Carry forward of business loss fails when the original business has ceased, denying later set-off under tax law.

Carry forward of business loss under section 24(2)(iii) of the Indian Income-tax Act, 1922 is available only if the business in which the loss arose continues to be carried on in the later year. Clause (iii) operates only after the loss has first qualified under the earlier sub-clauses, so an unadjusted loss from a business that has ceased to exist cannot be set off in subsequent years. The Allahabad HC held that losses from the discontinued manufacturing business were not eligible for carry forward or later adjustment, and answered the reference against the assessee and in favour of the Revenue.

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Issues: Whether losses from a discontinued business could be carried forward and set off in subsequent years under section 24(2)(iii) of the Indian Income-tax Act, 1922.

Analysis: Section 24(2) permits carry forward and adjustment of business losses only where the business in which the loss was originally sustained continues to be carried on in the relevant subsequent year. The provision in clause (iii) operates only after a loss has first qualified for carry forward under the preceding sub-clauses. Where the business has ceased to exist, the loss cannot be carried forward for set-off in later years merely because it remained unadjusted in the earlier year.

Conclusion: The assessee was not entitled to carry forward and set off the losses of the discontinued manufacturing business. The question was answered in the affirmative, against the assessee and in favour of the Revenue.

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