1991 (1) TMI 97 - HC - Income Tax

Long-term capital loss can be carried forward for 8 years, not 4. Legislative intent supports assessee.

The court held that the assessee was entitled to carry forward the long-term capital loss for eight years under section 24(2B) of the 1922 Act, rejecting ... Capital Gains, Law Applicable To Assessment, Loss Issues Involved:1. Entitlement to set off long-term capital loss beyond the period of four years.2. Applicability of section 74(2)(b) of the Income-tax Act, 1961.3. Interpretation of section 24(2B) of the Indian Income-tax Act, 1922.4. Procedural versus substantive law in the context of carry forward of losses.5. Legislative intent and historical context in interpreting tax provisions.Detailed Analysis:1. Entitlement to Set Off Long-Term Capital Loss Beyond the Period of Four YearsThe primary issue was whether the assessee could set off a long-term capital loss from the assessment year 1959-60 against capital gains in the assessment year 1964-65, beyond the four-year period prescribed by section 74(2)(b) of the Income-tax Act, 1961.2. Applicability of Section 74(2)(b) of the Income-tax Act, 1961The Tribunal held that the long-term capital loss could not be set off beyond four years, as per section 74(2)(b). The assessee contended that section 24(2B) of the 1922 Act, which allowed an eight-year carry forward, should apply. The Tribunal noted that the assessment for 1959-60 was made under section 143(3) of the 1961 Act, thus making section 74(2)(b) applicable.3. Interpretation of Section 24(2B) of the Indian Income-tax Act, 1922The assessee argued that the right to carry forward the loss for eight years, as provided under section 24(2B) of the 1922 Act, was a vested right and could not be taken away by the new Act. The Tribunal, however, held that since the assessment was made under the 1961 Act, the provisions of the new Act would apply.4. Procedural Versus Substantive Law in the Context of Carry Forward of LossesThe court examined whether the right to carry forward losses was a procedural or substantive matter. The court concluded that the right to carry forward losses was substantive, as it affected the rights and obligations of the assessee. Therefore, the provisions of the 1922 Act, which allowed an eight-year carry forward, should apply to losses determined for assessment years prior to the commencement of the 1961 Act.5. Legislative Intent and Historical Context in Interpreting Tax ProvisionsThe court referred to the Finance Minister's speech and the explanatory memorandum of the Finance (No. 2) Bill, 1962. It was evident that the intention was not to deprive assessees of the right to carry forward losses for eight years, as provided under the 1922 Act. The court emphasized that the 1961 Act was prospective and did not affect rights accrued under the 1922 Act.ConclusionThe court concluded that the assessee was entitled to carry forward the long-term capital loss for eight years, as provided under section 24(2B) of the 1922 Act. The Tribunal's decision to limit the carry forward to four years was erroneous. The question was answered in the negative, in favor of the assessee, and there was no order as to costs.