Carry forward of business losses: officer must investigate entitlement but need not make formal prior-year assessments.

Voluntary returns showing loss are not returns in law under section 22(1), so the assessing officer is not obliged to make formal assessments for those earlier years; however, the statutory right to carry forward business losses for six years under section 24(2) is not limited by absence of prior formal assessments. Where a set-off claim is raised for earlier-year losses, the officer must investigate and determine whether those losses legally qualify for carry forward and set off, including temporal limits and whether losses relate to business or other heads, but need not create formal earlier-year assessments.

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Issues: Whether, for the assessment year 1948-49, the Income-tax Officer was bound in law to determine and set off losses sustained in the earlier accounting years 1946-47 and 1947-48 despite those years having only voluntary returns showing loss and no formal assessments.

Analysis: The Court examined the scope of returns under section 22(1), section 22(2) and section 22(3) and held that voluntary returns showing loss are not returns in law under section 22(1) and thus do not oblige the Income-tax Officer to make formal assessments for those earlier years. The Court analysed the purpose and language of section 24(2) (the six-year carry forward right) and section 24(3) (notification on establishment of loss in the course of assessment) and concluded that the right to carry forward business losses for six years is unqualified by the requirement that prior years must have formal assessments. The word "assessee" in section 24(2) was read in a general sense and not limited by the earlier definition in section 2(2). The Court held that where a claim of set-off in respect of earlier losses is brought to the Income-tax Officer's notice, the Officer must investigate and determine whether losses in the earlier years exist that are legally eligible to be carried forward and set off, including consideration of whether parts of the claimed losses fall outside the six-year period, relate to other heads of income, or are non-business losses. However, the Court held that this investigatory and determinative duty does not amount to a requirement to make formal assessments for the earlier years when such assessments are precluded by law.

Conclusion: The Income-tax Officer was required to investigate and determine, for the purposes of section 24(2), whether losses had been sustained in the accounting years 1946-47 and 1947-48 which the assessee was entitled to carry forward and set off against the profits of 1948-49, but was not required to make formal assessments for those earlier years.

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