Veeraswami, J.:— These four references involve the interpretation of Section 15C of the Income Tax Act, 1922, and the scope of exemption available to shareholders in receipt of dividends. The assessment proceedings right through have proceeded on the assumption that Sri Ganapathi Mills Co. Ltd., Tirunelveli, is a new industrial undertaking as defined by S. 15-C(2), but the status of the company as such has not been determined so far in the assessment proceedings. The four assessees before us are shareholders of this company and received dividends from it during the calendar years 1954 and 1955, relevant to the assessment years 1955-1956 and 1956-1957. These dividends were included by the Income Tax Officer in the assessments of the shareholders notwithstanding their claim that they were entitled to exemption from tax under S. 15-C in their hands. They preferred appeals and the first series of them relating to the assessment year 1955-1956 were allowed by the Appellate Assistant Commissioner on the view that set off of earlier losses was not part of the computation of the income under S. 10 and should not affect the applicability of Section 15-C. He, therefore, directed rectification of the assessments after the Income-tax officer satisfying himself that the company was an industrial undertaking entitled to the benefit of exemption under S. 15-C and that the computation of the company's income under S. 10 for the relevant assessment year resulted in a positive figure.

2. Another set of appeals relating to the next assessment year was disposed of by a different Appellate Assistant Commissioner who, however, did not agree with that conclusion of his predecessor but held that S. 15-C(4) would be attracted only if there was income of the industrial undertaking on which tax was not payable. He considered that, in the computation of the income of the company, the unabsorbed depreciation that fell to be allowed under S. 24 had to be taken as having been allowed under S. 10 Itself. On that view, he dismissed the appeals. Both the department and the assessees filed further appeals before the Tribunal. For the assessees it was contended that computation of income of profits for purposes of S. 15C should be made only in accordance with S. 10 as directed by S. 15-C(3), and into such computation the carry forward losses, including previous years' unabsorbed depreciation under S. 10(2)(vi)(a), would not enter. On the other hand, for the department it was stated before the Tribunal that it was unnecessary to look into the provisions of S. 15-C(3) when S. 15-C(4) itself provided the basis for the grant of relief and that when in both the years only losses had accrued and there was no profit or gain on which tax was payable, the assessees were not entitled to the benefit under S. 15-C(4). In support of this contention the department relied on Indo Commercial Bank Ltd. v. Commissioner of Incometax, Madras, (1962) 44 ITR 22 (Mad). The Tribunal substantially accepted the contention for the department and disposed of the appeals on that basis. The Tribunal's reasoning is as follows—

“It is clear that the condition precedent for availability of relief to the assessee under S. 15-C is as stated in S. 15C(1). It is also manifest that in the two relevant years, there is no amount on which the company is exempt from tax. If only out of this amount, dividends are paid or they are attributable to profits by themselves, except under S. 15C(1), that the benefit of Sec. 15C(4) accrues to the assessee. When there is no such amount, there is no exemption under S. 15C(4)”.

3. In taking that view, the Tribunal also considered sub-sec. (3) of S. 15C and in its view its effect was only this:

“No doubt it is true that S. 15C(3) requires the profits and gains of an industrial undertaking, to which that section applies, to be made in accordance with the provisions of S. 10. But, as pointed out by the Appellate Assistant Commissioner, in arriving at the final profits, the carry forward of losses under S. 24(2) is mandatory. In other words, the fact of such carry forward of an unabsorbed depreciation under S. 10(2)(vi) of other losses would in effect amount to computation of income under S. 10”.

4. In the circumstances, at the instance of the assessee, the Tribunal has referred to us the following question:—

“Whether on the facts and in the circumstances of the case, the assessees are entitled to the benefit of S. 15C(4) in respect of the dividend income received from Sri Ganapathi Mills Co. Ltd., Tirunelveli?”

5. For the assessment years 1954-1955 and 1955-1956, the company was held in the assessment proceedings, not to be entitled to the benefit of S. 15C, as its applicability did not arise because the net result in the assessment was a loss after carry forward of previous years' losses. For the first year it was found that the company made a profit of Rs. 88,184, after allowing depreciation admissible under S. 10. But this was reduced to “nil” amount in view of allowances of depreciation losses of previous, years and the net result was a sum of Rs. 1,96,159 was carried forward on account of the depreciation losses. For the second assessment year too, the company made a profit and after giving depreciation allowances, it came to be Rs. 1,95,012. Setting off the unabsorbed depreciation, a sum of Rs. 1147 had still to be carried forward. Thus, in both the years the net result of the assessments showed “nil” profits.

6. The contention for the assessees is that they are entitled to the benefit of S. 15C(4) and on the basis of computation made under sub-section (3) of that section, which means, that in arriving at the profits no allowance should be made for carry forward losses, including unabsorbed depreciation for previous years under S. 10(2)(vi). Their learned counsel further argues that merely because in the assessment of the company “nil” profit was arrived at, and, therefore, there was no occasion for the application of Section 15C(1), to it, it does not necessarily follow from it that the assessees are not entitled to the benefit of Section 15C(4). So far as they are concerned, they having nothing to do with the assessed profits or losses of the company, for purposes of exemption to them under S. 15C, not the overall result of the assessment but a part of it relating to the new industry and that too as computed in accordance only with the provisions of S. 10, should be taken as the basis. On the other hand, learned counsel for the Revenue has reiterated the contention before the Tribunal. He has pressed before us that the scope of exemption under S. 15-C(4) is dependent upon and conditioned by there being profits or the industrial undertaking on which tax is payable but for the exemption under Section 15C(1), subject, of course, to the ceiling fixed by that provision and that if the assessment of the company resulted in a loss, there is no question of the application of Section 15C at all. In such a case, he argues, no exemption is contemplated by Section 15C(4). This submission for the Revenue obviously involves that the profits or gains of an industrial undertaking under sub-section (1) of S. 15C would be what have been arrived at after applying the entire machinery of assessment, including S. 10 and the set off and carry forward under Section 24.

7. We must confess that we have not found it easy to determine the precise scope of the exemption under S. 15C(1) and (4) and the true significance of sub-section (3). Section 15C relates to exemption from tax of newly established industrial undertakings. The policy behind the section appears to be to grant tax concessions to such industries subject to prescribed limits, apparently with a view to encourage and sustain them. The exemption contemplated by the section is of tax on so much of the profits or gains derived from any industrial undertaking to which the section applies as did not exceed six per cent per annum on the capital employed in the undertaking, the capita) being computed in accordance with such rules as may be made for the purpose by the Central Board of Revenue. What sort of industrial undertaking would be entitled to the benefit of S. 15C is defined by sub-section (2) and the proviso to this sub-section empowers the Central Government to direct by notification that the exemption conferred by the section shall not apply to any particular industrial undertaking. Sub-section (3) says that profits or gains of an industrial undertaking, to which the section applies, shall be computed in accordance with S. 10. Then comes sub-section (4):

“The tax shall not be payable by a shareholder in respect of so much of any dividend paid or deemed to be paid to him by an industrial undertaking as is attributable to that part of the profits or gains on which the tax is not payable under this section”.

8. It may be seen that S. 15C(1), is confined to a part of the profits or gains of an assessee which relates to those of an industrial undertaking and is, therefore, limited to a segment of the computation for purposes of total assessment. Sub-section (3) clearly points to that and directs that the profits or gains of an industrial undertaking to which the section applies, should be computed in accordance with the provisions of S. 10. We are aware that S. 10 is a general section not confined to the computation of profits or gains of an industrial undertaking. Section 10 pertains to the computation of income under the head of profits and gains of business, profession or vocation. Even without a provision like sub-section (3) of S. 15-C, Section 10 would have been applicable to the computation of such income. If so, why does sub-sec. (3) of S. 15-C specifically direct that the profits or gains of an industrial undertaking, to which the section is applicable, should be computed in accordance with S. 10? In our opinion, the intention of the sub-section appears to be that for purposes of computing the profits or gains of an industrial undertaking, to which S. 15C applies, the computation thereof should only be confined to the provisions of S. 10 that is to say, the profits or gains of an industrial undertaking should be computed in accordance with the provisions of S. 10. To put it differently, no other consideration, like S. 24, can enter into the computation of the profits or gains of an industrial undertaking to which S. 15C applies. Profits or gains, for purposes of this section, therefore, in our view, are not the net result of a computation on an application of the entire machinery of assessment When the section speaks of profits or gains derived from an industrial undertaking, it does not appear to us that it has relation to the total results of assessment on the company, which are arrived at after making deductions, allowances and set off of carry forward losses.

9. It is contended for the Department that the words “tax is not payable under this section” in sub-section (4) of S. 15C contain an unmistakable indication that profits or gains of an industrial undertaking are related to the assessed profits or gains of such an undertaking and that, therefore, if the assessment results in a negative figure or loss, there is no occasion for the application of S. 15C(1). It must follow from this that there would be equally no occasion to the application of sub-section (4) of that section in that event. Learned counsel for the Revenue argues that it is only where dividends have been paid out of profits or gains of an industrial undertaking which are exempt from tax subject to the limit that exemption under sub-section (4) of S. 15C would come into play. We are unable to accept these contentions. Neither sub-section (1) nor sub-section (4) is a charging provision. Both of them relate to exemption from tax within limits. The words “tax is not payable under this section” in sub-section (4) are merely indicative of the scope of the exemption under sub-section (4) which is no different or no less or more than that under sub-section (1). On our view of the effect of sub-section (3), it would follow that profits or gains of an industrial undertaking for purposes of S. 15C(1) and (4), have to be computed only in accordance with S. 10, and that is, confining the allowances to S. 10(2)(vi) and (vi)(a), and without taking into account either the unabsorbed depreciation for the previous years under S. 10(2)(vi) or (vi) (a) or the unabsorbed losses under S. 24.

10. We are of the view that even the unabsorbed depreciations under S. 10(2)(vi) cannot be allowed in computing the profits or gains, because proviso (d) to that clause explicitly makes the deemed allowance subject to clause (b) of the proviso to sub-section (2) of S. 24. In effect, in computing the profits or gains, for the purpose of S. 15C(1) and (4), the only allowance that could be made in respect of current profits are current year's depreciation under S. 10(2)(vi) and current year's additional or extra depreciation under S. 10(2)(vi)(a). The set off of losses under S. 24(2) and allowances in respect of unabsorbed depreciation, both under Ss. 10(2)(vi) and 10(2)(vi)(a), would not enter into the computation under S. 15C(3).

11. It is true that when the net result of assessment on the company is taken there is “nil” profit and there might be no occasion at all for the application of S. 15C. But, in our view, it does not follow from it that on that ground the benefit of that section can be denied to the shareholders if on a computation of the profits & gains of the industrial undertaking under S. 15C(3), the company had made profits out of which dividends had been paid to its shareholders. Where the company has “nil” profits under its final assessment, the non-application of S. 15C is not due to the fact that it made no profits and it was not entitled to the benefit of S. 15C(1). But, in view of the overall result of the assessment, there is no need for the company to claim exemption under that provision, as there is no tax liability at all. Viewed from this angle, we consider that the shareholders are entitled to take the position of the profits or gains of the company, as computed under sub-section (3) of S. 15-C and subject to the limits provided by that sub-section and claim the benefit under S. 15C(4).

12. Learned counsel for the Revenue strongly relied on (1962) 44 ITR 22 (Mad) and pressed before us that “profits” in sub-section (4) of S. 15C refer only to assessed profits attributable to the industrial undertaking, whose profits are exempt from tax under S. 15C(1). We do not think that this case is of assistance to the Revenue. The scope of sub-section (3) of S. 15C and its bearing on the computation of profits and gains of an industrial undertaking for the purpose of that section did not arise and has not been considered in that case. It does not appear from the facts in case that there was any question of carry forward losses or even unabsorbed depreciation under S. 10(2)(vi)(a) entering into the computation of profits or gains of the industrial undertaking there. In that case, the assessee held certain ordinary and preference shares in India Cements Ltd., from which it received certain dividends for the current years 1951 and 1952. They were assessed by the Income-tax Officer as income from “other sources” for the assessment years 1952-1953 and 1953-1954. On appeal the Appellate Assistant Commissioner held that since the dividends were declared out of commercial profits of the company, and as the company did not suffer any tax as all its profits had been wiped off by depreciation, and there was no assessment on the company, the question of granting exemption to the dividends did not arise.

13. It is not clear from the report whether this wiping off by depreciation related to unabsorbed depreciation or current depreciation. The question this court had to consider in that case was whether the dividends received from the company, no part of whose income has been specifically exempted under S. 15C was exempt in the hands of the assessee under S. 15C(4). The answer was in these words:

“What is exempted by S. 15C(4) is dividends paid out of or attributable to profits which are themselves exempted from taxation under S. 15C(1). The expression “profits or gains on which the tax is not payable under this section in S. 15C(4) can refer only to assessed profits, the assessed profits attributable to the industrial undertaking, whose profits are exempt from the tax under S. 15C(1)”

14. These observations, if we may say so with respect, should be understood in the context of the facts in that case. We do not understand the learned Judges in that case as laving down that the position would be the same even in cases where the profits of the company had been absorbed by making allowances for unabsorbed depreciation, both normal and extra, under S. 10(2)(vi) and (vi)(a) and setting off carry forward losses of either category. In any case on the facts in that case, the learned Judges had not to consider the scope of computation of profits or gains of an industrial undertaking under sub-section (3) of S. 15C.

15. The other cases cited before us, Ashok Motors Ltd. v. Commissioner Of Income-Tax, Madras., 1961-41 ITR 397 (Mad) and Commissioner of Income-tax Madras v. Standard Motors Products of India Ltd., (1962) 46 ITR 814 (Mad) do not bear precisely on the question we are called upon to answer. Commissioner Of Income-Tax, Bombay… v. National Electrical Industries Ltd., Bombay,…., 1959-37 ITR 131 : (AIR 1960 Bom 342) only laid down that S. 15C did not provide for any deduction from the income, the contention of the assessee in that case being so much of the profits derived from the newly established undertaking, to which that section applied as did not exceed six per cent per annum on the capital employed in the undertaking, were to be excluded in the computation of total income.

16. We answer the question referred to us against the department and in favour of the assessees with costs, which include the institution fee paid by the assessees. Counsel's tee Rs. 250, one set. We have not considered the question whether Sri Ganapathi Mills Co., Ltd. is a new industrial undertaking within the meaning of S. 15C(2). That is a matter for independent determination by the appropriate authority.

EJ/RSK/D.V.C

17. Reference answered in the affirmative.