Section 15C dividend exemption turns on section 10 profit computation, not final nil assessment after losses.

For section 15C of the Income-tax Act, 1922, the profits of a newly established industrial undertaking are to be computed under section 10 alone. Carry-forward losses under section 24 and unabsorbed depreciation are not imported into that limited computation. Dividend exemption under section 15C(4) therefore depends on whether profits existed under the restricted section 10 computation when dividends were paid, not on the undertaking's final assessed net result after the full assessment machinery. On that basis, the shareholders' entitlement to the exemption was recognised.

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Issues: Whether shareholders receiving dividends from a newly established industrial undertaking were entitled to exemption under section 15C(4) of the Income-tax Act, 1922, where the undertaking's final assessment showed nil profits after carry-forward losses and unabsorbed depreciation.

Analysis: Section 15C(3) required the profits or gains of an industrial undertaking to be computed in accordance with section 10 only. On that footing, the computation for the purposes of section 15C was confined to current-year business profits and the allowances permitted by section 10, and did not include the set-off of carry-forward losses under section 24 or the absorption of past depreciation losses. The words in section 15C(4) referring to tax not being payable under the section were treated as co-extensive with the exemption scheme in section 15C(1) and did not require the dividend exemption to depend on the undertaking's final assessed result after the whole assessment machinery had been applied. The fact that the company's overall assessment ultimately resulted in nil tax liability did not defeat the shareholders' claim if, on the restricted computation under section 15C(3), the undertaking had profits out of which dividends were paid.

Conclusion: The shareholders were entitled to the benefit of section 15C(4), and the question was answered in the affirmative, against the department and in favour of the assessees.

Ratio Decidendi: For the purpose of section 15C, the profits or gains of an industrial undertaking must be computed under section 10 alone, without importing carry-forward losses or unabsorbed depreciation under section 24, and dividend exemption under section 15C(4) depends on that limited computation rather than the undertaking's final assessed net result.

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