Divan, C.J.
1. The question that arises for consideration in the present case is the scope and interpretation of s. 80K of the I. T. Act, 1961.
2. The special civil application has been filed by the two petitioners challenging the decision of the respondent herein, ITO, Company Circle-IV, Ahmedabad, in deciding to grant relief under s. 80K only to that portion of the exempted dividend which has been worked out at Rs. 77,42,921 and it is prayed that the respondent should be directed to issue a certificate in accordance with law showing therein the portion of the exempted dividend of Rs. 95,50,889 in respect of the Polyester Fibre plant and the Sulzer plant of the first petitioner-company. The decision of the respondent is dated August 24, 1978.
3. The first petitioner-company is a limited company and is engaged in manufacture of textiles, chemicals, plastics and polyester fibre. The petitioner company's shareholders number about 52,000. The relevant accounting period for the purpose of s. 80KK of the I. T. Act, 1961, is the year ended 31st March, 1978, corresponding to the assessment year 1978-79. The second petitioner is a wholetime director of the petitioner-company and also holds thirteen ordinary shares of the first petitioner-company.
4. The first petitioner-company had established new industrial undertakings by installing Polyester fibre plant at Baroda in the assessment year 1975-76, the corresponding accounting period being 1974-75. The petitioner had also installed Sulzer plant in the accounting year 1975-76 the assessment year being 1976-77. The said plant fulfilled all the conditions for the grant of necessary relief under s. 80J of the Act of 1961. Accordingly, in the course of assessment of the petitioner-company for the assessment years commencing from the assessment year 1975-76, the relief to which the petitioner- company was entitled under s. 80J of the Act was being worked out and to the extent that the profit in respect of the said plant was not sufficient to absorb the said relied, the amounts of the said relief were carried forward to the subsequent years as provided by s. 80J(3). In this manner, in respect of the said assessment years commencing from assessment year 1975- 76, the 1st petitioner-company had applied for the requisite certificates under s. 80K read with s. 197(3) for the purpose of enabling the shareholders of the petitioner-company to claim exemption out of the dividends received by them because the relief under s. 80J was allowable to the petitioner-company in those years. The ITO concerned issued the requisite certificates under s. 80K from assessment years 1975-76 to 1977-78 and in those certificates, for the purpose of determining the exempted portion of the dividend out of the total dividend amount declared by the petitioner-company, the relief allowable to the petitioner-company under s. 80J was taken as the total relief allowable under the said s. 80J being six per cent. of the capital employed in the said new undertakings, irrespective of the fact whether the said plants made any profit or not and whether or not the petitioner-company actually got the said deduction under s. 80J in the computation of its total income in the said respective assessment years or whether the said amount was carried forward to subsequent years under s. 80J(3).
5. For the assessment year 1978-79, the corresponding accounting year being the year ended on 31st March, 1978, the petitioner-company declared a total dividend of Rs. 1,11,86,231 to its shareholders. In respect of the said dividend thus declared, the petitioner-company made an application to the respondent on 5th July, 1978 under s. 197(3) read with s. 80K of the Act, requesting for a certificate under s. 80K to indicate the exempted percentage of the total dividend to enable the shareholders to claim the necessary relief in their assessments under s. 80K, in view of the fact that the two aforesaid plants of the petitioner-company, namely, Polyester fibre plant and Sulzer plant, were entitled to relief under s. 80J of the Act and in respect of which relief the shareholders would be entitled to the benefit under s. 80K according to the first petitioner-company.
6. In the said application, the first petitioner-company stated that, on the basis of the percentage of capital employed in the respective plants, the Polyester plant was entitled to relief under s. 80J to the extent of Rs. 1,00,35,434 and the Sulzer plant was entitled to relief to the extent of Rs. 24,07,556, aggregating in all to Rs. 1,24,42,990. This calculation was based on the capital computation arrived at without deduction of any liability therefrom, in view of the decision of the Calcutta High Court in the case of Century Enka : [1977]107ITR123(Cal) and also the decision of the Full Bench of the Bombay Tribunal in the case of Amar Dye Chemicals Ltd. These two decisions took the view that in computing the capital base, r. 19A should not be applied as it was inconsistent with s. 80J. However, the actual working out of the capital base is not relevant, according to the petitioner, for the purpose of the present litigation, and in the course of arguments before us. Mr. Kaji for the petitioner has proceeded on the footing that the decisions in Century Enka's case : [1977]107ITR123(Cal) and the Full bench decision of the Bombay Tribunal in Amar Dye Chemical Ltd.'s case may not be applied to the facts of the present case.
7. The respondent addressed a reply dated July 28, 1978, to the first petitioner-company, calling for certain information and, in particular, the respondent inquired as to the total income of the petitioner-company for the assessment year 1978-79 as well as the profits of the Polyester fibre plant and the Sulzer plant for the accounting years relevant to assessment years 1978-79 and 1977-78. By its reply dated August 5, 1978, the petitioner-company furnished the necessary particulars to the respondent. The petitioner-company stated that the total income of the first petitioner-company for the said assessment year 1978-79 was nil and there were carried forward losses, depreciation, etc., in respect of the preceding years.
8. The petitioner-company also stated that the profits of the Polyester Fibre plant for the assessment years 1978-79 were Rs. 4,66,73,159 as computed under ss. 29 to 44 of the I. T. Act. In respect of the Sulzer Plant, it was pointed out that there was no profit for the assessment year 1978-79 as computed under ss. 29 to 44 of the I. T. Act. The petitioner-company further furnished the computation of the exempted portion of dividend under s. 80K read with r. 20. The petitioner-company also stated in the said letter that though the profits computed under the I. T. Act in respect of the said two plants were as aforesaid, the book profits forming part of the balance-sheet and profit and loss account of the company in respect of the said two plants were - Polyester Fibre division Rs. 4,40,02,479 and Sulzar Plant Rs. 1,66,159. The petitioner-company further stated that the relevant amount of the relief under s. 80J allowable to the company in respect of the aforesaid two plants would be Rs. 1,24,42,990, being the aggregate of the two sums which we have mentioned above. As the dividend declared amounted to Rs. 1,11,86,231, the percentage of the exempted portion of the dividend would on that basis be one hundred per cent. The petitioner-company, therefore, requested for the issue of the certificate under s. 80K praying for one hundred per cent. exemption certificate.
9. By his letter dated August 24, 1978, the respondent did not accept the working of the relief indicated by the petitioner-company in its earlier letter dated August 5, 1978, but he held that the income-tax department had not accepted the decision of the Calcutta High Court in the case of Century Enka Ltd. : [1977]107ITR123(Cal) , and therefore, the capital base in respect of the aforesaid two plants could not be worked out ignoring the liabilities. On that footing, the respondent worked out the relief allowable to the petitioner-company in respect of the said plants at six per cent. of the capital employed at Rs. 77,42,921 in respect of the Polyester fibre plant and Rs. 18,07,968 in respect of the Sulzer plant. On that basis, the exempted percentage of the dividend, according to the respondent, worked out to 85.38 per cent. as against 100 per cent. indicated by the petitioner-company. The respondent further held that the petitioner was not entitled to have the certificate on that footing of 85.38 per cent. because the working of the Sulzer plant showed a business loss of Rs. 7,20,260 as computed under the I. T. Act and, therefore, there could not be any claim for exemption under s. 80K in respect of the Sulzer plant. The respondent stated that only Rs. 77,42,921 referable to six per cent. of the capital employed in the Polyester fibre plant, as computed by the respondent, was entitled to exemption under s. 80K out of the total dividends of Rs. 1,11,86,231. On that footing under s. 80K, the respondent issued the certificate dated August 24, 1978. This certificate was designated as a provisional certificate. Thereafter, the 1st petitioner- company addressed a letter to the respondent on September 11, 1978, calling upon the respondent to reconsider the said view that the certificate should only be restricted in respect of the Polyester fibre plant and should not include relief in respect of the Sulzer plant. By his letter dated September 13, 1978, the respondent declined to reconsider his earlier decision and thereafter the present petition has been filed inasmuch as the respondent has not taken into account the relief available to the Sulzer plant in respect of capital employed therein while computing the figures for issuing the exemption certificate under s. 80K.
10. Thus, the main contention of the petitioner is in respect of relief climbable under s. 80J in respect of the Sulzer plant and reflection of that relief in the certificate to be issued under s. 80K of the Act of 1961.
11. Sections 80J and 80K are part of the set of provisions in the I.T. Act, 1961, which provide for what is known as 'tax holiday'. With a view to encourage establishment of new undertakings right from the time of the Indian Income-tax Act, 1922 (hereinafter referred to as the '1922 Act'), provisions have been enacted in income-tax legislation regarding encouragement to be given to the establishment of new undertakings. The encouragement takes the form of exemption from the computation of total income of the assessee concerned of a certain percentage of the capital employed in the new undertaking, that is, for a period which at present stands for five years from the date of the new undertaking commencing its commercial production six per cent. of the capital employed in the business in the course of the previous year relevant to the assessment year in question is allowed and such relief is allowed for a maximum of five assessment years. The relevant provisions in the 1922 Act were set out in s. 15C and six per cent. of the capital employed in the undertaking, subject to the rules made in that behalf by the Central Board of Revenue, was the exemption which could be claimed in each assessment year for a period of five consecutive years commencing from the commencement of the production of the new industrial undertaking. Under sub-s. (3) of s. 15C, it was provided that the profits or gains of an industrial undertaking or a ship or a business of hotel, to which the section applied, were to be computed in accordance with the provisions of s. 10. Under sub-s. (4), tax was not to be paid by a shareholder in respect of so much of any dividend paid or deemed to be paid by the company to him of an industrial undertaking or hotel as was attributable to that part of profits or gains on which tax was not payable under that particular section.
12. When the Act of 1961 was enacted, s. 15C became s. 84 and s. 15C(4) became s. 85. The scheme of ss. 84 and 85 of the Act of 1961 proceeded on the scheme of what was provided for in s. 15C of the Act of 1922. With effect from April 1, 1968, the provisions of ss. 84 and 85 were repealed and s. 84 was replaced by s. 80J and s. 85 was replaced by s. 80K. By this amendment which came into force with effect from April 1, 1968, a whole new chapter, Chap. VI-A, was inserted and ss. 80J and 80K were inserted with effect from April 1, 1968. One departure was made in s. 80J from s. 84 in the following manner : whereas, under s. 15C of the Act of 1922 and under s. 84 of the Act of 1961, there was no provision for carry forward of a relief which was to be granted under s. 15C and s. 84 to new undertakings, by s. 80J(3) provision was made for carry forward of the entitlements under s. 80J(1) to the succeeding year and such carry forward under s. 80J(3) is now available for the total period of eight years. Along with this change in the scheme of s. 80J, a change was made in the scheme of deduction in respect of dividends attributable to profits and gains from the new industrial undertakings or ships or hotel business by inserting in s. 80K the words 'in respect of which the company is entitled to a deduction under s. 80J for the assessment years commencing on the 1st day of April, 1968, or for any subsequent assessment years'. Under s. 80K, a distinction is made for the assessment year commencing prior to the first day of April, 1968, and for the assessment years commencing after the first day of April, 1968. In respect of the years prior to 1st April, 1968, provisions were made on the footing of relief being granted to shareholders on the footing of the actual relief granted under the 'tax holiday' provisions existing from time to time and in respect of assessment years after 1st April, 1968, on the basis of entitlements to 'tax holidays' to the new undertakings even though, in fact, no tax relief benefit might have been granted to the particular assessee.
13. Before preceding to consider the case law on the subject, in would be worthwhile to note the guidelines provided by the Supreme Court in Union of India v. K. S. Subramanian : (1977)ILLJ5SC , regarding the following by the High Court of cases decided by the Supreme Court. In that case, Beg J., as he then was, speaking for the Supreme Court, has observed in para. 12 at page 2437 :
'The proper course for a High Court, in such a case (where there are conflicts between decisions of larger benches of Supreme Court and smaller Benches of Supreme Court), is to try to find out and follow the opinions expressed by larger Benches of this court in preference to those expressed by smaller Benches of the court. This is the practice followed by this court itself. The practice has now crystallized into a rule of law declared by this court. If, however, the High Court was of opinion that the views expressed by larger Benches of this court were not applicable to the facts of the instant case it should have said so giving reasons supporting its point of view'.
14. We have started with this caution to ourselves because in the light of the observations of the Supreme Court in Union of India v. K. S. Subramanian : (1977)ILLJ5SC , we find that there is an apparent conflict of decisions regarding the provisions of s. 80K between some decisions of Benches of three judges of the Supreme Court and of Benches of two judges of the Supreme Court. It may be pointed out that under s. 2(45) of the I.T. Act, 1961. 'total income' means the total amount of income referred to in s. 5, computed in the manner laid down in the Act. As already stated, ss. 80J and 80K are part of Chap. VI-A of the Act of 1961. Chapter VI-A contains s. 80A to s. 80VV. Section 80B is the definition section, specially meant for Chap. Vi-A and sub-s. (5) of s. 80B states :
'In this chapter, 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter or under section 280-O'.
Section 80J provides in sub-s. (1) :
'Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the deduction, if any, admissible to the assessee under section 80HH) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year)....'
Under sub-s. (3) of s. 80J :
'Where the amount of the profits and gains derived from the industrial undertaking or ship or business of the hotel, as the case may be, included in the total income (as computed without applying the provisions of section 64 and before making any deduction under Chapter VI-A or section 280-O) in respect of the previous year relevant to an assessment year commencing on or after the 1st day of April, 1967 (not being an assessment year prior to the initial assessment year or subsequent to the fourth assessment year as reckoned from the end of the initial assessment year) falls short of the relevant amount of capital employed during the previous year, the amount of such shortfall, or, where there are no such profits and gains, an amount equal to the relevant amount of capital employed during the previous year (such amount, in either case, being hereafter, in this section, referred to as deficiency) shall be carried forward and set off against the profits and gains referred to in sub-section (1) [as computed after allowing the deductions, if any, admissible under section 80HH and the said sub-section (1)] in respect of the previous year relevant to the next following assessment year, and, if there are no such profits and gains for that assessment year, or where the deficiency exceeds such profits and gains, the whole or balance of the deficient, as the case may be, shall be set off against such profits and gains for the next following assessment year and if and so far as such deficiency cannot be wholly so set off, it shall be set off against such profits and gains assessable for the next following assessment year and so on :
Provided that -
(i) in no case shall the deficiency or any part thereof be carried forward beyond the seventh assessment year as reckoned from the end of the initial assessment year :
(ii) where there is more than one deficiency and each such deficiency relates to a different assessment year, the deficiency which relates to an earlier assessment year shall be set off under this sub-section before setting off the deficiency in relation to a later assessment year :....'
We are not concerned with the rest of the provisions of s. 80J in the course of this judgment.
15. It is thus clear that there must be profits and gains derived from an industrial undertaking to which s. 80J applies and these profits and gains derived from a new industrial undertaking must be included in the gross total income of an assessee. As we have pointed out, s. 80B(5) defines 'gross total income' as meaning the total income computed in accordance with the provisions of this Act, before making any deduction under this chapter or under s. 280-O. A similar provision arose for consideration before the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) . The Supreme Court there was concerned with the provisions of s. 80E of the Act of 1961, and it was provided in s. 80E that : 'In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture, etc., etc. 'Therefore, the question was of profits and gains attributable to a particular type of business activity being profits and gains included in the total income as computed in accordance with the other provisions of the Act of 1961. At page 91 of the report, Tulzapurkar J., speaking for the Bench of Y. V. Chandrachud C. J. and himself, observed :
'On reading sub-section (1) it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i.e., in accordance with all the provisions except section 80E; secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity); and, thirdly, if there be profits and gains so attributable, deduct 8% thereof from such profits and gains and then arrive at the net total income exigible to tax. As regards the first step mentioned above, the important words in sub-section (1) are those that appear in parenthesis, namely, 'as computed in accordance with the other provisions of this Act' and these words clearly contain a mandate that the total income of the concerned assessee must be computed in accordance with the other provisions of the Act without reference to section 80E... It it also clear that under the second step the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) forms a component of the total income spoken in the first step. Reading these two steps together, therefore, it is obvious that in computing the total income of the concerned assessee the balancing charge arising as a result of the sale of old machinery and buildings and worked out as per section 41(2), irrespective of its real character, will have to be taken into account and included as income of the business. In other words, the balancing charge as worked out under section 41(2) will have to be taken into account before computing the deduction of 8% under the third step'.
16. In the case before us, the phraseology is 'where the gross total income of an assessee includes any profits and gains derived from any industrial undertaking... to which this section applies'. Therefore, the profits and gains which are included in the gross total income must be, as s. 80B(5) says, total income computed in accordance with the provisions of this Act before making any deduction under Chap. VI-A or under s. 280-O. Applying the reasons of the Supreme Court in Cambay Electricity Co.'s case : [1978]113ITR84(SC) , the words, 'profits and gains derived from an industrial undertaking to which this section applies' can only mean profits and gains computed in accordance with the provisions of the I. T. Act, 1961, barring the provisions of Chap. VI-A and s. 280-O. Therefore, they must be profits and gains assessable to tax after making the various deductions which are provided elsewhere in the Act, that is, outside Chap. VI-A and s. 280-O.
17. We may point out that in the context of s. 15C of the Act of 1922, where by sub-s. (3) the same concept of profits and gains for which benefit is to be given being computed and being assessable income was provided by reference to s. 10 of the Act. In CIT v. S. S. Sivan Pillai : [1970]77ITR354(SC) , a Bench of the Supreme Court of three judge dealt with the matter and Shah J., as he then was, spoke for the Supreme Court. In that particular case, Ganapathy Mills Co. distributed dividends to its shareholders out of the business profits earned by it in the years ending December 31, 1953, and December 31, 1954. The company, however, carried in its accounts a large balance of unabsorbed depreciation admissible under s. 10(2)(vi) and s. 10(2)(via) of the Indian I. T. Act, 1922, and it had no taxable income in the relevant assessment years 1954-55 and 1955-56. In assessing the income of the shareholders for the assessment years 1955-56 and 1956-57, the ITO rejected their claim for exemption from tax under s. 15C(4) of the Indian I. T. Act, 1922, and brought the dividend income to tax and in the light of these facts the Supreme Court dealt with the provisions of s. 15C, particularly the exemption under s. 15C(4). At page 357, Shah J. observed :
'The company was an industrial undertaking to which section 15C applied. It had in the two relevant years derived from the industrial undertaking no profits or gains within the meaning of sub-section (1) read with sub-section (3) of section 15C. The profits or gains derived from an industrial undertaking within the meaning of sub-section (1) of section 15C are not business profits; they are taxable profits computed in accordance with the provisions of section 10 of the Income-tax Act. Under section 15C(1) no tax is payable by the industrial undertaking on its taxable profits equal to six per cent. per annum of the capital employed. Sub-section (4) of section 15C exempts the shareholders of an industrial undertaking to which section 15C applies, from liability to pay tax in respect of the dividend paid or deemed to be paid as is attributable to that part of the profits or gains on which the tax is not payable under section 15C(1).
Exemption under section 15C(1) from payment of income-tax is not related to the business profits; it is related to the taxable profits. The language of sub-section (3) is clear : the profits or gains of an industrial undertaking have to be determined under section 10 of the Act. Even if the undertaking has earned profits out of its commercial activity, if it has no taxable profits it cannot claim exemption from payment of tax under sub-section (1) of section 15C; and if the undertaking cannot claim the benefit under sub-section (1) the shareholders will not get the benefit of sub-section (4), for there is no dividend paid which is attributable to that part of the profits or gains on which the tax was not payable by the undertaking.
The company had no taxable profit in the year of account : it did not accordingly qualify for exemption from payment of tax under sub-section (1), and since there was no such taxable profit, the dividend received by the shareholders could not be said to be attributable to that part of the profits or gains on which the tax was not payable under sub-section (1). On the plain terms of section 15C, the shareholders cannot obtain the benefit of exemption from payment of tax'.
At page 359, it was observed :
'We are also unable to agree with the High Court that if an industrial undertaking has distributed dividend, the shareholders will be entitled to exemption from payment of tax on that dividend, even if the company is not entitled to claim exemption from liability to pay tax under sub-section (1) of section 15C. The right of the shareholders to obtain the benefit of exemption under section 15C(4) depends upon the company obtaining the benefit of exemption under sub-section (1) of section 15C, for the exemption from payment of tax on the dividend received by the shareholders is admissible only on that part of the profits or gains on which the tax is not payable by the company under sub-section (1)'
18. As indicated earlier, there is a departure from the scheme of s. 15C(1) and (4), so far as s. 80J is concerned and, to that extent, the decision in S.S. Sivan Pillai's case : [1970]77ITR354(SC) has to be read in the light of the altered scheme of things under s. 80J and s. 80K.
Before leaving S. S. Sivan Pillai's case : [1970]77ITR354(SC) we may point out that at page 360, Shah J. observed :
'In the case in hand the company had no other source of income. The depreciation allowance admissible in the assessment years exceeded the business profits. The company had no taxable profits in the two years in question. The company could not claim exemption from payment of tax provided in section 15C(1) : and no dividend having been distributed out of the taxable profits, there was no dividend attributable to that part of the profits which were exempt from tax in the hands of the shareholders'.
19. In Union of India v. Coromandel Fertilizers Ltd. : [1976]102ITR533(SC) , a Bench of the Supreme Court consisting of Goswami and Untwalia JJ. dealt with the provisions of ss. 80J and 80K. The facts of that case were that the Coromandel Fertilisers Ltd. was a registered company incorporated on October 16, 1961, under the Companies Act, and the second respondent before the Supreme Court was one of the shareholders holding two hundred equity shares in the paid-up capital of the company out of the total of 95,82, 010 equity shares issued by the company. The company was engaged in the manufacture of fertilisers at its factory at Visakapatnam and it commenced production in December, 1967. There was no dispute that the company had fulfilled the conditions under sub-s. (4) of s. 80J to qualify for deduction from its profits up to six per cent per annum of the capital for the purpose of computation of tax. The company was assessed to income-tax as and industrial undertaking for the first time for the assessment year 1969-70. Order or assessment were passed on November 23, 1972, and January 4, 1973. The said orders disclosed a sum of Rs. 11,11,10,176, being carried forward as unabsorbed losses to the succeeding year and a sum of Rs. 9,73,93,861 being carried forward as unabsorbed depreciation to the subsequent year. The capital employed by the company in its new industrial undertaking was Rs. 48,87,38,018 and six per cent. thereof under s. 80J(1) amounted to Rs. 2,93,24,281. Out of this amount, the amount relating to the ten months of the year confined to the period during which the industrial undertaking was in operation was determined by the ITO at Rs. 2,44,36, 901. As no profit was made in the assessment year 1969-70, the aforesaid 'deficiency' within the meaning of s. 80J(3) was carried forward to the succeeding year 1970-71. Similarly, for the next assessment year 1970-71, it was recorded in the assessment order that the company was entitled to deduction of Rs. 2,58,31,806 under s. 80J. As there were no profits to be absorbed, the said amount had been carried forward under s. 80J(3) to the succeeding year 1971-72, but the returns filed for the assessment year 1971-72 by the company had not been finalised. But, all the same, the company, as per its books, had made a profit of Rs. 4.55 crores approximately in the accounting year 1972 corresponding to the assessment year 1973-74. It did not appear to be disputed that for the assessment year 1973-74, the company's income after deducting depreciation for that year would come to Rs. 6.16 crores. This amount would be subject to set off against unabsorbed depreciation and business losses which would exceed the said amount of Rs. 6.16 crores resulting in nil total income with some unabsorbed depreciation and business loss to be carried forward to the next assessment year 1974-75. It was not disputed that after setting off the brought forward allowances the company would not be assessable to any income-tax up to the assessment year 1973-74. On these facts, the question arose whether in respect of dividend amounting to Rs. 76,65,608 declared by the company in respect of the previous year relevant to the assessment year 1973-74, benefit of s. 80K could be extended to the shareholders. A request was made to the ITO concerned for issuance of a certificate under s. 80J but the request was rejected by the ITO holding that the shareholders were not entitled to the benefit of s. 80K and the refusal of this request led to the institution of writ petitions by the shareholders before the High Court of Andhra Pradesh. The High Court held that the shareholders were entitled to claim deduction under s. 80K and directed the ITO under s. 197(3) to issue the certificate and not to deduct tax out of the dividend payable to the shareholders. Before the Supreme Court, on behalf of the revenue, reliance was placed on the decision of the Supreme Court in S.S.Sivan Pillai's case : [1970]77ITR354(SC) . Goswami J., speaking for the Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) , compared the provisions of s. 15C with the provisions of ss. 80K and 80J of the 1961 Act and after setting out in extenso quotations from S. S. Sivan Pillai's case : [1970]77ITR354(SC) and comparing the provisions of s. 15C with the provisions of ss. 80J and 80K observed at page 546 :
'A perusal of section 80J(3) and 15C would clearly show the difference in the scheme of the two provisions. Broadly speaking, there was no question of 'carry forward' from one accounting year to the succeeding year or years the sums allowable under section 15C. That feature is now prominent in section 80J in clearly providing that 'where there are no such profits and gains, an amount equal to the relevant amount of capital employed during the previous year (viz., the six per cent. of the capital employed).... shall be carried forward and set off against profits and gains referred to in sub-section (1)....'
There is another vital distinction. While section 15C(4) refers to relief in case of only taxable profits, section 80K provides that in computing the total income of an assessee whose gross total income includes any income by way of dividends, there shall be allowed in computing his total income a deduction from such income by way of dividends an amount equal to such part thereof as is attributable to profits and gains derived by the company from an industrial undertaking on which no tax is payable by the company under the Act or in respect of which the company is entitled to deduction under section 80J. The expression 'or in respect of which the company is entitled to a deduction under section 80J' introduces a new concept. There is no legal requirement of a de facto deduction of the amount in question in the particular assessment year. As against actual deduction the company's entitlement to deduction in the relevant year is enough to answer the requirement of section 80J. Necessarily, therefore, the dividend-earner will also be entitled to invoke section 80K and obtain pari passu the benefit of the provision'.
It was contended on behalf of the revenue before the Supreme Court : (pp. 546-547)
'.... that unless there was actual deduction under s. 80J, the shareholder was not entitled to claim benefit under s. 80K.... Under old section 15C, the shareholder was entitled to relief only when the company was able to get actual deduction. Both were at par. The parity has been sought to be maintained under the amended provisions of sections 80J and 80K between the company and the shareholder. The company, when it becomes entitled to deduction under section 80J(1), gets it either in that year or by a set-off in subsequent years. If the interpretations which we have put to the new section were not to hold good, the result will be that the shareholder will be debarred from getting any relief when dividend is declared in a year in which the company, because of section 80A(2), is not able to get actual deduction. The company will reap the advantage of set-off under section 80J(3) in subsequent years, while the shareholder for the dividend declared in the past will get no relief under section 80K. This anomaly is avoided, and the legislature intended to avoid it, by the use of the expression 'the company is entitled to a deduction' in section 80K and on the interpretation we have put above'.
20. Mr. Kaji for the petitioners has placed the entire burden of his arguments on this decision of the Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) . The Madras High Court in Sough India Shipping Corporation Ltd. v. ITO : [1976]103ITR1(Mad) , arrived at the same conclusion as the Supreme Court in Coromandel Fertilizers'case, though the decision of the Madras High Court was delivered before the Supreme Court decision in Coromandel Fertilizer's case. The Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) , confirmed the decision of the Andhra Pradesh High Court and the Madras High Court had before it the decision of the Andhra Pradesh High Court in Coromandel Fertilizers' case [1976] 102 ITR 535 . The Madras High Court's reading of s. 80K of the Act of 1961 showed that in respect of the assessment year 1968-69 onwards, the shareholder will be entitled to the benefit of s. 80K if the company was entitled to deduction under s. 80J, whether it actually got the deduction or not. From a comparison of s. 15C(4) of the Indian I. T. Act, 1922, and s. 80J of the I. T. Act, 1961, it is clear that the same phraseology had been used in both the sections in respect of the company's profits assessable for the assessment year prior to 1968-69. But s. 80K specifically provided for the shareholders' right to deduction by a reference to the company's profits assessable for 1968-69 onwards 'in respect of which the company is entitled to deduction under section 80J'. These words seem to cover cases where the deduction is not allowed to the company on account of inadequacy of profits but it is allowed to carry forward the deficiency under s. 80J(3). Unlike s. 15C(4) of the 1922 Act, in order to entitle the shareholder to the benefit of s. 80K in or after the assessment year 1968-69, it is not necessary that the company should have actually obtained deduction under s. 80J and it is enough if the company is entitled to such deduction. It was held that merely because the total income of a company was computed at a negative figure, it could not be said that it did not include the profits and gains derived from an industrial undertaking. If in the total income of a company as computed, whether it be profit or loss, the profits and gains of a new industrial undertaking had been included, then the company was entitled to the benefit of s.80J and it was because of that entitlement of the company to the relief under s. 80J, the deficiency had been allowed to be carried forward and set off against income of the subsequent years.
21. These three decisions in S. S. Sivan Pillai's case : [1970]77ITR354(SC) , which is a Supreme Court decision, Coromandel Fertilizers' case : [1976]102ITR533(SC) , which is also a Supreme Court decision, though by a smaller bench, and the decision of the Madras High Court in South India Shipping Corporation's case : [1976]103ITR1(Mad) , are the only three decisions available to us as regards the interpretation to be placed on s. 80K. As indicated earlier, the decision in S. S. Sivan Pillai's case : [1970]77ITR354(SC) is in the context of s. 15C, whereas the decision in Coromandel Fertilizers' case : [1976]102ITR533(SC) and the decision in South India Shipping Corporation's case : [1976]103ITR1(Mad) are directly under s. 80K with which we are concerned. Mr. Kaji for the petitioner said that s. 80K having been interpreted by the Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) , that interpretation is binding on us and, therefore, we should allow the petition in the light of that decision.
22. However, we may point out that there are two subsequent decisions of Benches of three judges of the Supreme Court which, though not directly dealing with s. 80K, throw a flood of light on the provisions of s. 80J as it now stands. The same Bench of the Supreme Court judges, namely, Bhagwati, Tulzapurkar and Pathak JJ. decided both the cases which we are now referring to. In Rajapalayam Mills Ltd. v. CIT : [1978]115ITR777(SC) , the Supreme Court dealt with the provisions of s. 15C of the Act of 1922 and s. 84 of the Act of 1961. As pointed out earlier in the course of this judgment, the scheme of s. 15C of the 1922 Act and s. 84 of the 1961 Act was the same. Bhagwati J., speaking for the Bench of three judges of the Supreme Court in Rajapalayam Mills' case : [1978]115ITR777(SC) of the report :
'The law of income-tax in a modern society is intended to achieve various social and economic objectives. It is often used as an instrument for accelerating economic growth and development. Section 15C is a provision introduced in the Indian I.T. Act, 1922, with a view to carrying out this objective and it is calculated to encourage setting up of new industrial undertakings in the country. Sub-section (1) of this section exempts from tax so much of the profits or gains derived from a new industrial undertaking as do not exceed 6% per annum of the capital employed in the undertaking. There are rules made under the Act for computing the capital employed in a new industrial undertaking but we are not concerned with these rules in the present appeals. What is material is only the provision for exemption and, according to this provision, the profits and gains of a new industrial undertaking are exempt from tax to the extent of 6% per annum of the capital employed, and obviously, therefore, there must be profits or gains derived from the new industrial undertaking in the assessment year in question before any claim for exemption can be sustained under s. 15C, sub-s. (1). If there are no profits or gains derived from the new industrial undertaking in any particular assessment year, there can be no question of any exemption because it is only where there are such profits or gains that to the extent of 6% per annum of the capital employed, they become eligible for exemption. The first question which must, therefore, arise for consideration in every case where a claim for exemption is made under s. 15C, sub-s. (1), is whether there are any profits or gains derived from the new industrial undertaking in the assessment year in question, and if so, what is the quantum of such profits or gains. Now sub-s. (3) of s. 15C says that the profits or gains of a new industrial undertaking shall be computed in accordance with the provisions of s. 10 and since, under the income-tax law, every assessment year is a self-contained period, the profits and gains of the new industrial undertaking must be computed for the particular assessment year in respect of which the claim for exemption is made, by applying the provisions of s. 10. Sub-section (2) of that section provides for various allowances to be made in computing profits and gains of a business and amongst such allowances are, one in respect of depreciation and the other in respect of development rebate. Clause (vi) of sub-s. (2) deals with allowance for depreciation and it says that in computing the profits or gains of a business allowance shall be made in respect of depreciation of building, machinery, plant or furniture belonging to the assessee and used for the purpose of the business, of a sum equivalent to 'such percentage on the written down value thereof as may in any case or class of cases be prescribed'. Depreciation calculated in accordance with the provisions of clause (vi) is thus allowable in computing the profits and gains of a business chargeable to tax and if the profits and gains of the business are insufficient to absorb such depreciation allowance, the amount of the allowance to the extent it is unabsorbed, must, like any other business loss, be set off against the profits of any other business. It is settled law that though the profits of each distinct business carried on by an assessee have to be computed separately in accordance with the provisions of s. 10, the tax is chargeable under that section not separately on the profits of each business, but on the aggregate of the profits of all the businesses carried on by the assessee.... It follows, therefore, that where the assessee carried on several businesses, he is entitled under s. 10 to set off loss in one business against profits in another. If there is any loss in a business carried on by the assessee by reason of the profits of such business not being sufficient to absorb the depreciation allowance, such loss can be set off against the profits of another business carried on by the assessee. If, however, there are no profits chargeable under the head 'Business or profession' or if the profits chargeable under that head are insufficient to cover the depreciation allowance the amount of the allowance to the extent to which it is not absorbed can be set off against profits chargeable under any other head for that assessment year. This is the plain and undoubted effect of s. 24, sub-s. (1), as explained in CIT v. Indo-Mercantile Bank Ltd. : [1959]36ITR1(SC) . But what would happen if still some part of the depreciation allowance remains unabsorbed. The answer is provided by prov. (b) to clause (vi) of s. 10(2).....
It is clear on a plain reading of the language of prov. (b) to clause (vi) that it comes into operation only where full effect cannot be given to the depreciation allowance for the assessment year in question owing to there being no profits or gains chargeable for that year or profits or gains chargeable being less than the depreciation allowance. Now it is well settled, as a result of the decision of this court in CIT v. Jaipuria China Clay Mines (P.) Ltd. : [1966]59ITR555(SC) , that the words 'no profits or gains chargeable for that year' are not confined to profits and gains derived from the business whose income is being computed under s. 10, but they refer to the totality of the profits or gains computed under the various heads and chargeable to tax. It is, therefore, clear that effect must be given to depreciation allowance first against the profits or gains of the particular business whose income is being computed under s. 10 and if the profits of that business are not sufficient to absorb the depreciation allowance, the allowance to the extent to which it is not absorbed would be set off against the profits of any other business and if a part of the depreciation allowance still remains unabsorbed, it would be liable to be set off against the profits or gains chargeable under any other head and it is only if some part of the depreciation allowance still remains unabsorbed that it can be carried forward to the next assessment year.'
At page 788, Bhagwati J. observed, after referring to s. 15C(3) :
'What it does is no more than provide as to how 'the profits or gains derived from new industrial undertaking' referred to in sub-s. (1) of s. 15C shall be computed. If sub-s. (3) of s. 15C had not been enacted, it might have been a matter of some controversy as to what is meant by the expression 'the profits or gains derived from new industrial undertaking'. Does it mean commercial profits or gains or profits or gains chargeable to tax or does it have any other connotation It was to set this controversy at rest that sub-s. (3) of s. 15C enacted that the profits or gains or the new industrial undertaking shall be computed in accordance with the provisions of s. 10. It may be noted that sub-s. (3) of s. 15C does not enact any legal fiction providing that the profits or gains of the new industrial undertaking shall be computed as if the new industrial undertaking were the only business of the assessee from the date of its establishment or the past years, depreciation or development rebate had not been set off against other income of the assessee. The new industrial undertaking is not retrospectively quarantined or isolated from the other income-producing activities of the assessee for determining its profits or gains for the purpose of applicability of sub-s. (1) of s. 15C. What sub-s. (3) of s. 15C does is merely to lay down the same rule of computation for the profits or gains of a new industrial undertaking as in respect of any other business and, therefore, neither depreciation allowance nor development rebate in respect of the new industrial undertaking for the past assessment years can be allowed as a deduction in computing the profits or gains for the assessment year in question, except where and to the extent to which, it has not been set off against the total income of the assessee for those assessment years and has remained unabsorbed.'
23. The Supreme Court in Rajapalayam Mills' case : [1978]115ITR777(SC) held as indicated at page 781 that there are no two different modes of determining profits and gains of the business, one for computing the total income chargeable to tax and the other for applying the provisions of sub-s. (1) of s. 15C. The Supreme Court could not imagine in that case such a consequence having been intended by the legislature.
24. It is true that these observations of the Supreme Court which we have set out in extenso hereinabove were made in the context of s. 15C, but they clearly indicate that unless there are profits or gains derived from a new industrial undertaking in the sense of profits or gains assessable to income-tax under the provisions of sections other than s. 15C, the benefits of 'tax holiday' could not be given under s. 15C. Before any claim for an exemption could be sustained under s. 15C(1), there must be profits or gains derived from the new industrial undertaking in the sense of profits or gains as are assessable to income-tax under the other provisions of the Act.
25. In CIT v. Patiala Flour Mills Co. P. Ltd. : [1978]115ITR640(SC) , which was also delivered on the same day as the decision in Rajapalayam Mills' case : [1978]115ITR777(SC) by the same Bench of three judges of the Supreme Court, the Supreme Court interpreted the provisions of s. 80J of the Act of 1961 and there it was held (headnote) :
'For the purpose of deduction under s. 80J of the I.T. Act, 1961, the profits and gains of a new industrial undertaking must be computed in accordance with the provisions of the Act in the same manner as they would be in determining the total income chargeable to tax and it must follow a fortiori that if the losses, depreciation allowance and development rebate in respect of the new industrial undertaking for the past assessment years have been fully set off against the profit of the assessee from other business or for the matter of that, against the income of the assessee under any other head by reason of ss. 70 and 71 read with sub-s. (2) of s. 32 and sub-s. (2) of s. 32A, no part of such losses, depreciation allowance or development rebate would be liable to be adjusted over again in computing the profits or gains of the new industrial undertaking for applying the provision contained in sub-s. (1) of s. 80J. The same mode of computation must prevail also in applying the provision contained in sub-s. (3) of s. 80J because that sub-section provides for setting off the carried forward amount of deficiency of the past assessment years against the profits and gains referred to in sub-s. (1) of s. 80J, as computed after allowing, inter alia, the deduction admissible under that sub-section and, therefore, if, for the purpose of sub-s. (1) of s.80J, the profits or gains of the new industrial undertaking are to be computed in accordance with the provisions of the Act and no part of the losses, depreciation allowance or development rebate for the past assessment years which has been fully set off against the profit from other business of income under any other head is liable to be adjusted over again in computing the profits or gains of the new industrial undertaking, no such adjustment would equally be permissible in applying the provision contained in sub-s. (3) of s. 80J.'
26. The facts before the Supreme Court in Patiala Flour Mills Co.'s case : [1978]115ITR640(SC) were similar to the facts before us, because in that particular case, the company in question was carrying on several businesses and those businesses are referred to as old businesses. It had put up a cold-storage plant in the accounting year relevant to the assessment year 1967-68. The cold-storage plant was a new industrial undertaking within the meaning of s. 80J of the Act of 1961. The losses, depreciation and development rebate in respect of the cold-storage plant for the assessment years 1967-68 to 1969-70 were adjusted against the profits from the other businesses in computing the total income of the respondent-company for those years. No loss or part of the depreciation or development rebate remained unabsorbed so as to be available for carry forward and set off in the assessment year 1970-71. In the assessment year 1970-71, a profit of Rs. 1,51,011 was derived from the new industrial undertaking and the Tribunal held that the respondent-company was entitled to deduction therefrom of the relevant amount of capital employed during the previous year relevant to the assessment year 1970-71, and then the deficiency for earlier years under s. 80J. The Supreme Court held that the Tribunal was right in law in adjusting the relevant amount of capital employed during the previous year relevant to the assessment year 1970-71, as also the deficiency for the earlier assessment years against the profit of Rs. 1,51,011 derived by the company from the cold-storage business. At page 646, Bhagwati J., speaking for the Supreme Court in Patiala Flour Mills Co.'s case : [1978]115ITR640(SC) , observed :
'... whatever be the profits or gains of the new industrial undertaking computed for the purpose of arriving at the total income chargeable to tax, would have to be taken to be the profits or gains for applying the provision contained in sub-s. (1) of s.80J. There are no two modes of computation of the profits or gains of the new industrial undertaking contemplated by sub-s. (1) of s. 80J, one for determining the total income chargeable to tax and the other for applying the provision contained in that sub-section. The language of sub-s. (1) of s. 80J is clear and explicit and leaves no doubt that the profits or gains of the new industrial undertaking for the purpose of allowing the deduction provided in that sub-section, have to be computed in the same manner in which they would be in determining the total income chargeable to tax and a deduction has then to be made from such profits or gains of the relevant amount of capital employed during the assessment year in question. It is impossible to see how, by any process of construction, even by turning and twisting the language of sub-s. (1) of s. 80J, it can be held that for the purpose of allowing the deduction contemplated under that section the profits or gains of the new industrial undertaking must be computed in a manner different from that in which they would be computed in determining the total income chargeable to tax. Sub-s. (1) of s. 80J does not create a legal fiction that for the purpose of applying the provision contained in that sub-section, the profits or gains of the new industrial undertaking shall be computed as if the new industrial undertaking were the only business of the assessee right from the date of its establishment or the losses, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years were not set off against the profit from other businesses.'
At page 647, Bhagwati J. observed :
'The same mode of computation must prevail also in applying the provisions contained in sub-s. (3) of s. 80J, because that sub-section provides for setting off the carried forward amount of deficiency of the past assessment years against 'the profits and gains referred to in sub-s. (1)' of s. 80J as computed after allowing, inter alia, the deduction admissible under that sub-section and, therefore, if, for the purpose of sub-s. (1) of s. 80J, the profits or gains of the new industrial undertaking are to be computed in accordance with the provisions of the Act and no part of the losses, depreciation allowance or development rebate for the past assessment years which has been fully set off against the profit from other businesses or income under any other head is liable to be adjusted over again in computing the profits or gains of the new industrial undertaking, no such adjustment would equally be permissible in applying the provision contained in sub-s. (3) of s. 80J.'
27. It is true, as Mr. Kaji for the petitioners pointed out before us, that the decision in Patiala Flour Mill Co.'s case : [1978]115ITR640(SC) interprets only the provisions of s. 80J. It does not deal with the provisions of s. 80K. The only decision of the Supreme Court directly interpreting s. 80K is the decision in Coromandel Fertilizers' case : [1976]102ITR533(SC) . However, what the Supreme Court observes regarding the words 'profits and gains of the new industrial undertaking' in the context of s. 80J in Patiala Flour Mills case : [1978]115ITR640(SC) and in Rajapalayam Mills' case : [1978]115ITR777(SC) , will have a direct impact on the interpretation of s. 80K in the words 'a deduction from such income by way of dividends of an amount equal to such part thereof as is attributable to the profits and gains derived by the company from an industrial undertaking or ship or the business of a hotel, on which no tax is payable by the company under this Act for any assessment year commencing prior to the 1st day of April, 1968, or in respect of which the company is entitled to a deduction under section 80J for the assessment year commencing on the 1st day of April, 1968, or for any subsequent assessment year 'are, as is clear from the interpretation placed by the Supreme Court on s. 80J(1) in Patiala Flour Mills' case : [1978]115ITR640(SC) , assessable profits and gains computed in accordance with the rest of the provisions of the Act, barring the provisions of Chap. VI-A and s. 280-O. The same phraseology 'profits and gains derived by the company from an industrial undertaking' in s. 80K must, therefore, bear the same meaning, namely, profits and gain assessable to tax under the rest of the provisions of the Act, barring Chap. VI-A and s. 280-O. If those profits and gains amount to nil or to a negative figure when computed for the purpose of the rest of the provisions of the Act of 1961, no relief can be granted under sub-s. (1) of s. 80J and to the extent of the deficiency referred to in sub-s. (3) of s. 80J, the deficiency can be carried forward to the next assessment year subject to the overall limit of eight years from the commencement of the working of the new industrial undertaking.
28. It is true that we are concerned with the assessment year after the assessment year 1968-69 and, therefore, for the the purpose of s. 80J, the words of s. 80K which are material are 'there shall be allowed in computing his total income a deduction from such income by way of dividends an amount equal to such part thereof as is attributable to profits and gins derived by the company from an industrial undertaking or ship or the business of a hotel in respect of which the company is entitled to a deduction under section 80J'. Mr. Kaji emphasised the words 'in respect of which the company is entitled to a deduction under section 80J' occurring in s. 80J and in the light of the decision of the Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) , he contended that even if the new industrial undertaking had no profits or gains assessable to income-tax during the assessment year in question, inasmuch as the company was entitled to a deduction under s. 80J for this particular assessment year, namely, the assessment year 1978-79 the ITO, the respondent herein, was bound to issue the certificate under s. 80K and the shareholders were entitled to the relief under s. 80K. Mr. Kaji contended that in the light of the decision of the Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) , the words 'as is attributable to the profits and gains derived by the company from any industrial undertaking or ship or the business of a hotel' do not apply in the case of a company where there are no assessable profits or gains, but what has to be allowed is merely tantamount to a deduction under s. 80J, and he contended that, in the light of the carry forward provision of s. 80J(3), it is the allowability of the deduction and not the actual allowance of deduction under s. 80J(1) which is material for the purpose of relief under s. 80K to the individual shareholder.
29. We are unable to accept Mr. Kaji's contention. On a pure grammatical interpretation of s. 80K, it is obvious that the words 'in respect of which the company is entitled to a deduction under section 80J' occurring in s. 80K go with the words 'as is attributable to the profits and gains derived by the company from an industrial undertaking or ship or the business of a hotel'. The words 'in respect of which' preceded by the word 'or' are the other branch of the alternative as compared to the first alternative with reference to these words, namely, 'on which no tax is payable by the company under this Act for any assessment year commencing prior to the 1st day of April, 1968'. The two alternatives are in the context of the period prior to 1st April, 1968, and the period after the 1st April, 1968. But the relief which can be granted under s. 80K is with reference to the dividend which is attributable to the profits and gains derived by a company from any new industrial undertaking, and, as indicated above, the words 'profits and gains in the light of the decision of the Supreme Court in Patiala Flour Mill Co.'s case : [1978]115ITR640(SC) and, in the context of s. 80J, must mean profits and gains assessable to income-tax under the provisions of the Act other than Chap. VI-A and s. 280-O. Unless, therefore, there are assessable profits and gains derived by the company from the new industrial undertaking in the particular assessment year in question, there is no part of the dividend actually received by the shareholders which can be said to be attributable to the profits and gains derived by the company from the new industrial undertaking. To use the words of the Supreme Court in S. S.Sivan Pillai's case : [1970]77ITR354(SC) , no dividend having been distributed out of the taxable profits, there is no dividend attributable to that part of the profits which are exempt from tax in the hands of the shareholder. If the total amount of dividend declared by the company in question has no component of profits and gains derived by the company from a new industrial undertaking, there cannot be said to be a part of the dividend which is attributable to the profits and gains which the company derived from the new industrial undertaking. On the plain grammatical interpretation of s. 80K and also on the footing of the non-workability of the interpretation which is sought to be placed by Mr. Kaji, it must be held that when there are no assessable profits or gains derived by the company from the new industrial undertaking in the course of the previous year, relief under s. 80K for that particular assessment year cannot be granted.
30. It is true that the Bench of the Supreme Court consisting of two judges in Coromandel Fertilizers' case : [1976]102ITR533(SC) granted relief to the shareholders under s. 80K even when, on the facts set out in the report, assessable profits and gains for the company in the particular previous year relevant to the assessment year in question, were nil. The Bench of two judges of the Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) relied upon the words 'in respect of which the company is entitled to a deduction under section 80J', and in the light of s. 80J(3), granted relief under s. 80K, the words 'is entitled to' in s. 80K being referable, according to the Supreme Court, inter alia to s. 80J(3). With great respect to the learned judges of the Supreme Court, we find ourselves at a dead end in finding out the proportion to which the relief under s. 80K can relate out of the total dividend declared by the company, if there are no assessable profits and gains derived from the new industrial undertaking in the particular year in question, because, as the section stands, the deduction which is to be granted under s. 80K is of an amount equal to such part of the dividend which is attributable to the profits and gains derived by the company from the new industrial undertaking. Therefore, what s. 80K contemplates is the ascertainment of the particular proportion of the dividend received by the shareholder from the company which proportion is attributable to the profits and gains derived by the company from the new industrial undertaking. The decision of the Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) does not refer to this conundrum. In the light of the decision of the Supreme Court in Rajapalayam Mills' case [1978] 115 ITR 77 and in Patiala Flour Mills Co.'s case : [1978]115ITR640(SC) , the words 'profits and gains derived by the company from a new industrial undertaking' occurring in s. 80K can have only one meaning and one meaning only, namely, profits and gains assessable to tax under the rest of the provisions of the I. T. Act, 1961, barring provisions of Chap. VI-A and s. 280-O. In the light of the interpretation placed on the scheme of s. 80J by the Bench of three judges in Patiala Flour Mills Co.'s case : [1978]115ITR640(SC) , which interpretation was not present before the Supreme Court in Coromandel Fertilizers' case : [1976]102ITR533(SC) , we are constrained to hold that the provisions of s. 80K are not applicable when the profits and gains derived by a company from a new industrial undertaking when computed for the purposes of the other provisions of the I. T. Act barring Chap. VI-A and s. 280-O, are nil or shows loss.
31. It was urged by Mr. Kaji that if this is the interpretation to be placed on s. 80K, the words 'in respect of which the company is entitled to a deduction under section 80J' would be rendered otiose and such an interpretation as would render the words otiose should not be placed on s. 80K. This contention of Mr. Kaji cannot be accepted because it is to be borne in mind that the division between the two alternatives is on the footing of the year of assessment, that is, any assessment year commencing prior to 1st of April, 1968, on the one hand and an assessment year commencing after the 1st of April, 1968, and the subsequent dates on the other. In view of the fact that s. 80J, and particularly s. 80J(3) came into force with effect from 1st April, 1968, the legislature has treated 1st April, 1968, as the dividing line. In respect of years prior to 1st of April, 1968, it is the actual allowance which matters. After 1st of April, 1968, it is entitlement which matters. In our opinion, the provisions of s. 80K, as they stand today, for the assessment year 1968-69, and subsequent years, can apply if there are assessable profits and gains as computed under the other provisions of the Act, barring Chap. VI-A and s. 280-O, but where such profits and gains are not equal to or more than the relief which the company can claim on the basis of the relevant amount of capital employed during the previous year as defined in s. 80J(1), the company would be entitled to the relief under s. 80J but it is not entitled to the full benefit of that entitlement because of the deficiency. Since in such an eventuality there would be assessable profits or gains, looking to the other provisions of the I. T. Act of 1961, a part of the dividend derived by the shareholder would be attributable to the profits and gains in the sense of assessable profits or gains derived by the new industrial undertaking and the total assessable profits and gains would reflect the proportion and therefore, the exemption under s. 80K in the event of such an eventuality would be on the basis of the relief to which the company is entitled under. 80J. Under the scheme of s. 80J as explained by the Supreme Court by the Bench of three judges in Patiala Flour Mills Co.'s case : [1978]115ITR640(SC) , the entitlement is available under s. 80J(1) only if there are assessable profits and gains and not otherwise. The same meaning must be reflected in the provisions of s. 80K and it is because of this decision in Patiala Flour Mills Co.'s case : [1978]115ITR640(SC) , which is a decision of three judges and in the light of the decision of the Supreme Court in K. S. Subramanian's case, : (1977)ILLJ5SC , that we are deciding this case and taking the view that we do.
32. It is obvious from the narration of facts set out above and from the averments in the petition itself that in the year in question, namely, the year ending 31st March, 1978, being the previous year relevant to the assessment year 1978-79, the Sulzer plant, which is the new undertaking in question, had no assessable profits and gains. Hence, the benefit of s. 80K cannot be granted in respect of the relevant amount of capital employed in the Sulzer Plant during that particular previous year. This special civil application, therefore, fails and is dismissed. Rule is discharged with costs.
33. Mr. Kaji for the petitioners orally applies for leave to appeal to the Supreme Court under art. 133 of the Constitution. In view of the question of law which is involved in this case and in view of the interpretation which has to be culled out from the decisions of the Supreme Court, this is certainly a case in which a substantial question of law of general importance which is needed to be decided by the Supreme Court arises. Hence, leave is granted.