TaxTMI 
TaxTMI 
1995 (8) TMI 1
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....52-53 to 1954-55 quantified and set off against its share income from the partnership firm of Dalmia Magnesite Corporation for the assessment years 1960-61 and 1962-62 ? 3. Whether the Appellate Tribunal has jurisdiction to direct the Income-tax Officer to quantify the losses for the assessment years 1952-53 to 1954-55 and allow the set-off against the share income from the partnership-firm for 1960-61 and 1961-62 ? 4. Whether, on the facts and in the circumstances of the case, the assessee was entitled to have the losses of the assessment years 1955-56 to 1959-60 set off against its share income from Dalmia Magnesite Corporation for the assessment years 1960-61 and 1961-62 under the provisions of section 24(2)(iii) of the Indian Income-tax Act, 1922 ? " We shall state the facts in so far as they are relevant to the said questions alone. The respondent-assessee is a public limited company carrying on the business of mining manganese ore and selling it as such or after calcining it. During the years 1945 to 1956, it claimed to have suffered losses in that business. On April 23, 1956, the respondent-assessee filed its returns, for the first time, for the previous years re....
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....espect of the said three earlier assessment years, viz., assessment years 1952-53 to 1954-55. Aggrieved with the said decision of the Tribunal, the Revenue applied for referring the aforesaid questions for the opinion of the High Court, as stated above. Of the three questions concerned herein (questions Nos. 2, 3 and 4), the High Court took up question No. 3 for consideration first. The contentions urged by the Revenue were to the following effect : under the Income-tax Act, each assessment year is a unit by itself. While dealing with an appeal in relation to a particular assessment year, the Tribunal cannot travel outside the scope of the appeal and deal with matters relating to the other assessment years. In respect of the assessment years, 1952-53 to 1954-55, no loss was determined by the Income-tax Officer for the reason that the returns were filed beyond the period prescribed. On the basis of such returns, no loss could have been determined and allowed to be carried forward in view of the provision contained in sub-section (2A) of section 22. In any event, the assessment in respect of the said three earlier assessment years--whether right or wrong--had become final and the ....
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....xtension of time for the submission of returns for the assessment years 1952-53 to 1954-55 and in fact obtained the required extension from the Income-tax Officer himself. It is also seen that after the submission of the returns within the extended time, the matters were posted for enquiry and the assessee was asked to produce materials in support of the said returns. But, somehow, the Income-tax Officer chose to close the proceedings saying that he will not take cognizance of those returns as they had not been filed within the time provided in section 22(1) or section 22(2A). But, it has been held by the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518 that though a return disclosing the loss is not filed in time as fixed in the general notice under section 22(1) or section 22(2A), the provisions of section 24(1) and (2) of the Act should be taken into account for the purpose of granting relief to the assessee, in relation to the assessment for the subsequent year. It has, therefore, to be taken that the non-consideration of the returns and the non-determination of the losses in relation to the years 1952-53 to 1954-55 by the Income-tax Officer cannot be....
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....rson, whose total income during the previous year exceeded the taxable limit, to furnish within sixty days, a return in the prescribed form verified in the prescribed manner and containing the requisite particulars. There is no corresponding provision in the present Act. Sub-section (2) of section 22 provided that in the case of any person whose total income is, in the opinion of the Income-tax Officer, such as to render such person liable to income-tax, the Income-tax Officer may serve a notice upon him requiring him to furnish, within the prescribed period, not being less than thirty days, a return in the prescribed form containing the requisite particulars. The corresponding provision in the 1961 Act is sub-section (2) of section 139. Both the old and the new provisions empower the Income-tax Officer to extend the period for filing the return on proper cause being shown. Sub-section (2A) of section 22 provided that where a person claimed to have suffered losses and to carry them forward under sub-section (2) of section 24, he must furnish his return within the time specified in the general notice issued under section 22(1) or within such further time as the Income-tax Officer ma....
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....e to carry forward the losses. The limitation was that the losses could be carried forward and set off only if the same business was continued in the subsequent year as well. The corresponding provision in the present Act is clause (i) of sub-section (1) of section 72. Sub-section (3) of section 24 provided that " when in the court of the assessment of the total income of any assessee, it is established that a loss of profits or gains has taken place which he is entitled to have set off under the provisions of this section, the Income-tax Officer shall notify to the assessee by order in writing the amount of the loss as computed by him for the purposes of this section ". (emphasis added). This provision is of crucial relevance to the question at issue herein. The corresponding provision in the present Act is section 157. [When we referred to the " corresponding provision " in the present Act, we meant only a broad correspondence.] Contentions of the parties : The submission of learned counsel for the assessee in the appeals before us is that inasmuch as the requirement of section 24(3) has not been complied with in respect of the aforesaid three earlier assessment years....
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....e would not take cognizance of the returns filed for the assessment years 1952-53 to 1954-55 on the ground that they were filed beyond the period prescribed by law. Had the assessee preferred appeal(s) against that intimation, the majority decision of this court in Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518 could probably have come to its rescue. Indeed, the facts of that case are more or less similar to the facts of this case, with the crucial difference that in that case the assessee preferred appeals against a similar intimation and it is in those proceedings that it was held by this court ultimately, by a majority, that under the provisions of the 1922 Act, a return of loss filed before making the assessment is a valid return and that the Income-tax Officer is obliged to determine the loss on the basis of such return. Strong reliance is placed by learned counsel for the assessee upon the decision of this court in Manmohan Das' case [1966] 59 ITR 699. In our opinion, however, the principle of the said decision is of no relevance to the facts and circumstances of this case. The main question considered in the said decision was whether income received by the assessee u....
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.... decide or declare whether the loss determined by him for that assessment year can be carried forward and set off against the income of the future year(s) under section 24(2) of the Act or not. The question whether the loss determined for a previous year is to be carried forward and set off against the income of the succeeding year, it is held, is a matter to be decided by the Income-tax Officer dealing with the assessment relating to the subsequent year in which year the loss is sought to be set off by carrying it forward from the previous year. On that basis, it is held that the declaration made by the Income-tax Officer in the assessment order relating to the assessment year 1950-51 that the loss incurred in that year cannot be carried forward was beyond his jurisdiction. Since this court held, agreeing with the Tribunal and the High Court, that the income arising under the agreement aforesaid was business income, it held that the loss determined in the previous assessment year can be carried forward and set off against the profits of the succeeding/subsequent assessment year under section 24(2) of the Act. It is for this reason we say that the ratio or the principle of this dec....
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....he instance of the Revenue, viz. (at page 422) : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss suffered by the assessee from his personal business (including his share of loss from another firm) cannot be set off under section 24(1) against his taxed share income from an unregistered firm ? " (The wording of the question suggests that it must have been referred at the instance of the assessee. Be that as it may, we go by the statement of the case). Thus, there were two questions involving section 24, viz., one relating to the first set of assessment years (1941-42 and 1942-43) referred at the instance of the assessee and the other concerning the second set of assessment years (1948-49 and 1949-50) referred at the instance of the Revenue. The report in Seth Khushal Chand Daga's case [1957] 31 ITR 417 (Nag) does not contain the reasons for which the question, referred at the instance of the Revenue, relating to the assessment years 1948-49 and 1949-50 was answered against the Revenue. Paragraph 10 (at page 427) of the report merely says : " As regards the question raised in Miscellaneous Civil Case No. 98 of 1954 d....
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....ent year 1941-42 and that it could not be raised in the appeal preferred against the assessment order relating to the subsequent assessment year, i.e., 1942-43. As a matter of fact, the Tribunal found from the records before it that the assessee had preferred an appeal against the assessment order relating to the assessment year 1941-42 but he did not take up this contention in that appeal. The Tribunal, accordingly, refused to permit the assessee to raise the said contention in the assessment proceedings relating to the subsequent year. The High Court, however, upheld the contention of the assessee on a reasoning, which may be set out in full in its own words (at page 425) : " The first question raised by the assessee is whether he is entitled to raise a question with regard to the determination of loss for the assessment year 1941-42 in the course of proceedings for the assessment year 1942-43 when the loss brought forward from 1941-42 was being set off. A similar question arose in All India Groundnut Syndicate Ltd. v. CIT [1954] 25 ITR 90 (Bom) and was answered as below : 'It is then urged that inasmuch as the loss was not computed in the relevant year of assessment, there....
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....e loss which was liable to be carried forward duly determined in the subsequent proceedings ". The High Court also took note of the fact that the Income-tax Officer had failed to notify the loss for the previous year (assessment year 1941-42) as required by section 24(3) of the Act but it observed at the same time that such failure does not make any difference to the principle enunciated in All India Groundnut Syndicate Ltd.'s case [1954] 25 ITR 90 (Bom). We find the reasoning of the High Court rather involved and difficult to follow but that need not detain us since we are concerned only with the ratio and the principle of the decision of this court in appeal. We now turn to the decision of this court. The facts as stated in the first two paragraphs show that this court (see [1961] 42 ITR 177) was led to assume that the question raised in the assessment proceedings relating to the assessment year 1942-43 was again raised in the assessment proceedings relating to the assessment years 1948-49 and 1949-50 which is not the correct factual position as would be evident from the statement of the case contained in Seth Khushalchand Daga's case [1957] 31 ITR 417 (Nag). The question invo....
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....ade in respect of the assessment year 1941-42, the Income-tax Officer had determined the loss at Rs. 53,840 and that the assessee had preferred an appeal against the said order of assessment though he did not choose to urge therein any ground with respect to the correctness of the amount of loss determined by the Income-tax Officer). In our opinion, the ratio of the said decision must be understood in the light of the legal position obtaining under the 1922 Act. As pointed out by us hereinbefore, under section 23(3) of the Act, the Income-tax Officer was required to " assess the total income. of the assessee and determine the sum payable by him on the basis of such assessment ". The sub-section did not expressly speak of determining the loss as well as the amount of refund as is provided by section 143(3) of the present Act ; that was left to be provided by section 24(3). It would be appropriate to set out sub-section (3) of section 23 of 1922 Act and sub-section (3) of section 143 of the present Act to bring out the contrast. " 23. (3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evi....
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....s. Because of the language of sub-section (3) of section 143 of the present Act, the provision contained in section 157 of the present Act (corresponding to section 24(3) of the 1922 Act) cannot be deemed to be mandatory but only directory. In other words, the position under the present Act is that even if the intimation in writing contemplated by section 157 is not given to the assessee, yet the assessee will not be entitled to raise a question similar to the one raised by the assessee in Khushal Chand Daga's case [1961] 42 ITR 177 (SC) because under the present Act he can, and should, raise that question in the appeal preferred against the order of assessment since an order of assessment under the present Act determines not only the assessee's income, if there is one, but also the loss, if there is one. The question then arises, how far does the ratio of Khushal Chand Daga's case [1961] 42 ITR 177 (SC) help the assessee before us. In this case, the Income-tax Officer intimated the assessee that since the loss returns filed for the assessment years 1952-53 to 1954-55 were filed beyond the period prescribed by law, he would not take cognizance of the said returns. In other words....
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....s holding--rendered in the light of the language of section 24(3) and section 30(1)--is different from a refusal to make the assessment altogether as has happened in the case before us. To repeat, the failure in this case pertained to the anterior stage and could have been appealed against as a " refusal " to make an assessment order under section 30(1) as was done in Kulu Valley Transport's case [1970] 77 ITR 518 (SC), whereas in Khushal Chand Daga's case [1961] 42 ITR 177 (SC), no appeal could be preferred according to the holding in that case--disputing the quantum (" amount ") of loss determined in the assessment proceedings in the absence of an intimation under section 24(3). This is the qualitative difference between both the cases and hence the principle of Khushal Chand Daga's case [1961] 42 ITR 177 (SC) has no application herein. Learned counsel for the assessee relied strongly upon the decision of the Bombay High Court in All India Groundnut Syndicate Ltd.'s case [1954] 25 ITR 90 referred to and relied upon in Seth Khushalchand Daga's case [1957] 31 ITR 417 (Nag). In this case, the assessee filed a return of loss of three assessment years, but the Income-tax Officer tr....
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.... Courts in this behalf, to which a reference would be in order. The first one is the decision of the Madhya Pradesh High Court in Jaikishan Gopikishan and Sons v. CIT [1972] 84 ITR 645. In this case, the assessee filed a return of loss beyond the time prescribed under the notification issued under section 22(1) of the 1922 Act. The Income-tax Officer simply " filed " the return on the ground that it was filed beyond the time. The High Court held, following the decision of this court in Kulu Valley Transport's case [1970] 77 ITR 518 (SC) that in such a case the order " filing " the return should be treated as an order by which the officer has determined the loss as nil and, therefore, appealable under section 30 of the Act. The other decision is that of the Patna High Court in Bihar State Electricity Board v. CIT [1975] 101 ITR 740. This was also a case where the returns were filed beyond the period prescribed by the 1922 Act as well as the 1961 Act. The Income-tax Officer intimated the assessee that since the returns were filed beyond the prescribed period, no action was being taken by him thereon and that the loss for those years would not be carried forward for being set off agai....
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....present Act. Under the present Act, section 143(3) requires the Assessing Officer to determine not only the profits/income taxable but also to determine the loss, if there is one. In this view of the matter, section 157 of the present Act [corresponding to section 24(3)] loses its significance. It must be understood as merely directory. Under the present Act, the assessee is entitled to and ought to question the amount of loss determined in the appeal preferred against the assessment order itself. He need not wait till he receives the intimation under section 157. Nor does he suffer any disability on account of not appealing against such intimation, if he has already preferred an appeal against the order of assessment. In this connection the language of clause (a) of sub-section (1) of section 246 of the 1961 Act is worth noting. It provides an appeal against " any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed... ". Section 246 does not provide for an appeal against intimation under section 157 of the Act. For that matter, non....