COMMISSIONER OF INCOME-TAX, KANPUR v. ·BEHAR! LAL RAM CHARAN LTD.

The Judgment of the Court was delivered by

G RANGANATH MISRA. J. This appeal is by special leave and the judgment of the Allahabad High Court on a reference under Sec- tion 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'tlie A~t') is assailed by the Revenue .

• The relevant assessment year is 1965-66 corresponding to the H previous year ending on 3l.12.1964. In its return the assessee. a pri-

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vate limited company, disclosed capital gains of Rs.3, 10,200 but claimed set off of capital loss of Rs.3, 17,500 sustained by it during the assessment year 1957-58 over sale of shares to three associate con- cerns. It was maintained by the assessee that the loss was sustained in the previous year relevant to the assessment year 1957-58 and the same should be set off against the capital gains in the assessment year in question. The Incotne-tax Officer disallowed the claim for set off on the footing that when in the assessment year 1957-58 the loss was claimed it was excluded in the computation of income as capital loss and the Appellate Assistant Commissioner while disposing of the assessee's appeal had stated that it was a notional capital loss. As no further appeal was carried by the assessee, with the first appellate order the matter had become final. c The assessee challenged the rejection of its claim of set off before the Appellate Assistant Commissioner and he dismissed the appeal by holding that there was no genuine loss; it was essentially notional in nature and that the claim for set off to be admissible had to be notified by the Income-tax Officer under Section 24(3) of the 1922 Act to the D assessee by an order in writing. That having not been done, the claim was not admissible. Thereupon the assessee went before the Appellate Tribunal and reiterated its claim. The Tribunal came to the conclusion that the assessee was entitled to the benefit of set off of loss provided it satisfied that its capital loss was computed under the old Act. In its view as the assessee had filed its return showing the loss and the E Income-tax Officer neither computed the loss nor passed an adverse order, the Income-tax Officer was not entitled to take advantage of his own failure and reject the assessee's claim of carry forward and set off of loss on the ground that loss had not been determined as required under section 24(3) of the Income-tax Act, 1922. The Tribunal further found that the Income-tax Officer had clearly disallowed the assessee's F claim of revenue loss by holding that it was a capital loss. It found that the Appellate Assistant Commissioner had no justification to hold that the claim of loss was not genuine while disposing of the appeal for the assessment year 1957-58 and ultimately allowed the assessee's claim. At the instance of the Revenue four questions were referred for opi- nion of the High Court. G

1Copy pinpoint1. Whether on the facts and in the circumstances of the case, the Income-tax Officer's order for the assessment year 1957-58 had not merged in the Appellate Assistant Commissioner's order in which the Appellate Assistant Commissioner had given a clear finding that the loss was notional? H

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2Copy pinpoint2. If the answer to the above question is in the negatjve, whether any loss could be said to have been determined for the assess· ment year 1957-58, which could be carried forward to subsequent years?

3Copy pinpoint3. Whether in view of the provisions of Section 80 of the B Income-tax Act, 1961, the loss claimed for the assessment year 1957-58 could be set off against the income determined for the assessment year 1965-66?

4Copy pinpoint4. Whether the Tribunal was justified in law in holding that the provisions in Section 24(3) regarding intimation of losses deter- c mined by the Income-tax Officer do not apply to the loss falling under the head 'capital'?

The High Court found that the Income-tax Officer in the assessment order for 1957-58 had mentioned:

D "Net loss as per profit and loss account-adjust Rs.3, 17,205.

(i) Loss on sale of investment being capital Rs.3, 17 ,500-00

E (ii) Income-tax Rs. 204-00

Total Rs.3, 17,704-00 Income Rs. 499-00"

F It is true that in appeal the Appellate Assistant Commissioner had held:·

"A perusal of the assessment records show that the appel· lant held 2,500 ordinary shares in M/s. B.R. Ltd. These shares were held on investment account and were not G stock-in-trade of the Company. M/s. B.R. Ltd. is an associated concern and the shares were sold to allied con- cerns and a loss of Rs.3,17 ,500 was worked out. Firstly, the shares were investment shares. Secondly, the price for which the shares were transferred to another associated concern was a notional price. The management just trans· H ferred the shares held by one company to another company

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under their control and management. Of course, the trans- A fer was not a trading activity. In these circumstances, I hold that the Income-tax Officer has rightly disallowed the loss claimed, the same being notional capital loss."

The High Court found that both the Income-tax Officer as also the B Appellate Assistant Commissioner had found that the loss was a capi- tal loss. The High Court fur•her found:- ~

- ~ "In our opinion, this Section (Section 80 of the 1961 Act) cannot apply to a case where in law a return could not have been filed under Section 139. That is to say in relation to assessment years prior to the coming into force of the c Income-tax Act, 1961 a return could not possibly have been filed under Section 139 because in these years this Section was not on the Statute Book. But if Section 80 is construed to mean that a return fifod under the Income-tax Act 1922 is also within its purview then in our opinion the require- D ment of this Section was equally fulfilled because the asses- see has for the assessment year 1957-58 filed a return of loss which loss had been de1ermined by the Income-tax Officer in the assessment order."

t The High Court took the view that in the order for assessment E year 1957-58, the Appellate Assistant Commissioner has referred to -- the claims of loss as notional when he really meant that it was an estimate. It agreed with the conclusion of the Tribunal and found against the Revenue. J ... Section 24 of the 1922 Act which applied to the assessment year F 1957-58 as far as relevant provided: "i "(1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in G that year ....... "

(2A) Notwithstanding anything contained in sub-section (1), where the loss sustained is a loss falling under the head 'capital gains', such loss shall not be set off except against any profits and gains falling under that head." H

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, . , .. ;. ·.-{iB) .Where. an asses~7e sustain~ a loss su~h as is referred\ A , :; ,, . to in sub-section {2A) and the loss cannot be wholly set off \ in accordance' with the provisions o( that sub-section, the portion not so set off shall be carried' forward to th& follow- , . . , ing year and set off against capital gains for that year, and if · . ' "j ·:·· -. .. ·.1 :· it cannot be so set off, the amourit·thereofnot so ·set off B shall be' car;ied forward to the following year and so on. So, however, that no loss sh.all b~ carried forward for more ""; :than eigM years ...•. ~ .. ~ ; ~ ~ .•.. , ; .... : . : '.. ; : ... , ' .. ; . "

"When,' ill the course ~f the assessment of the toial in- , c•. (3) "' come of any assessee, it is established .tiiai a loss of profits' ". : ' or gains has taken place which he is entitled to have set off · C · . .. ·" · under the provisions of this seetion, the Income-tax Officer ' ''" ., 'shall notify to, the assessee by' orderiit writing the amount ' 1 ,of.the loss·as'computed.by him:for the'purposes of this · . section.·'~- -· 4

D . , , :The High Court has found that thelricome-tax Officer did rom•, . put.e the amount by.specifying it i.n his.a.ssessment order. When the . · assessee had made the.claim ·and he: took note of it,"his'failure.'to comply strictly with the rl!quirement ofsub-seciion (3) .of section 24 should not be permitted to.be taken advantage of by the Reveiltie,.rior ' should it be used to the:prejudice ofthe. assessei:. . ' ' ' '

E ', ., .· · Since off hi; been ~et in the J96S-66to ·. cl~~ed assesslli~nt ye~ .~ which the Act of J961 applied., ids necessary to ium atiention to the · relevant provisions thereof and they are in sections 74 ·and 80. For' .convenience they ar~ extracted: . : . , • , · · · . · : · ,' ..

' ~-; F . .. ·.·. ''Secricfn ;4; (l){a)Whereiri're;p~ct ~fan; assessri;e~t ~ '·-. ,,_1,year, the net result of the computation .'1;1nder the head 'r- ;, . . · "capital gains'' is a loss, suchlosS.shan,:subject to the other. . :- provisions o(this Chapter~ be dealt with as follows:, /< _ :,•· :'_·. ~ ... / L "{i) s~~h portion ~fthl"'net I~~ (r~i~ting to short~t~l'ln capital/assets ,as cannot be ods not whbllyseroff agaiflSt~ ' income under any head iii accordance with the provisions - ;.,/ i ..- of section 71 shall be carried forward io the followirigas- •: ,:, ; sessment year arid set off against the capital gains; if any,-.• ' ' , ' relating to short-term capital assets as5essable for that ·as-· '1 I ' sessment year. and, if it cannot be so set off, the amount thereof not so set off shall be carried forward to the follow- ing assessment year a_nd so on."

C.I.T. v. BEHAR! LAL [MISRA, J.) 1165

"(ii) such portion of the net loss as relates to capital assets other than short-term capital assets shall be carried forward to the following assessment year and set off against the capital gains, if any, relating to capital assets. other than short-term capital assets assessable for that assessment year and, if it cannot be so set off, the amount thereof not so set off shall be carried forward· to the following assessment year and so on: ~

Provided that where, in the case of any asses.see not ~ being a company, the net loss computed in respect of such capital assets for any assessment year does not exceed five thousand rupees, it shall not be carried forward under this section." c

"(b) . Notwithstanding anything contained in the Indian Income-tax Act, 1922 ( 11) of 1922), any· loss computed under the head 'capital gains' in respect of the assessment year .commencing on the 1st day of April, 1961, or any D ~arlier assessmeqt year which is' carried forward in accord- ance with the provisions of sub-section (2B) of section 24 of that Act, shall be dealt with in the assessment year com-

+ mencing on the 1st day of April, 1962, or any subsequent assessment year as follows: E ..... (i) in so far as it relates to short-term capital assets, it shall be carried forward and set off in accordance with the provisions of sub-clause (i) of clause (a) and sub-section (2); and

(ii) in so far as it relates to capital assets other Lhan F short-term capitalassets, it shall be carried forward and set off in accordance with the provisions of sub-clause (ii) of clause (a) and sub-section (2)."

"(2)(a) No loss referred to in sub-section (i) of clause (a) of sub-section (1) or sub-clause (i) or sub-clause (ii) of G clause (b) of that sub-section shall be carried forward under this section for more than eight assessment years imme- diately succeeding the assessment year for which the loss was first computed under the Act or as the case may be, the Indian Income-tax Act, 1922 (11of1922). H

1166 SUPREME COURf ll.EPORTS [ 1987] 2 S.C.R.

A . . '.'(b) No loss referred to in sub-clause (ii) _of clause (a) ' · of sub-section (I) st.~11 be carried forward under this sec- ~ " lion for more thim four assessment years immediately suc- ''. ceeding the assessment year for which the Joss was flrst computed urider the Act." '

,, B ; Jr '

',; ·"Seciib'n 80: Notwlthstanding anything contained In this Chapier, no loss which has not been: rletermlned In !Jllt- suance of a return filed under Section 139, shall be carried forward and set off under sub-section ( l) of Section 72 or -~ - sub-section (2) of Section 73 or sub'section (I) of Section 74 or sub-section (3) of Section 74A." .

· Reading ·th~ provisio~s ~f · Se~tion 74( l)(b,) and Section 80 together, we agree with the submission advanced on beh.:-.!f ui Ifie assessee that the benefit conferred under Sect[cn i4 llf 192i Ael ~fl­ . tinued. to be given effect to under the 't96 i Ad a!!,~ r.uiwlthstanding 0 the w_o~dfogs of section 80 of the latt€f A~t, ihe High Court was righl in holding that the claim of set off was admissible. In tlllf view, on a bare an.alysis of 1hese provisions, and withtiUl reference t~ anything mtlte; th_1s app~al can be ~iSP'?!Ccl of. We find that the Blgll t:tiifrl reached the correct conclusmn and th~rc I! ntl fnetil ih ihe appeal. Accord- ingly. it is dismissed with com, E P.S.S. \ Appeal dismissed.