PETITIONER:
COMMISSIONER OF INCOME-TAX, KANPUR
Vs.
RESPONDENT:
BEHARI LAL RAM CHARAN LTD.
DATE OF JUDGMENT22/04/1987
BENCH:
MISRA RANGNATH
PATHAK, R.S. (CJ)
CITATION:
1987 AIR 1380 1987 SCR (2)1159
1987 SCC (2) 452 JT 1987 (2) 261
1987 SCALE (1)970
ACT
Income-tax Act, 1961: ss. 74 and 80--Claim of set off--When admissible-Assessee whether entitled to benefit conferred under s. 24 of 1922 Act.
HEADNOTE
Sub-section (3) of s. 24 of the Income-tax Act, 1922, required that when it was established that a loss of profits or gains had taken place. Which the assessee was entitled to have set off, the Income-tax Officer should notify to the assessee by an order in writing the amount of loss as computed by him. This benefit was continued in s. 74 of the Income-tax Act, 1961 which provides for carrying forward to the following years the net loss computed under the head ’capital gains’ in respect of an assessment year. Section 80, however, interdicts that no loss which has not been so determined shall be carried forward and set off.
The assessee, a private limited company disclosed in its return for the assessment year 1965-66 capital gains of Rs.3 lacs and odd but claimed set off of capital loss of a like amount sustained during the assessment year 1957-58 over sale of shares. This claim was disallowed by the Income-tax Officer on the footing that when in the assessment year 1957-58 the loss was claimed it was excluded in the computation of income as capital loss. A challenge to that order by the assessee was rejected by the Appellate Assistant Commissioner who took the view that the loss was essentially notional in nature, and that the claim for set off to be admissible, had to be notified by the income-tax Officer under s. 24(3) of the 1922 Act to the assessee by an order in writing. That having not been done the claim was not admissible.
Allowing the assessee’s claim, the Tribunal however, came to the conclusion that the assessee was entitled to the benefit of set off of loss provided it satisfied that capital loss was computed under the old Act, and as in the instant case the Income-tax Officer had neither computed the loss nor passed an adverse order. the Income-tax Officer was not entitled to take advantage of his own failure and reject the assessee’s 1160 claim on the ground that loss had not been determined as required under s. 24(3) of the Income-tax Act, 1922.
The High Court agreed with the conclusion of the Tribunal and found against the Revenue. Dismissing the Appeal, the Court,
HELD: Reading the provisions of s. 74(1)(b) and s. 80 of the Income-tax Act, 1961 together makes it evident that the benefit conferred under s. 24 of the 1922 Act has been continued to be given effect to under the 1961 Act. and notwithstanding the words of s. 80 of the latter Act, the claim of set off was admissible. The conclusion reached by the High Court was. therefore. correct. [1166CD]
The Income-tax Officer in the instant case, did compute the amount by specifying it in his assessment order. When the assessee had made the claim and the Income-tax Officer took Rote of it, his failure to comply strictly With the requirement of sub-s. (3) of s. 24 of the 1922 Act could not be permitted to be taken advantage of by the Revenue. nor could it be used to the prejudice of the assessee. [1164D]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 74 of 1975.
From the Judgment and Order dated 9.11. 1973 of the Allahabad High.Court in L.T. Ref. No. 722 of 1971.
S.C. Manchanda, Ms. A. Subhashini and M.N. Tandon for the Appellant.
J.P. Goyal, Rajesh, Malt Ram Bidwar. and D.P. Mukherjee for the Respondent. The Judgment of the Court was delivered by
RANGANATH MISRA, J. This appeal is by special leave and the judgment of the Allahabad High Court on a reference under Section 256(1) of the Income Tax Act. 1961 (hereinafter referred to as ’the Act’) is assailed by the Revenue.
The relevant assessment year is 1965-66 corresponding to the previous year ending on 31.12. 1964. In its return the assessee, a pri- 1161 vate limited company. disclosed capital gains of Rs.3.10,200 but claimed set off of capital loss of Rs.3.17,500 sustained by it during the assessment year 1957-58 over sale of shares to three associate concerns. It was maintained by the assessee that the loss was sustained in the previous year relevant to the assessment year 1957-58 and the same should be set off against the capital gains in the assessment year in question. The Income-tax Officer disallowed the claim for set off on the footing that when in the assessment year 1957-58 the loss was claimed it was excluded in the computation of income as capital loss and the Appellate Assistant Commissioner while disposing of the assessee’s appeal had stated that it was a notional capital loss. As no further appeal was carried by the assessee, with the first appellate order the matter had become final.
The assessee challenged the rejection of its claim of set off before the Appellate Assistant Commissioner and he dismissed the appeal by holding that there was no genuine loss; it was essentially notional in nature and that the claim for set off to be admissible had to be notified by the Income-tax Officer under Section 24(3) of the 1922 Act to the assessee by an order in writing. That having not been done, the claim was not admissible. Thereupon the assessee went before the Appellate Tribunal and reiterated its claim. The Tribunal came to the .conclusion that the assessee was entitled to the benefit of set off of loss provided it satisfied that its capital loss was computed under the old Act. In its view as the assessee had filed its return showing the loss and the Income-tax Officer neither computed the loss nor passed an adverse order, the Income-tax Officer was not entitled to take advantage of his own failure and reject the assessee’s claim of carry forward and set off of loss on the ground that loss had not been determined as required under section 24(3) of the Income-tax Act, 1922. The Tribunal further found that the Income-tax Officer had clearly disallowed the assessee’s claim of revenue loss by holding that it was a capital loss. It found that the Appellate Assistant Commissioner had no justification to hold that the claim of loss was not genuine while disposing of the appeal for the assessment year 1957-58 and ultimately allowed the assessee’s claim. At the instance of the Revenue four questions were referred for opinion of the High Court.
1. Whether on the facts and in the circum-
stances of the case, the Income-tax Officer’s
order for the assessment year 1957-58 had not
merged in the Appellate Assistant Commission-
er’s order in which the Appellate Assistant
Commissioner had given a clear finding that
the loss was notional?
1162
2. If the answer to the above question is in
the negative, whether any loss could be said
to have been determined for the assessment
year 1957-58, which could be carried forward
to subsequent years?
3. Whether in view of the provisions of Sec-
tion 80 of the Income-tax Act, 1961, the loss
claimed for the assessment year 1957-58 could
be set off against the income determined for
the assessment year 1965-66?
4. Whether the Tribunal was justified in law
in holding that the provisions in Section
24(3) regarding intimation of losses deter-
mined by the Income-tax Officer do not. apply
to the loss falling under the head ’capital’? The High Court found that the Income-tax Officer in the assessment order for 1957-58 had mentioned:
"Net loss as per profit and loss
account--adjust Rs.3, 17,205.
(i) Loss on sale of investment
being
capital : Rs.3, 17,500-00
(ii) Income-tax :Rs. 204-00
Total : Rs.3, 17,704-00
Income :Rs. 499-00"
It is true that in appeal the Appellate Assistant Commissioner had held:-
"A perusal of the assessment records show that
the appellant held 2,500 ordinary shares
in M/s. B.R. Ltd. These shares were held on
investment account and were not stock-in-trade
of the Company. M/s. B.R. Ltd. is an associat-
ed concern and the shares were sold to allied
concerns and a loss of Rs.3, 17,500 was worked
out. Firstly, the shares were investment
shares. Secondly, the price for which the
shares were transferred to another associated
concern was a notional price. The management
just transferred the shares held by one compa-
ny to another company
1163
under their control and management. Of course,
the transfer was not a trading activity. In
these circumstances, I hold that the Income-
tax Officer has rightly disallowed the loss
claimed, the same being notional capital
loss." The High Court found that both the Income-tax Officer as also the Appellate Assistant Commissioner had found that the loss was a capital loss. The High Court fur:her found:-
"In our opinion this Section (Section 80 of
the 1961 Act) cannot apply to a case where in
law a return could not have been filed under
Section 139. That is to say in relation to
assessment years prior to the coming into
force of the Income-tax Act, 1961 a return
could not possibly have been filed under
Section 139 because in these years this Sec-
tion was not on the Statute Book. But if
Section 80 is construed to mean that a return
filed under the Income-tax Act 1922 is also
within its purview then in our opinion the
requirement of this Section was equally ful-
filled because the assessee has for the as-
sessment year 1957-58 filed a return of loss
which loss had been determined by the Income-
tax Officer in the assessment order."
The High Court took the view that in the order for assessment year 1957-58. the Appellate Assistant Commissioner has referred to the claims of loss as notional when he really meant that it was an estimate. It agreed with the conclusion of the Tribunal and found against the Revenue.
Section 24 of the 1922 Act which applied to the assessment year 1957-58 as far as relevant provided:
"(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 ....... "
(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."
1164
(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 for-
ward 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 loss
shall be carried forward for more than eight
years .....................................
(3) "When, in the course of the assessment of
the total income of any assessee. it is estab-
lished 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 asses-
see by order in writing the amount of the loss
as computed by him for the purposes of this
section."
The High Court has found that the Income-tax Officer did compute the amount by specifying it in his assessment order. When the assessee had made the claim and he took note of it. his failure to comply strictly with the requirement of subsection (3) of section 24 should not be permitted to be taken advantage of by the Revenue, nor should it be used to the prejudice of the assessee.
Since set off has been claimed in the assessment year 1965-66 to which the Act of 1961 applied, it is necessary to turn attention to the relevant provisions thereof and they are in sections 74 and 80. For convenience they are extracted:
"Section 74: (1)(a) Where in respect of any
assessment year. the net result of the compu-
tation 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 as-
sessment 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."
1165
"(ii) such portion of the net loss as relates
to capital assets other than short-term capi-
tal assets shall be carried forward to the
following assessment year 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 be carried forward to the
following assessment year and so on:
Provided that where. in the case of any
assessee not being a company. the net loss
computed in respect of such capital assets for
any assessment year does not exceed five
thousand rupees. it shall not be carried
forward under this section."
"(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 car-
ried 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-sec-
tion (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-section (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 the Act or as the case may be. the
Indian Income-tax Act. 1922 ( 11 of 1922).
1166
"(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 immediate-
ly succeeding the assessment year for which
the loss was first computed under the Act," "Section 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."
Reading the provisions of Section 74(1)(b} and Section 80 together. we agree with the submission advanced on Behalf of the assessee that the benefit conferred under Section 24 of 1922 Act continued to be given effect to under the 1961 Act and notwithstanding the wordings of section 80 of the latter Act, the High Court was Fight in holding that the claim of set off was admissible in our view’. on a bare analysis of these provisions, and without reference to anything more, this appeal can be disposed of. We find that the High Court reached the correct conclusion and there is no merit in the appeal. Accordingly. it is dismissed with costs. P.S.S. Appeal dismissed. 1167