Industrial undertaking exemption: prior depreciation and development rebate already absorbed cannot be deducted again in later profit computation.

In computing profits of a new industrial undertaking for exemption under section 15C of the 1922 Act and section 84 of the 1961 Act, earlier depreciation and development rebate could be carried forward only if they remained unabsorbed against the assessee's total income of those years. Once fully absorbed, those allowances could not be deducted again from the undertaking's current-year profits to reduce the exemption. The exemption therefore applied on the computed profits of the new unit, without reopening allowances already exhausted in prior years. The same construction governed both provisions, and the exemption claims for the relevant assessment years were upheld.

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Issues: Whether, in computing the profits or gains derived from a new industrial undertaking for the purpose of exemption under section 15C of the Indian Income-tax Act, 1922 and section 84 of the Income-tax Act, 1961, depreciation allowance and development rebate of earlier years, already fully absorbed against the assessee's total income, could again be carried forward and deducted so as to deny the exemption.

Analysis: The exemption provisions granted relief on so much of the profits or gains derived from a new industrial undertaking as did not exceed the prescribed percentage of capital employed. The profits of the undertaking had to be computed under section 10, but that computation was governed by the ordinary rules of set-off and carry forward. Depreciation and development rebate of earlier years could be carried forward only when they remained unabsorbed against the assessee's total income of those years. Once those allowances had been fully absorbed against the aggregate income chargeable to tax, they could not be deducted again while computing the current year's profits of the new undertaking. The section did not create a fiction that the new unit had to be treated as isolated from the assessee's other businesses for all past years.

Conclusion: The assessee was entitled to the exemption under section 15C for the relevant assessment year, and the same construction applied to section 84 for the subsequent assessment year.

Final Conclusion: The appeals succeeded, the contrary view of the High Court and the Tribunal was set aside, and the exemption claims were upheld for both assessment years.

Ratio Decidendi: For purposes of industrial undertaking exemption, past depreciation and development rebate can be carried forward only to the extent they remain unabsorbed against the assessee's total income for the earlier year; amounts fully absorbed cannot be reopened or deducted again in computing the undertaking's profits for the exemption year.

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