H.N. Seth, J.
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not entitled to the set-off of losses carried forward from earlier years under Clause (iii) of Sub-section (2) of Section 24 of Indian Income-tax Act, 1922 ?'
2. Relevant facts, as stated in the statement of the case submitted to this court, are that the assessee, M/s. J. K. Woollen ., Kanpur, was incorporated some time in the year 1948 and it carried on the business of manufacturing woollen goods at Kanpur. Up to and including the assessment year 1952-53, the assessee made considerable profits. Subsequently, some difficulty arose with regard to the working of the mills and ultimately during the accounting year 1954-55, the assessee discontinued its manufacturing business completely and did not carry it on thereafter. Since then the only business that the assessee carried on was that of selling raw materials and finished goods that were left with them. Up to and including the assessment year 1958-59, the Income-tax Officer treated the assessee's losses in the manufacturing business as business losses which totalled Rs. 4,03,843. The assessee claimed benefit under Section 24(2) of the Indian Income-tax Act, 1922, and claimed that the aforementioned losses suffered by it in the manufacturing business be adjusted against its business profits of the assessment years 1959-60 to 1962-63. The departmental authorities, as also the Tribunal, found that the assessee had no more carried on the business which resulted in loss, in the year relevant to the assessment years 1959-60 to 1962-63. Accordingly, they held that the assessee was not entitled to the set-off of the losses suffered by it in manufacturing business in an earlier year as against its other business income and rejected its claim. At the instance of the assessee, the Income-tax Appellate Tribunal has referred the aforementioned question for the opinion of this court.
3. Section 24(1) provides that where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6, he is entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year. According to this section, the general rule is that if in a particular year the assessee suffers loss under one head, he can get the same set-off as against the income earned by it in that year under any other head. Sub-section (2) then provides for the circumstances and the condition in which an assessee may carry forward its losses to the following year and to have them set off against the income of that year. Relevant portion of the sub-section runs thus :
'Where any assessee sustains a loss of profits or gains in any year.... in any business, profession or vocation, and the loss cannot be wholly set off under Sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and.......
(ii) where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year: provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year.'
4. Accordingly, in a case where the business which resulted in loss was not continued by the assessee in the following year, the loss could not, under Sub-section (2), Clause (ii), be carried forward to that year and be set off against the profits of business earned in that year. Clause (iii) to Sub-section (2) thereafter provides that if the loss in either case 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 eight years.
5. Learned counsel for the assessee contends that under Sub-clause (iii) the loss which, for any reason, could not be set off under Sub-clauses (i) and (ii), including the reason that the business, profession or vocation Was not in existence in that year, can be carried forward to the subsequent years up to 8 years. Since the losses can be carried forward to subsequent years, they can also be set off against the profits of those years notwithstanding the fact that as provided in Sub-clause (ii), it was not possible to have such losses set off against the profits and gains of the business in the year immediately following that in which the business stood discontinued. We are unable to accept this submission. The idea underlying Sub-section (2) of Section 24 is that the business losses can be carried forward and adjusted against the profits of the business in the following years only if the business, in which the loss was suffered, continued to be in existence. If such business ceases to exist, its losses cannot be carried forward and be set off against the income or gains in subsequent years. Sub-clause (iii) merely provides that where a loss which could be carried forward and adjusted under Sub-clauses (i) mid (ii) has not been fully adjusted, it can be carried forward to the following year and so on. Since in the instant case the loss could not be carried forward and set off under Sub-clause (ii), no question of its being carried forward and being set off under Sub-clause (iii) arises.
6. We, accordingly, answer the question referred to us in the affirmative and against the assessee. The department will be entitled to costs which we assess at Rs. 200.