Carry forward of loss requires an ascertained loss first; procedural notice cannot create substantive set-off rights.

Section 24 of the Income-tax Act, 1922 is explained as an integrated scheme: sub-section (1) permits same-year set-off of a loss, sub-section (2) allows carry forward only of the balance after that set-off, and sub-section (3) is merely a machinery provision for notifying an already qualifying loss. The analysis emphasises that the loss must first be ascertained and satisfy the substantive conditions in sub-sections (1) and (2) before notification can arise. On that view, an assessee who did not file a return for the earlier year cannot use sub-section (3) to compel ascertainment of that loss for later carry forward or set-off.

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Issues: Whether an assessee who did not file a return for an earlier year could, in a later assessment, claim that the loss for that earlier year be ascertained and carried forward or set off under section 24(2) and section 24(3) of the Income-tax Act, 1922.

Analysis: Section 24 of the Income-tax Act, 1922 was construed as an integrated scheme. Sub-section (1) permits set-off of a loss against income under another head in the same year, sub-section (2) permits carry forward only of the balance of a loss that has first been set off under sub-section (1), and sub-section (3) is only a machinery provision requiring the Income-tax Officer to notify the loss once such a right exists. The requirement in sub-section (3) to notify the loss was held to presuppose a loss already entitled to be set off under sub-section (1) and carried forward under sub-section (2). The Court followed the view that the balance contemplated by section 24(2) must be an ascertained balance, not an undetermined one, and held that section 24(3) does not create an right to compel ascertainment of an earlier loss where the statutory conditions of sub-sections (1) and (2) are not satisfied. The contrary Bombay view was distinguished on the footing that there the Department could not rely on its own default, whereas here the assessee had not filed any return for the relevant year at all.

Conclusion: The assessee was not entitled to have the earlier loss ascertained, carried forward, or set off, and the answer to the reference was in the negative.

Ratio Decidendi: Section 24(3) of the Income-tax Act, 1922 is only procedural and cannot be invoked independently of the substantive right of set-off and carry forward created by section 24(1) and section 24(2); only an ascertained loss that satisfies those provisions can be notified and carried forward.

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