Industrial undertaking exemption applies only to qualifying profits after statutory depreciation set-off in composite business income

Section 15C exemption was confined to profits actually derived from the industrial undertaking, so a composite business could not treat all income as exempt merely because one qualifying undertaking existed. Income from non-industrial activities remained outside the relief, and the issue was decided against the assessee. Carried-forward depreciation had first to be set off in computing the industrial undertaking's profits under section 10; only the resulting qualifying balance could then be exempted under section 15C. The computation did not create a double benefit, and this issue was also decided against the assessee.

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Issues: (i) Whether, where an assessee carried on both industrial and non-industrial activities, the whole of its income could be exempt under section 15C merely because the industrial undertaking existed and the total income was within six per cent. of capital employed; (ii) whether unabsorbed depreciation brought forward from the earlier year had to be adjusted only against the industrial undertaking's profits so as to enlarge the exempt portion.

Issue (i): Whether, where an assessee carried on both industrial and non-industrial activities, the whole of its income could be exempt under section 15C merely because the industrial undertaking existed and the total income was within six per cent. of capital employed.

Analysis: Section 15C grants exemption only on so much of the profits or gains as are derived from an industrial undertaking, and the exemption is granted to the assessee in respect of qualifying profits, not to the undertaking as a separate unit of assessment. The section therefore requires a clear nexus between the profit claimed as exempt and the industrial undertaking. Income from other trading activities, even if carried on by the same assessee, cannot be brought within the exemption merely because the assessee also runs a qualifying industrial concern. A composite business does not convert all its profits into industrial profits for the purpose of the exemption.

Conclusion: The whole of the assessee's income was not exempt; only profits derived from the industrial undertaking could qualify. The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether unabsorbed depreciation brought forward from the earlier year had to be adjusted only against the industrial undertaking's profits so as to enlarge the exempt portion.

Analysis: The profits of the industrial undertaking had to be computed in accordance with section 10, and the carried-forward depreciation was required to be set off in that computation. After such computation, only the balance of profits derived from the industrial undertaking, to the extent permitted by section 15C, could be exempted. The method adopted did not confer a double benefit; it merely applied the statutory computation first to the business as a whole and then to the industrial undertaking's qualifying profits. The assessee's claim that the entire net balance after depreciation should be treated as exempt was inconsistent with the wording and scheme of the section.

Conclusion: The depreciation set-off and the exemption computation were correctly made, and the issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The exemption under section 15C was confined to profits actually derived from the industrial undertaking, and the statutory computation under section 10 governed the treatment of carried-forward depreciation. The reference was answered against the assessee.

Ratio Decidendi: Exemption provisions granting relief on profits derived from an industrial undertaking apply only to qualifying industrial profits, and in a composite business the statutory computation must first isolate those profits in accordance with the Act before granting exemption.

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