Ramaprasada Rao, J. -
(1.) THE assessee is a public limited company carrying on business in the manufacture and sale of yarn. During the accounting year ending with March 31, 1959, the assessee set up a new industrial undertaking which admittedly satisfied the requirements of Section 15C(2) of the Indian Income-tax Act, 1922, with which we are concerned in this reference. THE assessment year in question is 1961-62. THE profit, depreciation and development rebate in respect of this unit for the two assessment years 1959-60 and 1960-61 were as under :
(2.) IN the assessment year 1959-60, the total profit of the old and new units amounted to Rs. 2,42,432 which after the set-off of the amount of depreciation and development rebate left a sum of Rs, 24,183 to be carried forward. IN the assessment year 1960-61, the composite business income was Rs. 14,13,604 which after adjustment for depreciation and development rebate left a balance of Rs. 3,49,359. The brought forward sum of Rs. 24,183 was set off against this sum and an assessment was made on a business income of Rs. 3,25,176 and tax was levied accordingly. IN the previous year, relevant for the assessment year 1961-62 (accounting year March 31, 1961), the assessee filed a return showing, inter alia, 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. IN respect of this new unit, the assessee claimed exemption of the income under Section 15C(2) to the extent of 6 per cent. on the average capital employed. The INcome-tax Officer rejected this claim as, according to him, the profit from the new unit had to be reworked and if so done, there was only a loss. His workings were as under :
He said that as against this, the income for the previous year, relevant for the assessment year 1961-62, was only Rs. 1,36,822 and, therefore, the assessee was not entitled to any abatement. The assessee appealed to the Appellate Assistant Commissioner. He held that as the net result for the assessment year 1960-61 was a positive figure, there was no question of once again bringing forward the depreciation of a new unit into computation 1961-62, and that it was 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 Tribunal, on a second appeal, reversed the decision of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. The assessee made an application under Section 66(1) to the Tribunal to refer the following question of law to this court, which the Tribunal did, as in its opinion a question of law did arise out of its order.
"Whether, on the facts and in the circumstances of the case, the assessee-company was entitled to the relief under Section 15C ? "
Section 15C, appearing in Chapter III of the Act, captioned "Taxable income" postulates, inter alia, a situation whereunder a portion of such income is exempt from tax. It provides :
"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 employed in the undertaking, computed in accordance with such rules as may be made in this behalf by the Central Board of Revenue."
Exemption granted in a fiscal enactment has a special signification of its own and has to work on the hypothesis set to gain such an exemption. The prescriptions laid down to claim such an entitlement have to be strictly complied with and such an exemption cannot be granted or availed of on an a priori consideration. It is common ground that the assessee has formed an industrial undertaking as an adjunct to its other accredited trading activities and that the requirements of Section 15C(2) are satisfied. The intendment of the statutory concession contained in Section 15C is explicit and obvious too. It is obvious, because the legislature intends to provide an incentive for expansion of trade and setting up of new industry apparently to vitalise industrial progress. The scope of the exemption is explicit because it is centrifuged in and linked to the new industrial undertaking and the profits and gains which that undertaking would obtain during the period of its working. Such profits of the new undertaking computed in accordance with the provisions of Section 10 of the Act do not have any impact or relation to such profits which the assessee, who forms it, may obtain under the Act. No telescoping of the income, profits and gains of the assessee with that obtained by the new industrial undertaking is envisaged in Section 15C. The assessee and the undertaking, for purposes of Section 15C, independently operate in their respective fields of taxation in so far as Section 15C is concerned. That this is the intention and the content of the exemption provided in Section 15C is clear from Section 15C(4) which provides :
"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."
The word "attributable" deployed in this sub-section has a special connotation. It means "belonging to". The shareholders who gain a contemporaneous advantage along with the industrial undertaking have to establish as a fad; that the dividend has come out of such profits referable to the unit which is exempt from taxation under Section 15C. Section 15G speaks of profits or gains derived by the industrial establishment and not the assessee. A clear cut dichotomy is maintained between the status of an assessee and that of a newly established industrial undertaking ushered in by the assessee. The assessee is different from the new undertaking. The profits and gains derived from an assessee is different and differently treated under Section 15C from that of the new industrial undertaking. Such segmentation which is projected in the section postulates a differential treatment between the parent assessee and the new born undertaking. The former's tax affairs therefore cannot be slided into that of the latter for the latter to gain the statutory exemption under Section 15C. Under the mechanics of the section, the fiscal individuality of the new undertaking is maintained and it acts on its own without reference to the assessee and its composite trading activity, though such an assimilation is allowed generally under the tax laws for the computation of the totality of the assessable income of the assessee. Thus interpreted, Section 15C is self- active and the undertaking gains or fails to avail the exemption according to its earning a profit or otherwise, on its own without reference to the assessee.
(3.) IN the instant case it is common ground that as regards the new industrial undertaking the unabsorbed depreciation and development rebate as found during the assessment year 1960-61 was Rs. 6,90,703. During the assessment year 1961-62, the new unit earned an income of only Rs. 1,36,822. Still therefore the depreciation and development rebate remained without being dissolved. This means that the new unit did not have a taxable income during the assessment year 1961-62. The exemption under Section 15C is only relatable to the profits and gains of the new unit. If, therefore, there are no profits or gains, no question of exemption from tax would arise. The Appellate Assistant Commissioner was prompted to notice the positive figure in the totality of the net income of the assessee during the assessment year 1960-61 and was inclined to disagree with the INcome-tax Officer and hold that for the assessment year 1961-62 the assessee was entitled to claim exemption of that portion of the income during that year attributable to the new undertaking. He, has, however, misappreciated the scope of the exemption. If as already stated the new industrial undertaking has to maintain its individuality in the sense that it has to earn a profit on its own enterprise, and thus absorb the depreciation and/or development rebate from and out of its income, then the question of setting off such unabsorbed depreciation or development rebate against the composite income of the assessee cannot arise. The reasoning that it is only when there, is a loss of the earlier year due to depreciation, etc., attributable to the new unit which could not be set off against the profits of the assessee, it has to be carried forward is fallacious. This would result in submerging the income of both the old and new units into common hotchpot for all purposes including Section 15C, which is not contemplated therein. IN the instant case the unabsorbed depreciation reckoned during the assessment year 1960-61 has to be carried forward for adjustment during the assessment year 1961-62. Thus adjusted, there is no profit for the new unit, resulting in a "no claim" for exemption under Section 15C. Mr. Ramamani would contend that Section 15C ought not to be read in that light as it would result in no practical benefit to the assessee at all as complete absorption of depreciation and development rebate may not be easily possible in a new undertaking within the time prescribed. Hardships however are unknown to tax law. An exemption, and so indeed a tax, cannot be evolved on equitable considerations. They are creatures of statutes and are to be implemented only if the letter of the law is strictly satisfied. Section 15C(3) says :
"The profits or gains of an industrial undertaking or a hotel to which this section applies shall be computed in accordance with the provisions of Section 10,"
Thus computed, there is no profit for the separate new industrial unit during 1961-62. Hence, no concession can be claimed by the assessee under Section 15C. As observed by Srinivasan J. in Ashok Motors Ltd. v. Commissioner of Income-tax;
"If we take the total profits of the composite business, the unabsorbed depreciation allowance has to be deducted therefrom in order to arrive at the taxable profits. Once again, in computing the profits or gains of the industrial undertaking, Section 10 has to be applied and the taxable profits and gains have to be computed by deducting the unabsorbed depreciation referable to the industrial undertaking from the total profits and gains of the underking. After arriving at this figure, that portion of it which dogs not exceed six per cent. of the capital employed will have to be exempted from tax. It, accordingly, involves the notional deduction of the unabsorbed depreciation more than once, but in effect such deduction is effected only once in ascertaining the taxable profits of the composite business."
10. Thus the reckoning of the profits of the new unit by the Income-tax Officer has been rightly approved by the Tribunal. In this view the question has to be answered in the negative and against the assessee with costs. Counsel's fee Rs. 250.