COMMISSIONER OF INCOME-TAX, MADRAS versus S. S. SIVAN PILLAI AND OTHERS

Citation: [1971] 1 S.C.R. 434 · Decided: 29-04-1970 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

434 
COMMISSIONE~ OF INCOME-TAX, MADRAS 
. v. 
S. S. SIVAN PILLAI AND OTHERS 
April 29, 1970 
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.J 
lrniian /ru:ome-tax Act, 1922, s. 
15-C(l) 
& (4)-
ShaFe-holders 
whether. entitled to exe1.nption under sub-s. (4) when company makes 110 
profit liable to exemptwn under sub-s. 
(!)-Un.absorbed depreciation 
carried forward urnier section 10(2) (vi) and 10(.2) (vi-,A)- Whether to 
~e set ofj against profit for purpose of determining profit under s. ,10-
Eet:ofj of depreciation carried forward against profit of succeeding )'ear 
whether takes place under s. 10(2) (vi) prcwiso (b) or 11rnier s. 24(2). 
Shri Ganapathy Mills Co. Ltd., Distributed div.iclend to its shareholders 
out. of its business profits earned 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) 
& 10(2) (vi-a) of the Income-Lix Act, 1922 and an that account 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 the 
Income-tax Officet rejected the claim for exemption 
from 
tax 
under 
s. 15-C(4) of the Incoine-tax Act and brought ~he dividend to tax. This 
order was confirmed by the Income-tax Appellate Tribunal. 
The High 
Court, in a reference, held in favour of the assessees. 
With certificate 
the Revenue appealed. The question that fell for consideration were : 
(i). Whether the High Court's view that unabsorbed depreciation o( pre-
vious years must be ignmed in computing the profits under s. 10 and the 
implied assumption. that unabsorbed depreciation was carried forward and 
set-off under s. 22(4) were correct; (ii) 
Whether, 
the claim under s. 
15-C(4) could be made even when there was no taxable profit for which 
exemption coul~ be claimed under s. 15..C(4). 
HELD: (i) Under proviso (b) to s. 10(2) (vi) the unabsorbed depre-
ciation in an year is to be deemed the depreciation for the su ... -eeding year 
into the accounts of which it is carried forward and the aggregate of de-
preciation in the year of, assessment and tile unabsorbed depreciation of 
the previous year is deemed to be depreciation allowance far the year of 
assewment. The opinion of the High Court that in computing the profits 
of an industrial undertaking under s. I 0, unabsorbed depreciation for the 
previous years must be ignored is inconsistent with the plain terms of the 
proviso. f/138 D-E; 439 DJ 
. 
The right to clajm allowance of unabsorbed depreciation does not af'ise 
out of s. 24(2) of the ,\ct. Under the scheme of s. 15.C(4) profits and 
gaim Of an industrial undertaking must be determined under and in the 
manner provided by s. JO of the Income-tax Act. For that purpose all the 
allowances under sub-s. (2) are taken into account and ·the resultant 
amount forms a component of the taxable profits. By proviso (b) to s. 10-
(2) (vi), the unabsorbed depreciation in the previou• year is deemed de-
preciation for the subsequent year, and there is no room for making anv 
distinction between the unabsorbed deprecia1ion for the previous year -and 
the depreciation for the current year. The right to appropriate the profits 
towards the unabsorbed depreciation in the previous year does not arise 
under s. 24(2); it arises by virtue of s. 10(2) (vi) proviso (b). [439 D·FJ 
A 
c 
I> 
G 
H 
A 
B 
c 
D 
E 
G 
H 
C.J.T, V, Si PILLAI (Shah, J.) 
435 
(ii) The right of the· shareholders to obiain benefit of exemption under 
s. 15-C( 4) depends upon the company obtaining the benefit of exemption 
under sub-s. (!) of s. 15-C for the exemption from payment of tax on 
the dividend received by the share-holders is admissible only on that part 
of the profits or gains on which the tax is not payable by the com-
pany under sub-s. ( 1). f439 HJ 
· 
On this view it must be held that .the claim of shareholders in t!Je. 
present case rightly disallowed by the taxing authorities. [435 H; 441 Dl: 
[Proviso (b) to s. 24(2) held inapplicable, with the observation that 
it deals merely with 
prio~ity and does not convert what is unabsorbed 
depreciation of the previous year which is deemed to be depreciation for 
the current year into loss "for the purpose of carry forward".} L440 D]l 
Commissioner of Income-tax, Calcutta v. J,aipuria China Clay 
Mines 
(P) Lid., 59 l.T.R. 555, referred to. 
CIVIL APPELLATE JURISDICTION: Civil App

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