Shareholders entitled to Section 15C(4) benefits, court clarifies computation rules. (4)

SS Sivan Pillai And Others Versus Commissioner Of Income-Tax, Madras.

SS Sivan Pillai And Others Versus Commissioner Of Income-Tax, Madras. - [1966] 61 ITR 179 Issues Involved:
1. Interpretation of Section 15C of the Income-tax Act, 1922.
2. Scope of exemption available to shareholders in receipt of dividends.
3. Computation of income under Section 10 and its impact on Section 15C.
4. Applicability of unabsorbed depreciation and carry-forward losses under Section 24.
5. Determination of whether Sri Ganapathy Mills Company Limited qualifies as a new industrial undertaking under Section 15C(2).

Detailed Analysis:

1. Interpretation of Section 15C of the Income-tax Act, 1922:
The central issue revolves around the interpretation of Section 15C, particularly subsections (1), (3), and (4). The court examined the policy behind Section 15C, which aims to grant tax concessions to newly established industrial undertakings to encourage and sustain them. The court noted that Section 15C(1) provides exemption from tax on a portion of the profits or gains derived from an industrial undertaking, limited to six percent per annum on the capital employed.

2. Scope of Exemption Available to Shareholders in Receipt of Dividends:
The shareholders argued that they were entitled to the benefit of Section 15C(4) for dividends received from Sri Ganapathy Mills Company Limited. The court clarified that the exemption under Section 15C(4) applies to dividends attributable to profits or gains on which tax is not payable under Section 15C(1). The court emphasized that the shareholders' exemption should be based on the profits or gains of the industrial undertaking computed under Section 10, without considering the overall result of the company's assessment.

3. Computation of Income Under Section 10 and Its Impact on Section 15C:
The court examined the computation of profits or gains under Section 10 as directed by Section 15C(3). It was determined that the computation should be confined to the provisions of Section 10, excluding other considerations like Section 24. The court stated that profits or gains for the purpose of Section 15C should not include deductions, allowances, or set-offs of carry-forward losses.

4. Applicability of Unabsorbed Depreciation and Carry-Forward Losses Under Section 24:
The court addressed the issue of whether unabsorbed depreciation and carry-forward losses under Section 24 should be considered in the computation of profits or gains under Section 15C. It concluded that these should not enter into the computation under Section 15C(3). The court noted that only current year's depreciation under Section 10(2)(vi) and additional depreciation under Section 10(2)(via) should be allowed in computing the profits or gains for the purpose of Section 15C.

5. Determination of Whether Sri Ganapathy Mills Company Limited Qualifies as a New Industrial Undertaking Under Section 15C(2):
The court did not make a determination on whether Sri Ganapathy Mills Company Limited qualifies as a new industrial undertaking under Section 15C(2). It stated that this is a matter for independent determination by the appropriate authority.

Conclusion:
The court answered the question in favor of the assessees, stating that the shareholders are entitled to the benefit of Section 15C(4) based on the profits or gains of the industrial undertaking computed under Section 10. The court emphasized that the computation should exclude unabsorbed depreciation and carry-forward losses. The judgment clarified that the overall result of the company's assessment should not affect the shareholders' entitlement to exemption under Section 15C(4). The court awarded costs to the assessees, including counsel's fee of Rs. 250.