1. This appeal filed by the assessee is directed against the order of the Commissioner (Appeals) relating to the assessment year 1976-77. The grounds of appeal are as under: 1. That the learned Commissioner (Appeals) has erred in holding that the ITO was right in disallowing the appellant's claim under Section 80M of the Income-tax Act.
2. That the learned Commissioner (Appeals) has erred in holding that the provisions of Section 80AA have retrospective effect and that the said provisions were applicable in relation to the claim made by the appellant under Section 80M of the Income-tax Act.
3. That the learned Commissioner (Appeals) has failed to appreciate that the provisions of Section 80AA only deal with restricting the claim of appellant under Section 80M on the net dividend income instead of gross dividend income and it does not state that the claim under Section 80M will not be admissible at all on the facts and in the circumstances of the case of the appellant.
5. That the appellant craves permission to add, alter, amend or delete one or more grounds of appeal on or before the date of hearing.
2. Before us, the assessee has moved an application under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, for the admission of additional grounds of appeal, which are as under: A. That the learned Commissioner (Appeals) erred in coming to the conclusion that even though the assessee does not desire its income from dividend to be set off against the business loss, still the same will have to be set off against the business loss and, accordingly, the appellant will not be entitled to claim deduction under Section 80M of the Income-tax Act since there will be no income left after such set off.
B. That the learned Commissioner (Appeals) has failed to appreciate that the words 'be entitled' in Section 71(1) of the Income-tax Act give an option to the assessee, whether to get his loss from business set off against his income from any other source or not and the discretion to set off such business loss against income from other sources does not rest with the Income-tax Officer.
In support of the admission of these additional grounds, it had been submitted that the matter had been raised before the IAC in the proceedings under Section 144B of the Income-tax Act, 1961 ('the Act'), and was also dealt by the Commissioner (Appeals) in the case of Alirox Abrasives Ltd., which has been followed by the learned Commissioner (Appeals) in the present appeal. It is also submitted that this was an argument, which could be taken to support the basic ground already taken. It was also submitted that the grounds were purely legal grounds and did not involve any investigation into fresh facts.
3. Having considered the submissions, we have admitted the additional grounds raised by the assessee.
4. The ITO had worked out the business loss suffered by the company at Rs. 2,06,761. From this, he had adjusted the dividend income of Rs. 1,79,889 and had determined the net loss at Rs. 26,872 rounded off to Rs. 26,870. The ITO had observed that in respect of the dividend income, deduction under Section 80M of the Act was not allowed as it was a case of net loss. The Commissioner (Appeals), while disposing of the assessee's claim, held that the deduction could not be allowed in view of the provisions of Section 80HH of the Act as, in this case, there was no positive income.
5. The learned Counsel for the assessee has submitted that the order of the learned Commissioner (Appeals) was not correct but he pointed out that the Commissioner (Appeals) had relied on his order in the case of Alirox Abrasives Ltd. for the assessment year 1976-77 and that matter had come before the Tribunal and had been considered in IT Appeal No.4187 (Delhi) of 1982. In that order, the Tribunal had dismissed the assessee's appeal on the ground that according to Section 80A of the Act, the aggregate amount of deduction under Chapter VIA was not to exceed the gross total income of the assessee. The gross total income was to be determined in accordance with the provisions of the Income-tax Act and has to be computed after all other deductions and inclusions and after adjustment of inter-head loss. It was also held that unabsorbed business loss and unabsorbed depreciation had also to be set off before one determined the gross total income. The Tribunal noted that there was no dispute that the gross total income, without considering the deductions allowable in Chapter VIA, was a figure of loss and, therefore, the deductions under that Chapter were also to be nil. While passing the above order, the Tribunal had relied on the order of the Special Bench of the Tribunal in the case of India Sugar & Refineries Ltd. v. ITO  3 SOT 167 (Bom.).
6. The learned Counsel for the assessee submitted that though this question stood decided against the assessee in the above order, he would like the matter to be reconsidered in the light of the additional grounds of appeal raised before the Tribunal. He submitted that under the provisions of Section 71 of the Act, where the net result of the computation under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.
According to the counsel, the assessee was entitled to have the amount of such loss set off against income under any other head and that should mean that the assessee has a right to get such a set off, but only if he so desires and not against his desire. In other words, it is the submission of the learned Counsel, that the assessee has an option regarding the set off of a loss under one head against the profits under another head. He further contended that the language of Section 72 of the Act is different where the law provides that the loss shall be carried forward to the following assessment year, and shall be set off against the profits and gains of any business or profession carried on by the assessee. According to the learned Counsel, the mode of set off of loss could not be forced upon the assessee and it should be done only when the assessee has not expressed his desire otherwise.
7. The learned Counsel admitted that while filing the return of income, the assessee had adjusted the business loss against the dividend income and had worked out the figure of net loss. He also submitted that the assessee had not worked out the total income chargeable to tax, without taking into consideration the business loss. He, however, contended that the legal position at that time regarding the allowance of deduction under Section 80M, to the extent of gross total income, had not been settled and in fact in the case of the assessee as well as in the case of Govan Bros. (Rampur) (P.) Ltd. [IT Appeal No. 4241 (Delhi) of 1973-74], a different view was taken and the whole amount was held to be deductible notwithstanding the loss in the total income. He, however, submitted that the assessee had raised this issue before the IAC, when the draft order of the ITO was received. It had been submitted before him that the words 'be entitled' in the section gives an option to the assessee to adjust his loss against one source or against any other source. It had also been stated that in this case, the assessee opts for taxation of its income from the head dividend and the assessee does not claim the set off of loss from its business or other income against the dividend income. On this basis, the assessee had claimed that deduction under Section 80M should be allowed and reliance was placed on the decision of the Tribunal in the case of the assessee for the assessment year 1973-74. This plea was rejected by the IAC, who, however, did not consider the matter in detail. He also submitted that in this case, the Commissioner (Appeals) has merely followed his order in the case of Alirox Abrasives Ltd., but in that case it had been contended that it was not open to the ITO to adjust the dividend income against the business income, when the assessee opted for the assessment of the dividend income independent of the business loss. It was, therefore, contended that in this case, the assessee's option had been clarified at the earliest possible time when the intention of the department was made clear and the assessee's claim under Section 80M was not going to be allowed.
8. The learned counsel for the assessee clarified his submission and contended that according to the assessee's claim deduction under Section 80M should be allowed from the dividend income of Rs. 1,79,889 and the same should be brought to tax in this year, whereas the business loss as determined should be carried forward to the later years for being set off in accordance with the provisions of Section 72. He made it clear that he was not giving up this claim for carrying forward of losses and their being set off in the future years, while opting for the loss being not allowed to be set off in this year. It was the contention of the learned Counsel for the assessee that the provisions of law should be interpreted in such a manner so as not to deny the benefits available to the assessee and in view of this, his additional grounds be accepted.
9. In this connection, the learned Counsel drew our attention to the discussion in the order of the Special Bench of the Tribunal in the case of India Sugar & Refineries Ltd. (supra). He particularly drew our attention to the discussion in paragraphs 15, 15(a), 16, 17, 18, 19 and 20. We will come to the consideration of this case in detail slightly later on. The main submission of the assessee was based on the discussion in paragraph 15 of the Tribunal's order in the case of India Sugar & Refineries Ltd. (supra), where it was observed that while the ITO will be bound to allow the set off of loss, the assessee shall get it only if he desires. The Tribunal observed that there is nothing in Section 70 or 71 which contemplates compulsory set off.
10. The departmental representative submitted that the case stood decided against the assessee not only by the Special Bench of the Tribunal in the case of India Sugar & Refineries Ltd. (supra) but also in the case of Alirox Abrasives Ltd., which has been referred to by the learned Commissioner (Appeals). He submitted that the 'gross total income' is defined in the Act itself as the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VIA. He submitted that such total income could be computed only after setting off losses as may be permissible in law. He also submitted that under Section 80A(2), the aggregate amount of deductions under Chapter VIA is limited to the 'gross total income' of the assessee. In the present case, there was clearly no positive gross total income and it was a figure of loss and, therefore, the assessee will not get any deduction under Section 80M.11. Regarding the submission made by the assessee on the additional grounds raised by him, it was contended that the assessee has not opted for the set off in any particular manner and has not opted for the loss under the head 'Profits and gains of business or profession' not being set off in this year. He referred to the return filed by the assessee, which was a loss return as was apparent from the order of the ITO and the assessee had not offered a dividend income for assessment. He contended that if the assessee desired to exercise his option, it has to be done in a legal manner by a person authorised to do so. In this connection, he drew our attention to the fact that only while making submission before the IAC, the secretary to the company had raised the question but the return of income where such option should be reflected had not been revised and the person authorised to file the return had not revised the return. It was his submission that an option, which had the effect of modifying the return, could not have been made by a person, who was not authorised to file the return. He also submitted that the assessee had not shown any material that he had opted for the payment of tax on the dividend income. He pointed out that the assessee did not pay any tax on the dividend income either by way of advance tax or self-assessment and in fact, he had exercised his option to set off the business loss against the other income when he filed the return by setting it off himself. It was also contended that the IAC was not the authority to consider the assessee's option as that had to be exercised before the ITO. He pointed out that when the assessee had not shown a positive income from dividend as taxable, and the ITO had also followed the same position though without allowing deduction under Section 80M, the IAC could not give a direction under Section 144B that dividend income should be brought to tax as that goes beyond his power under Section 144B. It was also submitted by him that after the ITO had completed the assessment and had determined the loss, the assessee had taken the refund and carried forward the loss which was so determined.
It was, therefore, the contention of the departmental representative that the option, even if permitted under law, has not been exercised in this case in a proper and legal manner. He further submitted that if such an option is exercised before the Tribunal and the assessee's plea is accepted, it will result in the enhancement of assessment as in place of loss, some taxable income will be determined and the assessee would be required to pay the tax. He submitted that as the Tribunal could not pass an order resulting in any enhancement of the income of the assessee, the whole exercise by the assessee was misconceived.
12. In reply, the learned Counsel for the assessee submitted that the option had been exercised before the IAC before the completion of the assessment and as the assessee has himself been raising the question right from the stage of the assessment proceedings, the question of the Tribunal's order resulting in enhancement should not arise.
13. We have carefully considered the contentions raised by the assessee in support of the additional grounds raised before us. Insofar as the question of interpretation of Section 71 is concerned, the words used are that the assessee shall be entitled to have the amount of loss set off against his income, if any, assessable for that assessment year under any other head. This is subject to the provisions of the Chapter relating to losses. The interpretation placed by the assessee on this section is only partly correct. The assessee is entitled to such set off and, therefore, if the assessee does not ask for such a set off, it cannot be forced upon him. The assessee will also have an option of setting off loss under one head against the profit under another head, if such losses or profits are available under more than one head. For example, a business loss can be set off only against assessable income and the ITO cannot set it off against an income, which is not assessable under the Act. The principle was laid down by the Delhi High Court in the case of Mahalaxmi Sugar Mills Co. Ltd. v. CIT  94 ITR 592. Similar loss suffered by a person in his personal business cannot be set off against the profit from an unregistered firm, which is not fully taxable in the hands of the partner. In the present case, we are, however, not concerned either with any capital gain or any income which is included only for rate purposes or is exempt under law.
We need not, therefore, take into consideration these factors in the present case.
14. We may now consider as to what is the nature of the option under the provisions of Section 71 in the context of the other provisions of the Chapter dealing with set off and carry forward of losses. We have to consider the argument regarding option only from the angle of the benefit, which such option can give to the assessee. The whole argument advanced by the learned Counsel for the assessee is directed towards achieving two objectives. Firstly, it is aimed to obtain the deduction under Section 80M to the full extent in spite of the provisions of Section 80A(2), by exercising this option and de-linking the business loss from the assessment of dividend income. The other objective is that the loss which is under the head 'Profits and gains of business or profession' could still be available for being set off in the following years, when the assessee is able to have business income. If the second objective cannot be achieved by the assessee, he would not opt for the business loss not being set off against the dividend income in the assessment year under consideration. The learned Counsel for the assessee also made it clear that he wanted the loss to be fully carried forward to the next year, after the dividend income is assessed in this year after getting the deduction under Section 80M. The question for consideration is whether under Section 72, the assessee can get the benefit of carry forward of loss, when he has not got it set off against the available income in the assessment year under consideration. Section 72(1) provides that where there is a loss under the head 'Profits and gains of business or profession' and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of Section 71, so much of the loss as has not been so set off, shall be carried forward to the following assessment year and it shall be set off against the profits and gains, if any, of any business carried on by him and assessable for that assessment year. Thus, the loss can be carried forward for being set off, where such loss cannot be set off for paucity of profits under other heads and also where the loss is not set off as a matter of fact or for any other reason. The present is not the case where there is a paucity of profits under any other head and it cannot be held that the business profit could not be set off against other income. Where there is no profit under any other head and only there is business loss, there is no difficulty and the loss can be carried forward for being set off in the later years. However, where there are profits under other heads, it is not possible to carry forward such loss for being set off in later years, as it cannot be said that this loss could not be set off in the assessment year itself. The result will be that the assessee will not be able to get the benefit of carry forward and set off of the business loss to the whole extent, as expected by the assessee while advancing the argument regarding option.
15. We find that the Special Bench in the case of India Sugar & Refineries Ltd. (supra) had also considered similar arguments and after considering the whole legal position, the Special Bench had observed that in such matters, the assessee has no real option and in any event assuming it has the option not to exercise its right of set off of business losses against other income, the exercise of such an option will not be in his favour, as the assessee will not be able to carry forward the full business loss as expected by him. The assessee's submission in that case was rejected by the Special Bench for such reasons. In view of the above, contention raised by the assessee has to be rejected.
16. It will not be out of place to mention that the argument advanced has to be tested by taking some examples of non-corporate tax-payers, as the provisions of Sections 71 and 72 and the whole Chapter apply to all the assessees. If once the theory of such free option is accepted, tax-payers can manipulate their taxable income according to the availability of business profits or other profits in one year or the other. This would never have been the intention of the Legislature and, therefore, such arguments cannot be accepted.
17. We will briefly deal with the argument raised by the departmental representative that in the present case, option has not been exercised.
The argument advanced by the departmental representative finds some support from the observations by the Special Bench of the Tribunal in the case of India Sugar & Refineries Ltd. (supra), where they have observed as under: ...The option, however, appears to be not at the stage at which the assessee claims it to be. It is at a stage when the assessee files its return. It is for him to claim any loss...at any stage. But once he has so claimed he is deemed to have exercised that option and the phrase 'shall be entitled to', it appears, has been used only to ensure that the ITO cannot deny him the benefit....
We leave this argument here as on the main submission of the assessee, we have held that the arguments of the assessee are not acceptable. We, therefore, hold that the assessee could not opt for the business loss being not set off in this year and carried forward in full to the next year, so as to enable the ITO to allow deduction under Section 80M to the full extent allowable under law, As both the points of the option are interlinked, the arguments regarding the option and consequent allowance of deduction under Section 80M has to be rejected. According to us the gross total income in the present case will be arrived at after setting off the business loss against the 'dividend' income and as that is still a figure of loss, no deduction under Section 80M could be allowed to the assessee.