Carry-forward loss and capital gains relief depend on statutory conditions, while set-off against taxed share income was rejected.

A carried-forward loss could be examined in the later year when set-off was claimed, so the earlier assessment did not prevent determination of that loss in subsequent proceedings. The constitutional challenge to section 12B of the Indian Income-tax Act, 1922 failed, and the exemption under the second proviso to section 12B(1) was unavailable because the statutory seven-year possession requirement was not satisfied on the facts. However, the assessee's business loss, including loss from another firm, could not be set off against taxed share income from an unregistered firm in the manner claimed, and the loss had to be determined without treating that share income as part of the set-off computation.

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Issues: (i) Whether the assessee could, in the proceedings for the later assessment year, challenge the determination of loss made for the earlier assessment year for purposes of carry forward and set-off; (ii) whether section 12B of the Indian Income-tax Act, 1922 was ultra vires and whether the profit on sale of the three houses was covered by the second proviso to section 12B(1); (iii) whether the assessee's business loss, including loss from another firm, could be set off under section 24(1) against his taxed share income from an unregistered firm.

Analysis: On the first issue, the right to claim the relief arose when the carried-forward loss was sought to be set off in the later year, and the earlier computation did not bar determination of the loss in the subsequent proceedings. On the second issue, the constitutional challenge to section 12B failed in view of binding authority, and the exemption under the second proviso to section 12B(1) was unavailable because the statutory requirement of possession for seven years by the assessee or his parent was not satisfied on the facts found. On the third issue, the loss to be carried forward had to be determined without reference to the share income from the unregistered firm, and the loss from the assessee's own business could not be set off against that taxed share income in the manner claimed.

Conclusion: The first two questions were answered in favour of the assessee, while the third question was answered against him.

Final Conclusion: The reference was answered by sustaining the Tribunal on the issue of set-off against taxed share income from an unregistered firm, while granting the assessee relief on the other referred questions.

Ratio Decidendi: A carried-forward loss may be examined in the subsequent year when its set-off is claimed, but an exemption or set-off under the Income-tax Act depends strictly on satisfaction of the statutory conditions applicable to the relevant income and asset.

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