Supreme Court rules on carrying forward business losses under Indian I.T. Act

The Supreme Court analyzed the interpretation of s. 24(2)(iii) of the Indian I.T. Act, 1922, regarding carrying forward unabsorbed business loss. The Court held that the amendment in 1957 imposing an eight-year limitation for carrying forward losses prevails over the pre-amendment provision allowing indefinite carry forward. The Court emphasized that tax laws applicable in the assessment year govern the assessment process, rejecting the claim for a vested right under the old provision. The appeal was dismissed, affirming that the unabsorbed loss from 1950-51 could not be carried forward beyond eight years and set off against the income of 1960-61.

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Issues: Interpretation of s. 24(2)(iii) of the Indian I.T. Act, 1922 regarding carrying forward unabsorbed business loss from previous years.

In this judgment, the Supreme Court analyzed the interpretation of s. 24(2)(iii) of the Indian I.T. Act, 1922, in a case involving an assessee company carrying on the business of manufacturing jute goods. The core issue was whether the unabsorbed business loss of Rs. 15,50,189 from the assessment year 1950-51 could be carried forward and set off against the business income of the assessment year 1960-61. The Income Tax Officer (ITO) had rejected the claim based on the limitation of carrying forward losses to eight years imposed by an amendment in 1957. The High Court had also ruled against the assessee.

The Court delved into the legislative history of s. 24(2) which had undergone several amendments over the years. Prior to the 1957 amendment, s. 24(2)(iii) allowed carrying forward of business losses indefinitely until fully absorbed. However, the Finance (No. 2) Act of 1957 introduced a limitation of not more than eight years for carrying forward unabsorbed losses. The assessee argued for a vested right under the pre-amendment provision, but the Court emphasized that tax laws applicable in the assessment year govern the assessment process.

The Court cited precedents emphasizing that the law in force in the assessment year is to be applied unless specified otherwise. Therefore, the assessee could not claim a vested right under the pre-amendment provision when the assessment was being made under the amended law. The Court rejected the reliance on a previous judgment, distinguishing it based on specific circumstances. Ultimately, the Court dismissed the appeal, upholding the High Court's decision that the unabsorbed loss from 1950-51 could not be carried forward beyond eight years and set off against the income of 1960-61.

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