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Additional Commissioner of Income-tax Vs. Central Bank of India - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 175 of 1974
Judge
Reported in(1984)43CTR(Bom)329; [1986]159ITR756(Bom); [1984]18TAXMAN119(Bom)
ActsIncome Tax Act, 1961 - Sections 22(1), 22(2A), 24(2), 70, 71, 72, 72(1), 73, 73(2), 74, 74(1), 74(2), 74A, 74A(3), 75, 76, 77, 78, 79, 80, 85, 85A, 99(1), 101(2), 139, 297 and 297(2); Income Tax Act, 1922 - Sections 24(2B)
AppellantAdditional Commissioner of Income-tax
RespondentCentral Bank of India
Excerpt:
direct taxation - set off - section 24 (2b) of income tax act, 1922 and sections 70 to 80 of income tax act, 1961 - in assessment year 1964-65 assessee had sold its property at karachi at profit - assessee claimed to set off against this amount of capital gains a sum of capital loss suffered by assessee in respect of transfer of property at rangoon during assessment year 1960-61 - there is no provision under act of 1922 or under act of 1961 which requires assessee-company which has suffered loss under heads 'capital gains' in previous year relevant to assessment year to which indian income-tax act of 1922 was applicable to have this loss ascertained or determined in assessment year in which it arose - assessee can exercise right to carry forward and set off such capital loss in subsequent.....sujata v. manohar, j.1. this is a reference under section 256(1) of the income-tax act, 1961, and the following questions of law have been referred to us for determination :re : assessment year 1963-64.'(1) whether, on the facts and in the circumstances of the case, the assessee was entitled to relief/rebate under sections 85, 99(1)(iv), 101(2) and 235 of the income-tax act, 1961, on gross dividends, that is, without reducing them by proportionate management or other expenses ? (2) whether, on the facts and in the circumstances of the case, the assessee was entitled to relief on the entire portion of tax-free dividend from the state financial corporation, that is, without reducing it by proportionate management or other expenses ?'re : assessment year 1964-65 :'(1) whether, on the facts.....
Judgment:

Sujata V. Manohar, J.

1. This is a reference under section 256(1) of the Income-tax Act, 1961, and the following questions of law have been referred to us for determination :

Re : Assessment year 1963-64.

'(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief/rebate under sections 85, 99(1)(iv), 101(2) and 235 of the Income-tax Act, 1961, on gross dividends, that is, without reducing them by proportionate management or other expenses ?

(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief on the entire portion of tax-free dividend from the State Financial Corporation, that is, without reducing it by proportionate management or other expenses ?'

Re : Assessment Year 1964-65 :

'(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under sections 85, 99(1)(iv), 101(2) and 235 of the Income-tax Act, 1961, on the gross dividends, that is, without reducing them by proportionate managementand other expenses ?

(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief/rebate on the entire portion of tax-free dividend from the State Financial Corporation, that is, without reducing them by proportionate management and other expenses ?

(3) Whether, on the facts and in the circumstances of the case, any portion of the business expenditure could be set off against the income of the assessee by way of interest on foreign securities/investments ?

(4) Whether the assessee was entitled to set off capital loss, if any, on the sale of property at Rangoon during the previous year relevant to the assessment year 1960-61, which could not be claimed by the assessee and determined by the Income-tax Officer in that year against the capital gain on the sale of property at Karachi during the accounting year relevant to the assessment year 1964-65 ?'

Re : Assessment year 1965-66 :

'(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief rebateunder sections 85, 85A and 235 of the Income-tax Act, 1961, on gross dividend, that is, without reducing them by proportionate management or other expenses ?

(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief on the entire portion of tax-free dividend from the State Financial Corporation, that is, without reducing it by proportionate management or other expenses ?

(3) Whether, on the facts and in the circumstances of the case, any portion of the business expenditure could be set off against the income of the assessee by way of interest on foreign securities/investments ?'

Re : Assessment year 1966-67 :

'(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief rebateunder sections 85, 85A and 235 of the Income-tax Act, 1961, on gross dividend, that is, without reducing them by proportionate management or other expenses ?

(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief on the entire portion of tax-free dividend from the State Financial Corporation, that is, without reducing it by proportionate management or other expenses ?'

2. Questions for the assessment year 1963-64, question Nos. 1 to 3 for the assessment year 1964-65 and all questions for the assessment years 1965-66 and 1966-67 relate to rebate claimed by the assessee in respect of its dividend income under the relevant sections which are referred to in those questions. According to the assessee, they are entitled to relief on the total gross dividend received by them; while according to the Department, the relief is admissible only on net dividend, that is to say, gross dividend as reduced by (proportionate) management or other expenses. It is an accepted position that in view of the principles laid down in the decision of this court in CIT v. New Great Insurance Co. Ltd. : [1973]90ITR348(Bom) , as also the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : [1979]118ITR243(SC) , the assessee is entitled to relief on the gross dividend received by it. Accordingly, questions Nos. 1 and 2 for the assessment year 1963-64 are answered in the affirmative, that is to say, in favour of the assessee and against the Department.

3. Questions Nos. 1 and 2 for the assessment year 1964-65 are answered in the affirmative, that is to say, in favour of the assessee and against the Department.

4. In view of the answers to questions Nos. 1 and 2, answer to question No. 3 for the assessment year 1964-65 becomes academic and it is not necessary to answer the same.

5. Question Nos. 1 and 2 for the assessment year 1965-66 are answered in the affirmative, that is to say, in favour of the assessee and against the Department.

6. In view of the answers to questions Nos. 1 and 2, answer to question No. 3 for the assessment year 1965-66 becomes academic and we decline to answer the same.

7. For the assessment year 1966-67, questions Nos. 1 and 2 are answered in the affirmative, that is to say, in favour of the assessee and against the Department.

8. The only question that requires consideration is question No. 4 for the assessment year 1964-65. In that assessment year, the assessee had sold its property at Karachi at a profit of Rs. 3,50,343. The assessee claimed to set off against this amount of capital gains a sum of Rs. 3,57,250 being a capital loss suffered by the assessee in respect of transfer of its property at Rangoon during the assessment year 1960-61. It seems that in 1959, a property of the assessee at Rangoon had been sold for a sum of Rs. 1,25,000 (brokerage for sale was Rs. 6,250), whereas, according to the assessee, its fair market value as on January 1, 1954, was Rs. 4,76,000. This resulted in a capital loss of Rs. 3,57,250 to the assessee. It is, however, mentioned in paragraph 10 of the statement of case that the Rangoon property was taken over by the Burma Government during the assessment year 1960-61 and the assessee had no knowledge as to what compensation would be given to it by the Burma Government in respect of the said property. The assessee bank, therefore, could not put in any claim for capital loss during the assessment year 1960-61. The amount of compensation was determined and paid to the assessee in a subsequent assessment year. We have to determine whether it was open to the assessee to set off its capital loss in respect of the Rangoon property suffered during the previous year relevant to the assessmentyear 1960-61 as against the capital gains of the assessee on the sale of its property at Karachi during the previous year relevant to the assessment year 1964-65. The question which is framed on this issue proceeds on the basis that the capital loss suffered during the assessment year 1960-61 could not be claimed by the assessee during that relevant assessment year.

9. It is the case of the Department that unless the loss suffered in respect of a sale of a capital asset is computed in the assessment for the year in which such a loss arises, it cannot be carried forward or set off against a capital gain in a subsequent year. This submission requires to be examined.

10. In the present case, it is necessary to bear in mind that the loss in question arose in the assessment year 1960-61 when the rights of the assessee were governed by the Indian Income-tax Act, 1922. While the set-off claimed by the assessee is during the assessment year 1964-65 when the Income-tax Act, 1961, had come into operation. Section 24 of the Indian Income-tax Act, 1922, provides for a right to set off a loss in computing the aggregate income as provided in that section. Section 24(2) deals with carrying forward and set-off of business losses. Sub-section (2A) of section 24 reads as under :

'24. (2A) Notwithstanding anything contained in sub-section (1), where the loss sustained is a loss falling under the head 'Capital gains', such loss shall not be set off except against any profits and gains falling under that head.'

11. Sub-section (2B) of section 24 reads as under :

'24. (2B) Where an assessee sustains a loss such as is referred to in sub-section (2A) and the loss cannot be wholly set off in accordance with the provisions of that sub-section, the portion not so set off shall be carried forward to the following year and set off against capital gains for that year, and if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following year and so on, so however, that no such loss shall be carried forward for more than eight years.'

12. In view of these provisions, the assessee was entitled to set off the loss suffered by it and falling under the head 'Capital gains' in the assessment year 1960-61 against capital gains in the eight subsequent years in the manner provided in sub-section (2B).

13. Under the Income-tax Act, 1961, the relevant provisions relating to set off or carry forward of loss are contained in sections 70 to 80 of the Income-tax Act, 1961. The relevant section in the present case is section 74. The relevant provisions of section 74 are as under :

'74. (1)(a) Where in respect of any assessment year, the net result of the computation under the head 'Capital gains' is a loss, such loss shall, subject to the other provisions of this Chapter, be dealt with as follows :-

(i) such portion of the net loss relating to short-term capital assets as cannot be or is not wholly set off against income under any head in accordance with the provisions of section 71 shall be carried forward to the following assessment year and set off against the capital gains, if any, relating to short-term capital assets assessable for that assessment year and, if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following assessment year and so on;

(ii) such portion of the net loss as relates to capital assets other than short-term capital assets shall be carried forward to the following assessmentyear and set off against the capital gains, if any, relating to capital assets other than short-term capital assets assessable for that assessment year and, if it cannot be so set off, the amount thereof not so set off shall he carried forward to the following assessmentyear and so on.'

74 (1)(b) Notwithstanding anything contained in the Indian Income-tax Act, 1922 (11 of 1922), any loss computed under the head 'Capital gains' in respect of the assessment year commencing on the 1st day of April, 1961, or any earlier assessment year which is carried forward in accordance with the provisions of sub-section (2B) of section 24 of that Act, shall be dealt with in the assessment year commencing on the 1st day of April, 1962, or any subsequent assessment year as follows :-

(i) in so far as it relates to short-term capital assets, it shall be carried forward and set off in accordance with the provisions of sub-clause (i) of clause (a) and sub-section (2); and

(ii) in so far as it relates to capital assets, other than short-term capital assets, it shall be carried forward and set off in accordance with the provisions of sub-clause (ii) of clause (a) and sub-section (2).

(2)(a) No loss referred to in sub-clause (i) of clause (a) of sub-section (1) or sub-clause (i) or sub-clause (ii) of clause (b) of that sub-section shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed under this Act, or, as the case may be, the Indian Income-tax Act, 1922 (11 of 1922).

(b) No loss referred to in sub-clause (ii) of clause (a) of sub-section (1) shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed under this Act.'

14. Thus, under the provisions of section 74(1)(b) of the Income-tax Act, 1961, any capital loss which is carried forward in accordance with the provisions of sub-section (2B) of section 24 of the Indian Income-tax Act, 1922, is to be separated into short-term capital loss and long-term capital loss and set off against short-term capital gains and long-term capital gains respectively in the manner set out in section 74(1)(b). This provision became necessary because under the Indian Income-tax Act 1922, no distinction was made between short-term capital gains or losses and long-term capital gains or losses. The right to carry forward a capital loss for a period of eight years under the Indian Income-tax Act, 1922, is, however, preserved under section 74(2) of the Income-tax Act, 1961.

15. The first question that requires determination is whether the capital loss which the assessee bank suffered in the assessment year 1960-61 has been carried forward by the assessee under the provisions of the Indian Income-tax Act, 1922, or under the Income-tax Act, 1961. The loss occurred in the assessment year 1960-61 at a time when the Indian Income-tax Act, 1922, was applicable. Under section 24(2A) of the Indian Income-tax Act, 1922, loss falling under the head 'Capital gains' may be set off against any profits or gains falling under that head. It is nobody's case that during the assessment year 1960-61, the assessee companyhad any profits or gains falling under the head 'Capital gains' against which this loss could have been set off during the same assessment year. Under sub-section (2B) of that section, when such a loss cannot be set off in accordance with the provisions of sub-section (2A), the portion not so set off shall be carried forward to the following year and set off against capital gains for that year and so on, except that such a loss cannot be carried forward for more than eight years. The right to carry forward the capital loss and set it off against a capital gain in a subsequent year, therefore, accrued to the assessee under the provisions of sub-section (2B) of section 24 of the Indian Income-tax Act, 1922. From the assessment year 1962-63, however, the Income-tax Act, 1961, came into operation. We have, therefore, to see whether there is any provision under the Income-tax Act, 1961, which affects this right which accrued to the assessee under sub-section (2B) of section 24 of the Indian Income-tax Act, 1922.

16. According to Mr. Joshi, learned counsel for the Department, the right under section 24(2B) of the Indian Income-tax Act, 1922, came to an end on the coming into operation of the Income-tax Act, 1961. He submitted that the right to carry forward and set off the loss which the assessee company had is now conferred on it only by section 74 of the Income-tax Act, 1961. This submission does not appear to be correct. If one examines the scheme relating to set off or carry forward of loss under sections 70 to 80 of the Income-tax Act, 1961, one finds that under section 70, a provision is made for a set-off of loss from one source of income against another source of income arising under the same head of income. This section deals with set off during the same assessment year. Section 70 obviously cannot apply to any assessment year prior to 1962-63 because assessments for the years prior to 1962-63 would be governed by the Indian Income-tax Act, 1922. Section 70 would apply to the year in which the Income-tax Act, 1961, became applicable, that is to say, the assessment year 1962-63.

17. Similarly, section 71 deals with set off of loss from one head of income against another head of income in the same assessment year. Once again, the provisions of section 71 would apply to those assessment years in which the Income-tax Act, 1961, became applicable. Section 72 deals with carry forward and set off of business losses. Section 72 in terms provides that when there is a loss which cannot be or is not wholly set off in accordance with the provisions of section 71, so much of the loss as has not been so set off can be carried forward as laid down in that section. Since this section has a direct reference to the previous section, quite clearly, the scheme of section 72 also will apply to those assessment years which are covered by the Income-tax Act, 1961. Section 74 deals with losses under the head 'Capital gains' and how these losses are to be carried forward to subsequent years. Section 74, sub-section (1)(a)(i), lays down that where the net loss relating to short-term capital assets as cannot be or is not wholly set off in accordance with the provisions of section 71, shall be carried forward as prescribed in that section. Here, once again, section 74 refers to the provision for set off as provided in section 71. It canonly apply to the assessment year to which the Income-tax Act, 1961, became applicable. Section 74(1)(a)(ii) deals with net loss as relates to capital assets other than short-term capital assets and it is required to be carried forward and set off as prescribed in that section. Section 74(1)(a), therefore, deals with carry forward of loss relating to capital assets in respect of assessment years after 1962-63.

18. Does section 74(1)(b) provide any new rights to the assessees who have suffered loss on their capital assets during the assessment years covered by the Indian Income-tax Act, 1922 Section 74(1)(b) in terms deals with losses computed under the head 'Capital gains' which are carried forward in accordance with the provisions of sub-section (2B) of section 24 of the Indian Income-tax Act, 1922. It does not prescribe that such losses will, after coming into operation of the Income-tax Act, 1961, be carried forward not under sub-section (2B) of section 24 of the Indian Income-tax Act, 1922, but under section 74 of the Income-tax Act, 1961. On the contrary, it assumes that such loss arising in an assessment year prior to 1962-63 is carried forward under the provisions of sub-section (2B) of section 24 of the Indian Income-tax Act, 1922. All that section 74(1)(b) provides is that losses which are being carried forward under section 24(2B) of the Indian Income-tax Act, 1922, will have to be set off in the subsequent years to which the Income-tax Act, 1961, applies in the manner prescribed in that section. This part of section 74 merely prescribes that loss relating to short-term capital assets and loss relating to long-term capital assets will be set off against the corresponding capital gains. Section 74(2) also preserves the right under the Indian Income-tax Act, 1922 to carry forward such a loss for a period of eight years from the year in which the loss arose. This is important because under sub-section (2)(b) of section 74, loss relating to long-term capital assets which arises under the Income-tax Act, 1961, can be carried forward only for four assessment years. The right of the assessee to carry forward such a loss for eight years under the Indian Income-tax Act, 1922, is thus preserved. It is, therefore, not possible to accept the submission that the right of the assessee company to carry forward and set off of the loss in question arose under section 74 of the Income-tax Act, 1961. Such a right accrued under section 24(2B) of the Indian Income-tax Act, 1922. At the highest, it is modified to some extent by section (1)(b).

19. Under section 6 of the General Clauses Act, 1897, when any Central Act is repealed, such a repeal does not affect any right acquired under any enactment so repealed unless a different intention appears in the repealing Act. No such different intention appears underthe Income-tax Act, 1961. The provisions of section (1)(b), far from expressing any such different intention, in fact, preserve the right of the assessee company under section 24(2B) of the Indian Income-tax Act, 1922. Similarly, section 297 of the Income-tax Act, 1961, which repeals the Indian Income-tax Act, 1922, does not contain any provision which affects the right to carry forward loss and set it off under the Indian Income-tax Act, 1922. The right, therefore, of the assessee company to carry forward and set off the loss under section 24(2B) of the Indian Income-tax Act, 1922, continues. The manner of set off is modified by section 74(1)(b) of the Income-tax Act, 1961.

20. In this connection reference may be made to a decision of the Supreme Court in the case of T.S. Baliah v. T.S. Rangachari, ITO : [1969]72ITR787(SC) . In that case the Supreme Court considered the provisions of section 6 of the General Clauses Act and section 297(2) of the Income-tax Act, 1961, and held that the right of instituting prosecutions in respect of offences committed under the Indian Income-tax Act, 1922, is not taken away under the Income-tax Act, 1961. This right can be exercised even after the coming into operation of the Income-tax Act, 1961. The same principles apply in the present case.

21. It is the contention of the Department that as the loss suffered by the assessee company under the head 'Capital gains' in the assessment year 1960-61 was not computed in the assessment year 1960-61, the assessee company had no right to carry forward and set off that loss in a subsequent assessment year. The assessee company had filed a return for the assessment year 1960-61. It is the case of the assessee company that the loss could not be shown in the assessment year 1960-61, because no compensation had been either determined or received by the assessee company in respect of the property which was taken over in that assessment year It is also not the case of the Department that in the assessment year 1960-61 or in any subsequent assessment year till 1964-65, there was any capital gain against which this capital loss could have been set off. In the absence of computation of such a loss in the assessment year in which the loss occurred, can the assessee company carry forward and set off this loss in the subsequent assessment year ?

22. Section 80 of the Income-tax Act, 1961, provides as follows :

'80. Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed under section 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) of section 74 or sub-section (3) of section 74A.'

23. In the first place, section 80 deals with carry forward and set off of a loss under sections 72(1), 73(2), 74(1) and 74A(3). It does not apply to a loss carried forward and set off under section 24(2B) of the Indian Income-tax Act, 1922, read with section 74(1)(b) of the Income-tax Act, 1961.

24. Secondly, section 80 requires that a loss should be determined in pursuance of a return filed under section 139. Returns can be filed under section 139 only in respect of the assessment years to which the Income-tax Act, 1961, applies. The assessee company could obviously not have filed a return under section 139 in respect of assessment year 1960-61. There was, therefore, no question of the loss being determined in pursuance of a return filed under section 139. Section 80 also refers to such a loss determined under a return filed under section 139 being carried forward and set off as provided under sections 72, 73, 74 and 74A. All these sections relate to losses which arise in the assessment years in which the Income-tax Act, 1961, applies and which are carried forward in accordance with the provisions of the Income-tax Act, 1961. It is true that in respect of a loss which arises in the assessment year covered by the provisions of the Income-tax Act, 1961, such a loss will have to be determined pursuant to a return filed under section 139 and carried forward as prescribed under the Act. Otherwise, under the provisions of section 80, such a loss cannot be carried forward and set off. Section 80, however has no application to losses which arose before the coming into operation of the Income-tax Act, 1961, and are carried forward and set off under section 24(2B) of the Indian Income-tax Act, 1922, or (after the coming into force of the Income-tax Act, 1961) are carried forward and set off under section 24(2B) of the Indian Income-tax Act, 1922, read with section 74 of the Income-tax Act, 1961. If section 80 were to apply to losses arising in the assessment years to which the Indian Income-tax Act, 1922, applies, such losses could never be carried forward and set off after the coming into operation of the Income-tax Act, 1961. Because, such losses cannot possibly be determined under a return filed under section 139 of the Income-tax Act. 1961. Section 74, however, clearly contemplates carry forward and set off of such losses after the coming into operation of the Income-tax Act, 1961. Thus, section 80 has no application to losses arising during the assessment years governed by the Indian Income-tax Act, 1922.

25. We have not been able to find any provision under the Indian Income-tax Act, 1922, which is similar to section 80 of the Income-tax Act, 1961. The only provision under the Indian Income-tax Act, 1922, which can be considered in this connection is section 22(2A). Section 22 of the Indian Income-tax Act, 1922, deals with the return of income. It is comparable to section 139 of the Income-tax Act, 1961. Under section 22(2A) which came into operation, by an amendment, with effect from 1st April, 1952, it is provided as follows :

'22. (2A) If any person, who has not been served with a notice under sub-section (2) has sustained a loss of profits or gains in any year under the head 'Profits and gains of business, profession or vocation', and such loss or any part thereof would ordinarily have been carried forward under sub-section (2) of section 24, he shall, if he is to be entitled to the benefit of the carry forward of loss in any subsequent assessment, furnish within the time specified in the general notice given under sub-section (1) or within such further time as the Income-tax Officer in any case may allow, all the particulars required under the prescribed form of return of total income and total world income in the same manner as he would have furnished a return under sub-section (1) had his income exceeded the maximum amount not liable to income-tax in his case, and all the provisions of this Act shall apply as if it were a return under sub-section (1).'

26. Section 139, sub-section (3), of the Income-tax Act, 1961, contains a somewhat similar provision. It is not necessary to examine whether the provisions of section 22(2A) are mandatory or not and whether unless a person files a return under section 22(2A), he cannot claim the benefit of the right to carry forward business losses. The Supreme Court in the case of CIT v. Kulu Valley Transport Co. P. Ltd. : [1970]77ITR518(SC) has held that it is section 24(2) of the Indian Income-tax Act, 1922, which confers the benefit of business losses being carried forward and set off, and there is no provision in section 22 under which business losses have to be determined for the purpose of section 24(2). Section 22(2A) simply says that in order to get the benefit of section 24(2), the assessee must submit his loss return within the time specified by section 22(1). That provision must be read with section 22(3) for the purpose of determining the time within which a return has to be filed. Be that as it may, what is important to note is that section 22(2A) only deals with losses under the head 'Profits and gains of business, profession or vocation'. Section 22(2A) has no application to loss arising under the head 'Capital gains'. Since the loss suffered by the assessee was a loss under the head 'Capital gains', section 22(2A) had no application. There is no other provision under the Indian Income-tax Act, 1922, under which it could be said that it was necessary for the assessee company to have the loss under the head 'Capital gains' determined or computed in the assessment year in which such a loss arose, before the assessee company could exercise its right to carry forward and set off that loss under the provisions of section 24(2B) of the Indian Income-tax Act, 1922.

27. In the case of CIT v. Govindalal Dutta : [1958]33ITR630(Cal) , the Calcutta High Court was required to consider a case where the assessee had filed voluntary returns in respect of five assessment years 1946-47 to 1950-51. The Income-tax Officer ignored the returns for the years 1946-47 and 1947-48, as they were voluntary returns and showed business losses. He made an assessment only for the assessment year 1948-49, without determining or taking into account the business losses of the earlier years. The Calcutta High Court held that the assessee had an unqualified right, subject only to the limitations contained in section 24(2) of the Indian Income-tax Act, 1922, to have his business losses carried forward and set off against the business profits of subsequent years irrespective of whether assessments were made in respect of the earlier years. The court also held that the Income-tax Officer had to determine in the assessment for the year 1948-49 the losses incurred by the assessee in the earlier years and allow a set off. This was a decision relating to carry forward and set off of business losses prior to the amendment of 1952 under which section 22(2A) was inserted. The principles, however, laid down in this decision continue to apply to losses under the head 'Capital gains', since the right to carry forward and set off the loss under section 24(2B) is not in any manner affected by the provisions of section 22(2A).

28. Similarly in the case of Udaya Ltd. v. CIT : [1959]36ITR469(Mad) , a Full Bench of the Madras High Court was required to consider the right of the assessee to carry forward and set off business loss under the provisions of the Indian Income-tax Act, 1922. The Full Bench of the Madras High Court held that section 24(2) of the Indian Income-tax Act, 1922 (before the amendment of 1952 bringing in section 22(2A)) entitled the assessee to carry forward his business losses for a period of six years. The Act did not impose a further condition that the ascertainment of the losses should have been made anterior to the time when the claim to carry forward was made.

29. Similarly, in the present case, the assessee has an unqualified right to carry forward its loss arising under the head 'Capital gains' under the provisions of section 24(2B) of the Indian Income-tax Act, 1922, read with section 74(1)(b) of the Income-tax Act, 1961, subject only to the limitation that such loss is not to be carried forward for more than eight years. Neither of the two Income-tax Acts imposes a further condition that the ascertainment of this loss should have been made anterior to the time when the assessee claims a right to carry forward and set off the loss.

30. In the case of CIT v. Manmohandas : [1966]59ITR699(SC) , the Supreme Court was required to consider a case where the assessee had claimed a certain amount as a business loss in the year in which that loss arose. The Income-tax Officer held that it was not a business loss and the assessee had no right to carry forward that loss. Under section 24(2) of the Indian Income-tax Act, 1922, in a subsequent assessment year, the assessee claimed to set off this loss against his profits in that assessment year. The Supreme Court held that whether the loss of profits or gains in any year may be carried forward to the following year and set off against the profits and gains of the same business, profession or vocation under section 24(2) has to be determined by the Income-tax Officer who deals with the assessment for the subsequent year. It is for this Income-tax Officer to determine whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the Income-tax Officer who computes the loss in the previous year that the loss cannot be set off against the income of any subsequent year is not binding on the assessee. The Supreme Court, therefore, was of the view that the question of carry forward and set off of loss had to be determined by the Income-tax Officer who had to deal with the subsequent assessment in which such a right to carry forward and set off was being exercised. Applying the same principle, the loss in the present case can be determined for the purpose of its being carried forward and set off in the assessment year 1964-65.

31. To conclude, there is no provision under the Indian Income-tax Act, 1922, or under the Income-tax Act, 1961, which requires the assessee-company which has suffered a loss under the head 'Capital gains' in a previous year relevant to an assessment year to which the Indian Income-tax Act, 1922, was applicable, to have this loss ascertained or determined in the assessment year in which it arose. The assessee can, therefore, exercise the right to carry forward and set off such a 'Capital loss' in a subsequent year against the capital gains of that year. The loss will have to be computed or determined in the year in which the assessee claims the right of set off.

32. In the premises, question No. 4 is answered in the affirmative, that is to say, in favour of the assessee and against the Department.

33. The applicant will pay to the respondent the costs of the reference.


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