Carry forward of business losses follows the law on the first day of the assessment year, applying later amendments to future assessments.

Carry forward and set-off of business losses are governed by the law in force on the first day of the relevant assessment year, so amendments affecting future assessment consequences apply to that year unless a contrary intention appears. On that basis, the Finance Act, 1957 controlled the assessment year 1960-61, and the assessee could not set off the unabsorbed loss from assessment year 1950-51 against business income for 1960-61 because the amended provision governed the allowance of earlier losses.

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Issues: Whether the assessee was entitled in law to set off unabsorbed loss of the assessment year 1950-51 against the business income of the assessment year 1960-61.

Analysis: The governing law for an assessment is the law in force on the first day of the assessment year, and the carry forward and set-off of earlier losses is part of the assessment process. The amendments introduced by the Finance Act, 1957, therefore applied to the assessment year 1960-61. The amended provision controlled the allowance of unabsorbed losses, and any prior order of the Income-tax Officer could not prevail over the express requirements of the law then applicable. The amendment was treated as governing future assessment consequences and not as an impermissible retrospective operation.

Conclusion: The assessee was not entitled to set off the unabsorbed loss of Rs. 15,50,187 for the assessment year 1950-51 against the business income for the assessment year 1960-61.

Ratio Decidendi: The allowability of carry forward and set-off of business losses is determined by the law in force on the first day of the assessment year, and an amendment affecting future assessment consequences applies to that assessment unless a contrary intention appears.

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