Subba Rao, C.J.
1. Pursuant to a requisition made by the High Court under section 66(2) of the Indian Income-tax Act, hereinafter referred to as the Act, the Income-tax Appellate Tribunal, Bombay, submitted the following question
' Whether on the facts and in the circumstances of this case the assessee would be entitled to claim the loss incurred by him during the accounting year 1944-45 and be allowed to be carried forward and set off under section 24(2) in the year of account. '
2. The facts are simple and are not in dispute. The assessee was an abkari contractor. He had last been assessed till 1943-44 when a tax of Rs. 30 was demanded from him. For the year 1944-45, though the assessee asserted that he filed a return, it was found that he did not. He did not also file any return for the assessment year 1946-47. But the Income-tax Officer, acting on information furnished by the Excise Department to the effect that the assessee had made considerable profits from arrack shops bid by him during the year, issued a notice to the assessee on 12th September, 1947, under section 34 read with section 22(2) of the Income-tax Act. The assessee filed a return on 28th October, 1947, declaring an income of Rs. 3, 130-90, but it turned out that the income related only to the assessment year 1947-48. At the time of the enquiry he filed another return for the accounting year 1945-46 showing a net loss of Rs. 5, 000. On 17th November, 1949, for the first time, the assessee put in a petition saying that the loss of; Rs. 60, 000 incurred by him in the year 1944-45 must be set off in the assessments for the years 1945-46, 1946-47 and 1947-48. The assessment for 1946-47 was completed on 6th December, 1949. The Income-tax Officer refused to allow the loss. On appeal, the Appellate Assistant Commissioner upheld the order. The Income-tax Appellate Tribunal also by their order dated 25th April, 1952, rejected the contention of the ground that the loss contemplated by section 24(2) of the Act was the ascertained balance of the earlier years, and as in the present case, the loss was not ascertained for the assessment year 1944-45, it could not be set off against the profits for the assessment year 1946-47Learned counsel for the assessee contends that under section 24(3) of the Act, an assessee has a right during the course of the assessment of his total income of any year to demand that his losses for the previous year or years be ascertained and set off against the profits of the assessment year irrespective of the fact whether the losses were ascertained during the relevant years, and the Officer has the duty to do so, and that his right and the Officer's duty exist even in a case where the assessment is reopened under section 34 of the Act. To appreciate this contention, it is necessary to read the relevant provisions of the Act as it stood before the Income-tax (Amendment) Act of 1953
' Section 6.--Save as otherwise provided by this Act, the following heads of income, profits and gains, shall be chargeable to income-tax in the manner hereinafter appearing, namely
(ii) Interest on securities
(iii) Income from property
(iv) Profits and gains of business, profession or vocation
(v) Income from other sources
(vi) Capital gains.'
' Section 10(1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits and gains of any business, profession or vocation carried on by him
(2) Such profits or gains shall be computed after making the following allowances, namely ........'
' Section 24(1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year
(2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, under the head 'profits and gains of business, profession or vocation, ' and the loss cannot be wholly set off under sub-section (1), the portion not so set off shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year ; and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year, and so on ; but no loss shall be so carried forward for more than six years(3) When, in the course of the assessment of the total income of any assessee it is established that a loss of profits or gains has taken place which he is entitled to have set off under the provisions of this section, the Income-tax Officer shall notify to the assessee by order in writing the amount of the loss as computed by him for the purposes of this section.'
3. The scheme of the aforesaid provisions so far as it is relevant to the question now raised is simple. Though section 6 of the Act gives six different heads of income, profits and gains, income-tax is only one tax levied on the aggregate total of the income classified under different heads. Losses arising under the same source or from a different source under the same head will be set off against the profits under provisions of section 10(2) of the Act in so far as they apply to a particular case. Section 24(1) provides for the setting off of losses of profits or gains under any of the heads mentioned in section 6 against the income, profits or gains under any other head in that year. It does not provide an assessee to set off losses against the profits under the same head as that is provided elsewhere. Sub-section (2) as it stood before the amendment of 1953 enabled the assessee in the case of losses incurred by him in any business under the head ' profits and gains of business, profession or vocation ' to set off the portion not set off in the previous year against the profits and gains if any of the assessee from the same business profession or vocation for that year, This loss, if it cannot be wholly set off in the next year, can be carried forward to the following year and so on for six years. Sub-section (3) casts a duty on the Income-tax Officer in the course of the assessment of the total income of any assessee to notify the loss as computed by him if it is established that loss of profits or gains has taken place which the assessee is entitled to have set off under the provisions of the section. Sub-section (3) therefore presupposes that an assessee is entitled to have a set-off under the provisions of section 24(1). An assessee shall be entitled to have a set-off under the circumstances mentioned in sub-sections (1) and (2) of section 24. Sub-section (1) confers a right upon an assessee to set off the loss under one head against the profits under a different head, and sub-section (2) confers a right on him to carry forward on the balance of the losses in respect of the head ' profits and gains of business, profession or vocation ' to the succeeding year or years and set off against the profits of the same business, while sub-section (3) only prescribes a procedure and casts a duty on the Income-tax Officer to notify to the assessee the losses as computed by him during a particular assessment year. The three sub-sections therefore form an integrated scheme. To say that sub-section (3) compels an Income-tax Officer in the course of assessment in a particular year to ascertain the losses of the earlier period is to ignore the scheme and to nullify the effect of the provisions of sub-sections (1) and (2). If the Legislature intended to impose such a duty on the Income-tax Officer and to give the unrestricted relief to the assessee to set off his losses of previous years against the profits of subsequent years, sub-sections (1) and (2) would have been unnecessary and one section conferring a general right to set off on the assessee and a duty to ascertain the loss on the Income-tax Officer would have met the situation. But the Legislature made the operation of sub-section (2) depend upon sub-section (1), for, in order that sub-section (2) may come into play, it is necessary that during the assessment of a particular year, the losses under one head should be set off against the profits under a different head and the balance of losses in respect of a particular business can be carried over to next year and so on for a period of six years till it is wiped out by setting it off against the profits of the same business. It is therefore a necessary condition for giving the relief that there should have been a partial set-off during an assessment year. To carry out the scheme of set-off as provided by sub-sections (1) and (2), sub-section (3) enjoins the duty on the Income-tax Officer to notify the losses. The words in sub-section (3) ' which he is entitled to have set off ' can only refer to the words ' shall be entitled to have the amount of the loss set off ' in section 24(1), and therefore unless he is entitled to have the amount of losses set off under sub-section (1) and to have it carried over to subsequent years, the Income-tax Officer is not under a duty to notify under sub-section (3). To put it shortly, the right to set off is conferred under sub-sections (1) and (2) and the duty of the Officer to notify under sub-section (3) is only in respect of the right conferred under the earlier sub-sections. If so construed, it cannot be held that sub-section (3) confers a right on the assessee de hors the provisions of sub-sections (1) and (2)The same view was expressed by a Divisional Bench of the Madras High Court in Ahamed Sahib v. Commissioner of Income-tax. There, the assessee was carrying on business in yarn in Melapalayam, Tirunelveli District. For the assessment year 1942-43, a notice was issued to the assessee under section 34 read with section 22(2) and the assessee filed a return showing a loss of Rs. 7, 875. The proceedings were closed with a note showing the income as nil. For the subsequent assessment year 1943-44, the assessee claimed a deduction of Rs. 7, 875 as loss relating to the previous year. The claim was disallowed by the Income tax Officer on the ground that no assessments were made in previous years and no loss was determined. That view was accepted by the High Court. In dealing with that question, Satyanarayana Rao, J., observed at page 92 thus:
' To claim therefore the benefit of section 24(2) it must be established that there was a loss which was already ascertained but which could not be completely wiped out by setting it off against the profits under a different head under section 24(1) and that there was a balance which was carried forward to the subsequent year. The balance of loss therefore contemplated under section 24(2) is an ascertained balance and not an undetermined balance. Where a right is claimed under section 24(2), the question therefore of ascertaining the loss of a previous year would never arise and cannot arise and therefore there would be no duty where a right under section 24(2) exists compelling the Income-tax Officer to determine the loss of the previous assessment year. Section 24(3) can only apply therefore to a case where in the same assessment year there was loss under one head and profit under another head, but the Income-tax Officer for reasons best known to himself refused to determine the loss but proceeds with the assessment of the income of the heads under which there is profit. Section 24(3), in our opinion, does not help the assessee in his claim that he is entitled to the benefit of section 24(2) and to compel the Income-tax Officer to determine the loss of the previous assessment year 1942-43. 'We respectfully agree with the aforesaid observations. Though the acceptance of the view leads to some anomalies, the scheme of the provisions compels us to do so.
The judgment of the Supreme Court in Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax throws some light on the interpretation of the provisions. There, for the assessment year 1941-42, the assessee submitted a nil return. The Income-tax Officer accepted the return of income filed by the company and declared it was not liable to tax for the year 1941-42. A year later he started proceedings under section 34(1)(b) of the Act. The assessee again filed a statement showing a loss of Rs. 3, 92, 357 on its total world income. The assessment officer, after enquiry, accepted the nil return. It was contended that the Income-tax Officer having accepting his statement of loss was bound to record it and carry it forward. The Supreme Court held that unless the loss can be set off under sub-section (1), it cannot be carried forward under sub-section (2), and if it cannot be carried forward, the question of its determination and computation becomes irrelevant. At page 85, their Lordships observed ' There is no provision in the Act which entitles the assessee to have a loss recorded or computed, unless something is to be done with the loss. Thus, under section 24(1) a loss can be set off against an income, profit or gain and under sub-section (2) the balance of a loss can be carried forward to a following year on the conditions set out there. Except for this there is nothing else that can be called in aid. But under sub-section (2) the loss can be carried forward when 'the loss cannot be wholly set off under sub-section (1)' and in that event only the 'Portion not so set off ' can be carried forward. We are, therefore, thrown back on sub-section (1)Sub-section (1) provides that where an assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6 he shall be entitled to have the amount of the loss 'set off against his income, profits or gains under any other head in that year.' Therefore, before any question of set off can arise, there must be (1) a loss under one or more of the heads mentioned in section 6, and (2) an income, profit or gain under some other head. It follows that when there is no income under any head at all, there is nothing against which the loss can beset off in that year and unless that can be done sub-section (2) does not come into play unless the loss can be set off under sub-section (1) of section 24, it cannot be carried forward under sub-section (2) and if it cannot be carried forward the question of its determination and computation becomes irrelevant. '
4. This judgment is an authority for the position that section 24(1) and (2) form an integrated scheme and that unless there was a set-off under section 24(1), no question of carrying forward under section 24(2) would arise.
5. This implies that unless there was a set-off of ascertained loss against profits under another head in the manner prescribed by section 24(1), no question of setting off would conceivably arise in subsequent years
6. Strong reliance is placed upon the judgment of the Bombay High Court in All India Groundnut Syndicate Ltd. v. Commissioner of Income-tax. There, during the assessment year 1948-49 the assessee sought to set off the losses incurred by him during the assessment years 1944-45, 1945-46 and 1946-47. For the year 1944-45, the assessee submitted a nil return, for the year 1945-46 in his return he showed a loss of Rs. 15, 654 and for 1946-47 he submitted a return showing loss without giving any definite figure. The Income-tax Officer passed similar orders in respect of those three years to the effect that he took the income of the company as nil and therefore he exempted it under section 23(3). Though he showed loss, he had failed to notify the loss as required by sub-section (3) of section 24. During the assessment for the year 1948-49, the assessee claimed a set-off. But the Income-tax authorities disallowed it. The Bombay High Court held that the assessee was entitled under section 24(2) to set off the loss against the profits. Chagla, C. J., who delivered the judgment after quoting sub-section (3) of section 24 observed at page 100 as follows:
' It is clear that this sub-section casts a duty upon the Income-tax Officer. The duty is that he has to compute the loss and notify the loss to the assessee ...... Therefore whereas the right is conferred under sub-section (2) of section 24, sub-section (3) is merely a machinery or procedural section which provides how and when the Income-tax Officer should compute the loss and how he should communicate that loss to the assessee. But the most surprising contention is put forward by the Department that because their own Officer failed to discharge his statutory duty the assessee is deprived of his right which the law has given to him under sub-section (2) of section 24. In other words the Department wants to benefit from and wants to take advantage of its own default. It is an elementary principle of law that no person, we take it that the Income-tax Department is included in that definition, can put forward his own default in defence to a right asserted by the other party. A person cannot say that the party claiming the right is deprived of that right because 'I have committed a default and the right is lost because of that default'. '
7. These observations show that the learned judges decided the case by the application of the principle that a person who committed the default cannot take advantage of it to deprive the other of his right. The learned judges 'did not lay down, as the learned counsel for the petitioner contends, that irrespective of the provisions of section 24(1) and (2) the assessee is entitled to have his losses for the previous years ascertainted and set off during the assessment of the subsequent years. It is not necessary to express our view on the correctness of the application of the principle to the facts before the learned judges, as in the present case, the assessee did not file a return at all during 1944-45The further question, namely, whether section 24(3) would apply to an assessment made under section 34 of the Act need not be considered in this case, as even if it does, in the view we have expressed, the assessee would not be entitled to the relief he asked for. In Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax, the High Court proceeded on the ground that when proceedings were taken under section 34, the assessee was not entitled to reopen the whole proceedings as the further proceedings were limited to assessing that portion of the income which had escaped assessment. But the Supreme Court left open that question. We do likewise, as in the view we have expressed, the scope of section 34 would not arise for consideration
8. For the aforesaid reasons we answer the question in the negative. As the assessee has failed, he must pay the costs of the respondent which we fix at Rs. 250
9. Reference answered in the negative