RAJAPALAYAM MILLS LTD. versus COMMISSIONER OF INCOME TAX, MADRAS

Citation: [1979] 1 S.C.R. 1138 · Decided: 06-10-1978 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

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1138 
RAJAPALAYAM MILLS LTD. 
v. 
COMMISSIONER OF INCOME TAX, MADRAS 
October 6, 1978 
(P. N. BHAGWATI, V. D. TULZAPURKAR AND R. S. PATHAK, JJ.] 
Income 1ax Act, 1922, Sec. 15C and Sec. 84 of Jnco111e Tax Act, 
1~61, 
interpretation of. 
The appellact assessee, a public limited company carrying on business in 
manufacture and sale of yarn, set up a new industrial undertaking during the 
financial year ending 31st March, 1959 being the accounting year relevant to 
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the assessment year 1959-60. The entire amount of depreciation and develop-
ment rebate in respect of this new unit for the assessment years 1959-60 and 
1960-61 were set off against the total profit of the assessee arising out of all 
units old and new, and therefore nothing remained unabsorbed to be carried 
forward to the next aesessment year 1961-62. In the assessment year 1961-62, 
the assessee earned a net business income of Rs. 12,69,403 /- which included 
a sum of Rs. 1,36,822/- representing the income from the new unit. The 
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assessee in its assessment to t.ax for this assessment year claimed exemption 
of the income from the new unit to the extent of 6% of the average capital 
employed in it under section 15C of the Income Tax Act 1922. 
Taking the 
view that the benefit of Sec. 15 ( c) sub-section (1) could be claimed by the 
assessee only if there was any profit derived from the new unit '1nd since 
the profit was, by reason of sub-section (3) of Sec. 15C required to be com-
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puted in accordance with the trading result of the new unit without reference 
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to any other activity carried on by the assessee and if that was done, the 
result would clearly show that there was a loss in the working of the new 
unit in the assessment year 1961-62, the Income Tax Officer held that the 
benefit of exemption under Sec. 15C, sub-section (1) was not available to 
the assessee and thus the claim of the assessee for exemption was rejected. 
In 
appeal, the Appellate Assistant Commissioner set aside the order of the Income 
Tax Officer but on further appeal by the Revenue to the Tribunal the order 
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of the Income Tax Officer was restored. The, same view was taken by the 
Tribunal in regard to the assessment in the year 1962-63. The High Court, 
on a .reference, agreed with the view taken by the Tribunal. Hence the appeals 
by special leave in respect of the afisessment years 1961-62 and 1962-63. 
Allowing the appeals, the Court, 
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HELD : ( 1 ) The law of income tax in a mcxlern society is intended to 
achieve various social and economic objectives and is used as an instrument 
for accelerating economic growth and development. Sec. 15C is a provisiofi 
intrcxluced in the Indian Income Tax Act, 1922 with a vie\V to carrying out 
this objective and it is calculated to encourage setting- up of new industrial 
undertakings. [1147 A-Bl 
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Sub-section (l) of Sec. 15C 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 and, therefore, there must 
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RAJAPALAYAM MILLS V. C.I.T. (Bhagwati, /.) 
1139 
be profits or gains derived from the new industrial undertaking in the assess-
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ment year in question before any claim for exemption can be sustained under 
Sec. I SC, sub-sec. (I). If there are no profits or gains derived from the 
new industrial undertaking in any particular assessment year, there can be no ques· 
tion 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, tney become 
eligible for exemption [1147 B, C·D] 
(2) Though the profits of each distinct business carried on by an assessee 
have to be con1puted separately, in accordance with the provisions of Sec. 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 business carried on by 
the assessee. 
Therefore, where the assessee carries on several businesses he is 
entitled under sction 10 to set off loss in one business against profits of another. 
If there is any loss in ai business carried on by the a.ssessee by reason of the 
profits of su~h business not being sufficient to absorb the depfeciation ii1Jowance, 
such loss can be set off against the profits of another business carried on by 
the assessee. 
If, however there are no profits charge\.ble under 
the head 
'Business or profession' or if the pr

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