividends received by them because the relief under s. 80J was allowable to the petitioner-company in those years. The ITO concerned issued the requisite certificates under s. 80K from asst. yrs. 1975-76 to 1977-78 and in those certificates, for the purpose of determining the exempted portion of the dividend out of the total dividend amount declared by the petitioner-company, the relief allowable to the petitioner- company under s. 80J was taken as the total relief llowable under the said s. 80J being six per cent. of the capital employed in the said new undertakings, irrespective of the fact whether the said plants made any profit or not and whether or not the petitioner-company actually got the said deduction under s. 80J in the computation of its total income in the said respective assessment years or whether the said amount was carried forward to subsequent years under s. 80J(3).
For the asst. yr. 1978-79, the corresponding accounting year being the year ended on 31st March, 1978, the petitioner-company declared a total dividend of Rs. 1,11,86,231 to its shareholders. In respect of the said dividend thus declared, the petitioner- company made an application to the respondent on 5th July, 1978, under s. 197(3) r/w s. 80K of the Act,requesting for a certificate under s. 80K to indicate the exempted percentage of the total dividend to enable the shareholders to claim the necessary relief in their assessments under s. 80K, in view of the fact that the two aforesaid plants of the petitioner-company, namely, Polyester fibre plant andSulzer plant, were entitled to relief under s. 80J of the Act and in respect of which relief the shareholders would be entitled to the benefit under s. 80K according to the first petitioner-company.
(3.) IN the said application, the first petitioner-company stated that, on the basis of thepercentage of capital employed in the respective plants, the Polyester plant was entitled to relief under s. 80J to the extent of Rs. 1,00,35,434 and the Sulzer plant was entitled to relief to the extent of Rs. 24,07,556, aggregating in all to Rs. 1,24,42,990. This calculation was based on the capital computation arrived at without deduction of any liability therefrom, in view of the decision of the Calcutta High Court in the case of Century Enka (1977) 107 ITR 123 and 909 (Cal) and also the deci- sion of the Full Bench of the Bombay Tribunal in the case of Amar Dye Chemicals Ltd. These two decisions took the view that in computing the capital base, r. 19A should not be applied as it was inconsistent with s. 80J. However, the actual working out of the capital base is not relevant, according to the petitioner, for the purpose of the present litigation, and in the course of arguments before us. Mr. Kaji for the petitioner has proceeded on the footing that the decisions in Century Enka's case (supra) and the Full Bench decision of the Bombay Tribunal in Amar Dye Chemical Ltd.'s case may not be applied to the facts of the present case.
The respondent addressed a reply dated July 28, 1978, to the first petitioner-company,calling for certain information and, in particular, the respondent inquired as to the total income of the petitioner-company for the asst. yr. 1978-79 as well as the profits of the Polyester fibre plant and the Sulzer plant for the accounting years relevant to asst. yrs. 1978-79 and 1977- 78. By its reply dated August 5, 1978,the petitioner-company furnished the necessary particulars to the respondent. The petitioner- company stated that the total income of the first petitioner- company for the said asst. yr. 1978-79 was nil and there were carried forward losses, depreciation, etc., in respect of the preceding years. The petitioner-company also stated that the profits of the Polyester Fibre plant for the asst. yrs. 1978-79 were Rs. 4,66,73,159, as computed under ss. 29 to 44 of the IT Act. Inrespect of the Sulzer Plant, it was pointed out that there was no profit for'the asst. yr. 1978-79 as computed under ss. 29 to 44 of the IT Act. The petitioner-company further furnished the computation of the exempted portion of dividend under s. 80K r/w r. 20. The petitioner- company also stated in the said letter that though the profits computed under the IT Act in respect of the said two plants were as aforesaid, the book profits forming part of the balance-sheet and profit and loss account of the company in respect of the said two plants were-Polyester Fibre division Rs.4,40,02,479 and Sulzer Plant Rs. 1,66,159. The petitioner- company further stated that the relevant amount of the relief under s. 80J allowable to the company in respect of the aforesaid two plantswould be Rs. 1,24,42,990, being the aggregate of the two sums which we have mentioned above.As the dividend declared amounted to Rs. 1,11,86,231, the percentage of the exempted portion of the dividend would on that basis be one hundred per cent. The petitioner- company, therefore,requested for the issue of the certificate under s. 80K praying for one hundred per cent. exemption certificate.;