Capital loss carry-forward and fair market value substitution apply only when statutory conditions are proved.

A capital loss is carry-forward eligible only if it falls under the head "capital gains" created by section 12B; a loss from 1951-52, when no capital gains tax applied to such transactions, was therefore not available for carry-forward or set-off against later capital gains. The commentary also states that substitution of fair market value under the third proviso to section 12B(2) is permitted only where that value can be determined with reasonable certainty on the evidence; a mere possibility of asset appreciation is insufficient. On that basis, the assessee could not use the 1 January 1954 market value for the shares.

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Issues: (i) Whether a capital loss incurred in 1951-52, when no capital gains tax was chargeable on such transactions, could be carried forward and set off against capital gains arising in 1959-60 under sections 24(2A) and 24(2B) of the Indian Income-tax Act, 1922; (ii) Whether the assessee was entitled to substitute the fair market value of the shares as on 1 January 1954 under the third proviso to section 12B(2) of the Indian Income-tax Act, 1922.

Issue (i): Whether a capital loss incurred in 1951-52, when no capital gains tax was chargeable on such transactions, could be carried forward and set off against capital gains arising in 1959-60 under sections 24(2A) and 24(2B) of the Indian Income-tax Act, 1922.

Analysis: The right to carry forward under section 24(2B) applies only to a loss that is a loss under the head "capital gains". That head was linked to the charge created by section 12B, and after the 1949 amendment no capital gains tax applied to transactions after 31 March 1948 until the new section took effect from 1 April 1957. A loss arising from a transaction in 1951-52, therefore, was not a loss falling under the head "capital gains", even though it was capital in nature. The statutory scheme did not permit such a loss to be carried forward for set-off in the assessment year 1959-60.

Conclusion: The assessee was not entitled to carry forward and set off the 1951-52 loss against the capital gains of 1959-60.

Issue (ii): Whether the assessee was entitled to substitute the fair market value of the shares as on 1 January 1954 under the third proviso to section 12B(2) of the Indian Income-tax Act, 1922.

Analysis: The third proviso could be applied only where the Income-tax Officer was satisfied that the fair market value as on 1 January 1954 could be determined. A mere possibility that the company's assets and earning capacity had improved was insufficient. On the material on record, the precise market value of the shares as on that date could not be ascertained, so the statutory condition for substitution of market value in place of actual cost was not met.

Conclusion: The assessee was not entitled to have the shares valued at a higher figure under the third proviso to section 12B(2).

Final Conclusion: Both questions were answered against the assessee and the department succeeded on the reference.

Ratio Decidendi: A loss can be carried forward under section 24(2B) only if it is a loss under the head "capital gains" as created by section 12B, and the fair market value proviso applies only where that value can be determined on the evidence with reasonable certainty.

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