RAJAPALAYAM MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a public limited company carrying on business in the manufacture and sale of yarn. During the accounting year ending with March 31, 1959, the assessee set up a new industrial undertaking which admittedly satisfied the requirements of Section 15C(2) of the Indian Income-tax Act, 1922, with which we are concerned in this reference. THE assessment year in question is 1961-62. THE profit, depreciation and development rebate in respect of this unit for the two assessment years 1959-60 and 1960-61 were as under : <FRM>JUDGEMENT_677_ITR78_1970Html1.htm</FRM>

(2.) IN the assessment year 1959-60, the total profit of the old and new units amounted to Rs. 2,42,432 which after the set-off of the amount of depreciation and development rebate left a sum of Rs, 24,183 to be carried forward. IN the assessment year 1960-61, the composite business income was Rs. 14,13,604 which after adjustment for depreciation and development rebate left a balance of Rs. 3,49,359. The brought forward sum of Rs. 24,183 was set off against this sum and an assessment was made on a business income of Rs. 3,25,176 and tax was levied accordingly. IN the previous year, relevant for the assessment year 1961-62 (accounting year March 31, 1961), the assessee filed a return showing, inter alia, a net business income of Rs. 12,69,403 which included a sum of Rs. 1,36,822 representing the income from the new unit. IN respect of this new unit, the assessee claimed exemption of the income under Section 15C(2) to the extent of 6 per cent. on the average capital employed. The INcome-tax Officer rejected this claim as, according to him, the profit from the new unit had to be reworked and if so done, there was only a loss. His workings were as under : <FRM>JUDGEMENT_677_ITR78_1970Html2.htm</FRM>

(3.) IN the instant case it is common ground that as regards the new industrial undertaking the unabsorbed depreciation and development rebate as found during the assessment year 1960-61 was Rs. 6,90,703. During the assessment year 1961-62, the new unit earned an income of only Rs. 1,36,822. Still therefore the depreciation and development rebate remained without being dissolved. This means that the new unit did not have a taxable income during the assessment year 1961-62. The exemption under Section 15C is only relatable to the profits and gains of the new unit. If, therefore, there are no profits or gains, no question of exemption from tax would arise. The Appellate Assistant Commissioner was prompted to notice the positive figure in the totality of the net income of the assessee during the assessment year 1960-61 and was inclined to disagree with the INcome-tax Officer and hold that for the assessment year 1961-62 the assessee was entitled to claim exemption of that portion of the income during that year attributable to the new undertaking. He, has, however, misappreciated the scope of the exemption. If as already stated the new industrial undertaking has to maintain its individuality in the sense that it has to earn a profit on its own enterprise, and thus absorb the depreciation and/or development rebate from and out of its income, then the question of setting off such unabsorbed depreciation or development rebate against the composite income of the assessee cannot arise. The reasoning that it is only when there, is a loss of the earlier year due to depreciation, etc., attributable to the new unit which could not be set off against the profits of the assessee, it has to be carried forward is fallacious. This would result in submerging the income of both the old and new units into common hotchpot for all purposes including Section 15C, which is not contemplated therein. IN the instant case the unabsorbed depreciation reckoned during the assessment year 1960-61 has to be carried forward for adjustment during the assessment year 1961-62. Thus adjusted, there is no profit for the new unit, resulting in a "no claim" for exemption under Section 15C. Mr. Ramamani would contend that Section 15C ought not to be read in that light as it would result in no practical benefit to the assessee at all as complete absorption of depreciation and development rebate may not be easily possible in a new undertaking within the time prescribed. Hardships however are unknown to tax law. An exemption, and so indeed a tax, cannot be evolved on equitable considerations. They are creatures of statutes and are to be implemented only if the letter of the law is strictly satisfied. Section 15C(3) says :