CORAMANDEL FERTILIZERS LIMITED Vs. INCOME TAX OFFICER HYDERABAD

JUDGEMENT

(1.) The question that arises for consideration in these writ petitions is whether the assessee-company is entitled to the issuance of a certificate under s. 197(3) of the I.T. Act, 1961(hereinafter called "the Act") to the effect that tax need not be deducted at source from the dividend. In W.P. No. 1835 of 1978, the certificate is claimed for the year 1977 by the 2nd petitioner and the other shareholders of the 1st petitioner-company. In W.P.No. 3439 of 1979 a similar certificate is claimed for the year 1978 by the 1st petitioner-company and another shareholder, 2nd petitioner therein, for himself and other shareholders similar placed. In W.P. No. 2611 of 1980, the assessee-company and yet another shareholder seek a similar certificate for the 2nd petitioner and for other shareholders similarly placed, for the year 1979.

(2.) It is stated by the petitioner-company that it is entitled to the benefit of the provisions of s. 80J of the Act. The first year of assessment for which the petitioner-company is entitled to the benefit of s. 80J was the assessment year 1969-70. It declared its first dividend for the calendar year 1972. Under s. 80J, the petitioner-company is entitled to deduction in respect of profits and gains from its newly established industrial undertakings for a total period of five years for which such deduction shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking began to manufacture or produce articles. The petitioner-company, though incorporate on 16/10/1961, with the main object of manufacturing fertilizers by establishing a factory at Visakhapatnam, completed the erection of the factory somewhere in 1967-68 and began production. It declared its maiden dividend of Rs. 76,65,608 for the year 1972 at its annual general meeting held on 21/05/1973. The petitioner-company applied for a certificate under s. 197(3) of the Act to the effect that the said dividend was not chargeable to tax in the hands of the shareholders by virtue of s. 80K and, therefore, no tax was deductible. The Revenue took the stand that the petitioner-company has not actually obtained deduction under s. 80J and, therefore, the shareholders were not entitled to claim deduction under s. 80K. The petitioner-company, therefore, moved this court in W.P. Nos. 2279 and 2280 of 1973 for a writ of mandamus against the ITO to issue a certificate under s. 197(3). For the subsequent year also, the 1st petitioner declared a dividend which according to the petitioner company was wholly exempt from tax in the hands of its shareholders and it applied for a certificate under s. 197(3). the petitioner-company filed two more writ petitions, WPs. Nos. 4305 and 4306 of 1974. This court by its judgment dated 18/09/1974, [1976] 102 ITR 535 (AP) allowed all these writ petitions and directed the ITO to issue a certificate under s. 197(3) as prayed for. The Revenue carried the matter in appeal to the Supreme Court. The Supreme Court, in its judgment in Union of India v. Coromandel Fertilizers Ltd. [1976] 103 ITR 533 (SC), dismissed the appeal and affirmed the decision of this court. It is the grievance of the petitioner that in spit of these writ petitions being allowed (by this court) in respect of the dividend declared by the petitioner-company for the years 1972 and 1973, the ITO did not issue the certificates. They were issued only after the decision of the Supreme Court in 1975. In spite of the above, for the succeeding years, i. e., 1974, 1975 and 1976, certificates have not been issued and hence the company was constrained to file these three writ petitions. He points out that the total deduction to which the petitioner-company is entitled under s. 80J as stated in paragraph 12 of the affidavit filed by the petitioner, amounts to Rs. 10,46,59,377 and the total dividend declared from the date of the declaration of the maiden dividend in 1972 up to and inclusive of 1976 is only Rs. 6,70,74,070. There is thus unavailed deduction of Rs. 3,75,85,307 to the credit of the petitioner-company and, hence, there can be no impediment in granting the certificate in respect of a dividend of Rs. 1,97,64,000 proposed by the petitioner-company for the year 1974. Some of the deductions claimed, while W.P. No. 1835 of 1978 was pending, were the subject-matter of appeal before the Tribunal and pursuant to the order of the Tribunal, the ITO later modified his order relating to the deduction under s. 80J. As per the revised calculation made by the ITO in accordance with the order of the Tribunal, the petitioner-companys entitlement to the deduction under s. 80(J) rose from Rs. 10,46,59,377 to Rs. 12,71,17,504. By another order dated 11/11/1981, the ITO amended the order and the companys entitlement under s. 80J for the five years rose further to Rs. 13,21,36,159, while the dividend declared for all these years was Rs. 6,52,00,089. The Revenue, however, does not accept these figures and has not acted upon them claiming that the judgment of this court declaring rules 19A(2) and 19A(3) as ultra virus is the subject-matter of an appeal to the Supreme Court and hence the order of the AAC or the Tribunal on the basis for which the deduction under s. 80J is worked out, cannot be the basis for allowing the benefit of s. 80K, and for a determination under s. 197(3). It is their further case that these profits are not wholly attributable to the deduction under s. 80J. In any event, it is pointed out by the learned counsel for the Revenue, Sri Srirama Rao, that even according to the assessee, if rule 19(A) is held to be intra virus the Act and the entitlement of the petitioner-company is calculated according to the said rule, the petitioner-company would not be entitled to a deduction of Rs. 13 crores odd as now claimed by it would be very much less. Hence, until the petitioner-companys entitlement to the deduction under s. 80J is finally determined the certificate under s. 197(3) cannot be directed to be issued.

(3.) Section 80K of the Act makes provision for deduction from the total income of a person in respect of dividends attributable to the profits and gains from new industrial undertakings or ships or hotel business. These deductions are to be made subject to any rules that may be made by the Board. Among others this deduction is to be of an amount equal to such part therefore as is attributable to the profits and gains derived by the company from an industrial undertaking on which no tax is payable by the company under this Act or in respect of which the company is entitled to a deduction under s. 80J of the Act for the assessment year commencing on 1/04/1968, or for any subsequent assessment year. The petitioner-company, is a company which is entitled to claim the benefit of s. 80J of the Act. In computing the total income of individual shareholders, if any dividend is earned by the shareholders and the assessee-company is entitled to the benefit of deduction under s. 80J of the Act, the Shareholder is entitled to deduction envisaged by s. 80K of the Act, Section 194 requires the principle officer of an Indian company declaring a dividend to deduct from the amount of such dividend income-tax at the rates in force before issuing a cheque, dividend warrant or before making any payment to the shareholder. But, if the ITO issues a certificate that the income of the shareholder will be less that the minimum liable to income-tax, then the dividend shall be paid without making such deduction. section 197(1) envisages issuance of a certificate for deduction at a lower rate or for no deduction of income-tax, as the case may be, on an application made by an assessee other than a company in this behalf. On production of such a certificate, the person responsible for paying the income deducts income-tax at source at the rates specified in such a certificate or deducts no tax at all, as the case may be. In the case of a company the principal officer of the company may make similar application if by reason of the provisions of s. 80K the whole or any portion of the dividend referred to in s. 194 will be deductible in computing the total income of the recipient before paying the dividend to the shareholder. On such determination by the ITO, no tax shall be deducted on such proportionate amount. The shareholders of the petitioner-company are entitled to such a certificate so long as the benefit of s. 80J is available to the petitioner-company. Sub-s. (3) of s. 197 of the Act lays down the step to be taken by the principal officer of a company in whose opinion the whole or any portion of the dividend referred to in s. 194 will be deductible in computing the total income of the receipt. That sub-section reads as follows :