JUDGMENT
S.M. Jhunjhunuwala, J.
1. By this reference made under section 256(1) of the Income-tax Act, 1961, at the instance of the assessee, the Income-tax Appellate Tribunal has referred the following questions of law to this court for opinion :
“1. Whether, on the facts and in the circumstances of the case, the claim of the applicant that the amount of Rs. 23,000 being the dividend received by the applicant from Dempo Steamships Ltd. for each of the assessment years 1968-69, 1969-70 and 1970-71 was exempt from tax under section 80K of the Income-tax Act in the hands of the applicant, has been rightly rejected ?
2. Whether the finding of the Tribunal that during the relevant year, Dempo Steamship Ltd. cannot be held to have been entitled to a deduction under section 80J is correct in law ?
3. Whether the Tribunal was justified in holding that the applicant cannot claim any relief under section 80J as there was no part of the dividend which is attributable to the profits and gains derived from the company from the ship in respect of which the company is entitled to a deduction under section 80J ?”
2. The assessee is a shareholder of Dempo Steamships Ltd. (for short, referred as “the company”). In his assessments for the assessment years 1968-69 to 1970-71, the assessee claimed exemption on dividends received by him from the company under the provisions of section 80K of the Income-tax Act, 1961 (for short, “the Act”). The said exemption was claimed on the basis of a provisional certificate issued by the Income-tax Officer assessing the company under section 197(3) of the Act. The Income-tax Officer allowed the claim in the original assessments. Later on, the Income-tax Officer realised that excessive relief was given to the assessee and the income chargeable to tax had escaped assessment. Assessments for all these years were reopened under section 147(b) of the Act. The Income-tax Officer then held that the dividend received by the assessee from the company during each of the said assessment years was taxable and accordingly included the same in the total income of the assessee. In the appeals preferred by the assessee to the Appellate Assistant Commissioner of Income-tax, the Appellate Assistant Commissioner passed a common order and held that in order to claim relief under section 80K, a certificate from the Income-tax Officer assessing the company under section 197 was not at all necessary since the claim was required to be based and decided with particular reference to the provisions of section 80K only. It was further held that the Income-tax Officer having jurisdiction over the shareholders had every right to consider the matter as to the eligibility of the relief under section 80K independently of any certificate issued under section 197 of the Act. The Appellate Assistant Commissioner further held that as the company, dividend from which was for consideration, was not entitled to the deduction under section 80J of the Act, the shareholders were not eligible for any relief under section 80K of the Act and upheld the action of the Income-tax Officer denying the benefit of relief under section 80K of the Act to the assessee. The assessee filed appeals before the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore. The Tribunal, in the facts of the case, held that the company could not be held to have been entitled to a deduction under section 80J in the assessment years under consideration. The Tribunal further held that the assessee-shareholder could not claim any relief under section 80K of the Act as there was no part of the dividends which was attributable to the profits and gains derived by the company from the ship in respect of which the company was entitled to a deduction under section 80J of the Act. The Tribunal concurred with the conclusions arrived at by the Appellate Assistant Commissioner and held that no interference was called for. The appeals of the assessee were dismissed.
3. In neither of the appeals filed before the Appellate Assistant Commissioner, was it disputed that the company, dividend from which was the subject-matter thereof, was a company to which the provisions of section 80J of the Act were applicable. But though the company was eligible to relief under section 80J of the Act, for want of taxable profits, no deduction was given under that section in any of the assessment years under consideration.
4. Section 80K of the Act deals with deduction in respect of dividends attributable to profits and gains from new industrial undertakings or ships or hotel business. The portion of section 80K of the Act, relevant for this reference, reads as under :
“80K. Where the gross total income of an assessee, being –
(a) the owner of any share or shares in a company, or
(b) a person who is chargeable to tax under this Act on the income by way of dividends on any share or shares in a company owned by any other person,
includes any income by way of dividends paid or deemed to have been paid by the company in respect of such share or shares, there shall, subject to any rules that may be made by the Board in this behalf, be allowed, in computing his total income, 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 April 1, 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 : ….”
5. This section has been substituted by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1968.
6. As per section 80K, so far as relevant for this reference, in computing the total income of the assessee-shareholder which included income by way of dividends, deduction from 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 a ship, on which no tax was payable by the company under the Act or in respect of which the company was entitled to a deduction under section 80J of the Act was allowable. The question which arises for consideration is as to whether there was any income by way of dividends attributable to the profits and gains derived by the company from a ship in respect of which the company was entitled to a deduction under section 80J of the Act. In view of the plain and unambiguous language used in the section, the profits and gains derived by the company in the assessment years under consideration were required to be such in respect of which the company was entitled to deduction under section 80J of the Act.
7. The portion of section V of the Act relevant for this reference reads as under :
“80J. (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) : ………”
8. It lays down that there shall be a deduction of so much of the amount as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the ship only (we have referred to “ship” only and not to industrial undertaking or hotel business as the shares are of a steamship company in the present case) “where the gross total income of an assessee includes any profits and gains derived from a ship to which this section applies”. Section 80B(5) defines “gross total income” to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under section 280-O of the Act. Section 80A(2) lays down that the aggregate amount of the deductions under Chapter VI-A of the Act shall not, in any case, exceed the gross total income of the assessee.
9. Section 80K provides for a deduction from an assessee’s income from dividends. The amount of deduction is equal to such part thereof as is attributable to the profits and gains derived by the company from a ship (in this case) in respect of which the company was entitled to a deduction under section 80J. The word “attributable” emphasises the character of income eligible for relief and also determines the quantum of deduction admissible. The word “attributable” in section 80K ensures that where only a part of the profits of a company are to be deducted under section 80J, dividend attributable to that part only is eligible for relief under section 80K. It, therefore, follows that if there is no profit at all which could be deducted under section 80J in the case of a company, no part of the dividends received by a shareholder could be “attributed” to it. Obviously, one cannot “attribute” something to nothing.
10. Mr. Mehta, learned counsel appearing for the assessee, has submitted that the company had sufficient commercial profits in each of the assessment years under consideration from which it could declare dividends and that the profits in the hands of the company as per the profit and loss account, were the profits attributable to the section 80J undertaking and the dividends have to come out of such profits only. Mr. Mehta has further submitted that it was only because the deduction by way of development rebate, etc., preceded the deduction under section 80J that the company did not get relief under section 80J and the unabsorbed relief under section 80J had to be carried forward and set off against the assessable profit of the succeeding years. This, the submission of Mr. Mehta meant that the company was entitled to relief under section 80J and, therefore, the assessee as a shareholder was entitled to relief under section 80K. In support of his submission, Mr. Mehta has put reliance on the judgment of the Supreme Court in the case of Union of India v. Coromandel Fertilizers Ltd. [1976] 102 ITR 533. Mr. Jetley, learned counsel appearing for the Revenue, while supporting the findings and conclusions arrived at by the Tribunal, submitted that the assessee-shareholder, in the facts of the case, could not claim any relief under section 80K of the Act as no part of the dividends was attributable to the profits and gains derived by the company from the ship in respect of which the company was entitled to deduction under section 80J. In support of his submission, Mr. Jetley has relied upon the judgment of the Supreme Court in the case of CIT v. Patiala Flour Mills Co. P. Ltd. [1978] 115 ITR 640 as also the judgment of the Gujarat High Court in the case of Ahmedabad Mfg. and Calico Printing Co. Ltd. v. A. V. Joshi, ITO [1979] 118 ITR 544.
11. It was not disputed that the company had no assessable profits in any of the assessment years under consideration. However, it was submitted on behalf of the assessee-shareholder that he was entitled to relief under section 80J of the Act. Sections 80J and 80K cannot be interpreted in isolation or viewed separately from the entire schedule in Chapter VI-A starting from section 80A of the Act. Though the company had commercial profits as per profit and loss accounts in all these years, the income assessed was nil in view of the unabsorbed development rebate of earlier years. There were no assessable profits and gains derived by the company from the ship in these assessment years and, as such, no part of the dividend actually received by the assessee-shareholder could be said to be attributable to the profits and gains derived by the company from the ship. On a plain grammatical interpretation of section 80K, we are of the view that when there were no assessable profits and gains derived by the company from the ship in the course of the previous years relating to the assessment years under consideration, relief under section 80K for these assessment years was rightly not granted. In our view, what section 80K contemplates is the ascertainment of the portion of the dividends received by the shareholders from a company which is attributable to the profits and gains derived by such company from a new industrial undertaking or ship or hotel business, in this case, the ship. The Supreme Court, in the cases of Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777 and in CIT v. Patiala Flour Mills Co. P. Ltd. [1978] 115 ITR 640 has in terms held that the words “profits and gains derived by the company from a new industrial undertaking” occurring in section 80K in the context of section 80J can have one meaning only, namely, profits and gains assessable to income-tax under the rest of the provisions of the Income-tax Act, 1961, barring the provisions of Chapter VI-A and section 280-O. In the light of the interpretation placed on the scheme of section 80J by the Bench of three judges of the Supreme Court in CIT v. Patiala Flour Mills Co. P. Ltd. [1978] 115 ITR 640, it is not possible for us to follow the earlier judgment of the Supreme Court in the case of Union of India v. Coromandel Fertilizers Ltd. [1976] 102 ITR 533 on which reliance has been placed by Mr. Mehta. We propose to follow the later judgment of the Supreme Court in CIT v. Patiala Flour Mills Co. P. Ltd. [1978] 115 ITR 640 delivered by the Bench of the three judges.
12. Since, according to Mr. Mehta, there is controversy as regards computation of “profit” in the manner as set out by section 29 of the Act, we grant liberty to the assessee to satisfy the Tribunal that in the assessment years under consideration, the company had profits ascertainable on the principles stated hereinabove, and if the Tribunal is satisfied, it may grant proportionate relief to the assessee, otherwise the order of the Tribunal in reference stands.
13. The reference is accordingly disposed of.
14. There shall be no order as to costs.