Law:

Section:

Section 80K, read with sections 80J and 197, of the Income-tax Act, 1961 - Deductions - In respect of dividends attributable to profits and gains from new industrial undertakings - Assessee-company was entitled to deduction under section 80J in assessment years 1969-70 and 1970-71 but in absence of sufficient profit to absorb same it was carried forward - In 1972, assessee made a profit and declared a dividend - Thereafter, assessee pointed out that dividend payable by it would qualify for deduction under section 80K in hands of its shareholders and therefore, tax need not to be deducted at source from said payment - ITO, however, rejected said claim on ground that shareholders were not entitled to benefit under section 80K - On writ, High Court held that shareholders were entitled to claim deduction under section 80K and so assessee was entitled to a certificate under section 197(3) - Whether High Court was justified in holding so - Held, yes FACTS The assessee-company was engaged in manufacture of fertilizers and it commenced production in December, 1967. The assessee was assessed to income-tax as an industrial undertaking for the first time for the assessment year 1969-70. The orders of assessment were passed on 23-11-1972, and 4-1-1973. The said orders disclosed a sum of Rs. 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 company made business profits of Rs. 4.55 crores in the year 1972. The company represented to the ITO on 3-3-1973, seeking a certificate under section 197(3) pointing out that the dividend payable by it would qualify for deduction in the hands of the shareholders under section 80K. The company sought permission of the ITO not to deduct tax at source out of the dividend payable to the shareholders. The request of the company was rejected by the ITO holding that the shareholders were not entitled to the benefit of section 80K. On coming to know about the declaration of the dividend by the company, even the respondent-shareholder had also requested the company to obtain the necessary certificate. On their…

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