# ANGLO-FRENCH TEXTIT~E CO., LTD v. COMMISSIONER OF INCOME-TAX, MADRAS

- **Citation:** [1953] 1 S.C.R. 448
- **Court:** Supreme Court of India
- **Decided:** 1950-02-18
- **Bench:** Mehr Chand Mahajan, Das, Vivian Bose, Bhagwati
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/anglo-french-textit-e-co-ltd-v-commissioner-of-income-tax-madras-33
- **Pages:** 7

## Headnote

India>! Income·tax Act (XI of 19e2), ss. 24 ( 2), 84-Return
shoiving loss-lVhether loss can be recorded and carried forwardProceedings fo1· re-assessment-Whether whole a.ssess·ment can be reopened .
. .\n assessee submitted a return showing the income as l<nil"
~nd this return was accepted by the Income-tax Officer. In the
-
'
'
' .
S.C.R.
SUPREME COURT REPORTS
449
next year the Income-tax Officer sent a notice to the assessee
1952
under s. 34 (1) (bl calling for a fresh return. The assessee submitted ,a return .showing the income as "nil" and a loss of
Anglo-J?i·ench
Rs. 3,92,357 and claimed that the Joss should be recorded il,lld Textile Co., Ltd.
carried forward under s. 24 (2) of the Income-tax Act.
The loss
v.
was arrived at by striking a balance in the profit and loss account Commissioner of
of just one business:
Income-tax,
Held, that the assessee was not entitled to have the loss
Madras.
determined and carried forward for two reasons, first, because
when there is no income under any head at all there is nothing
against which the loss can be set off in that year under s. 24 (1)
and unless that can be done sub-s. (2) of s. 24 does not come into
play ; secondly, a set-off uncler s. 24 (2) can only be claimed when
the loss arises under one head and the profit against which it is
sought to be set off under a different head.
Qnaere : Whether when proceedings are taken under s. 34 for
the assessment of income which has escaped assessment, the
assessee is entitled to re-open the whole proceedings.
CrvIL APPELLATE JURISDICTION:
Civil Appeal
No. 13 of 1952. Appeal from the Judgment and
Order dated 18th January, 1950, of the High Court
of Judicature at Madras (Satyanarayana Rao and
Viswanatha Sastri JJ.) in Case Referred No. 28 of
1947.
0. T. G. Nambiar (S. N. Mukherjee, with him) for
the appellant.
'
·
M. 0. Setalvad, Attorney-General for India, and
0. K. Daphtary, Solicitor-General for India ( G. N. Joshi
and P.A. Mehta, with them) for the respondent.
,,.
1952. December 22. The Judgment of the Court
._
was delivered by
..
BosE J.-The following question was referred to
the High
Court of Madras by the Income-tax
Appellate 'rribunal under section 66 (1) of the Indian
Income-tax Act, 1922:
" Whether on the facts and in the circumstances
-0f the case when an assessment has been made under
section 23 (1) of the Indian Income-tax Act, determining the ass.essee company's income as' nil'
and when proceedings under section 34 were subsequently started to assess the ·income which the
450
SUPREME COURT REPORTS
[1953]
l
1952
Income-tax Officer believed to have escaped assessment the assessee company is entitled to claim that
Anglo-French
h 1
f
fit
d
·
('
l' d'
d
· t'
Textile Co., Ltd. t e oss o pro . s an &a1.ns me u ~ng eprecia 10n
· v.
alfowance) sustamed by 1t m the prev10us year should
Commissioner of be determined in the course of such proceedings."
Income-tax,
We are concerned in this case with the assessment
Madras.
1 4
Th
h
A
year 194 - 2.
e assessee is t e
nglo-French
Bose J.
Textile Company, a company which is incorporated
').
in the United Kingdom. ·It owns spinning and
weaving mills at Pondicherry in French India and
manufactures
yarn
and cloth there.
The raw
materials necessary for the manufacture, or at any
rate much of it, such as cotton, used to be purchased
in what was then the British India, through its
agents Best & Company Ltd. of Madras. ·The bulk
of its manufactured goods was also sold in British
India, the rest being sold elsewhere.
But in the
year material to this case it did no business in British
India and accordingly it submitted no return to the
Income-tax authorities.
On 25th April, 1941, the Income-tax Officer issued
a notice to the assessee and called for a return.
The
assessee replied on 9th June, 1941, that it had" at
all times material to the assessment year no business
in British India " and consequently no profits arose
or accrued or were received in British India and
therefore the assessee "was not liab

## Text

448
SUPREME COURT REPORTS
[1953]
19°2
February 18, 1950, but, in view of the absence of any
b
d
distinct provision in section 21 that the power of
Straw oar
d
d
d'fi
· I
Ma ufacturing amen ment an mo 1 catwn conferred on the State
~o., Ltd. · Gtvernment may be so exercised as to have retrospecv.
tive operation the order of April 26, 1950, viewed
Gutta .~fill
merely as an order of ainendment or modification,
Workers' Union. cannot" by virtue of section 21, h:i.ve that effect.
If,
-
therefore, the amending order operates prospectively,
Das J,
d
h
1952
Dec. 22.
i.e., only as from the ate oft e order, it cannot validate the award whic.h had been made after the expiry
of the time specified in the original order and before
the date of the amending order, during which period
the adjudicator was functus officio and had no jurisdiction to act at all.
\Ve do not think the respondents
can derive any support from section 21 of the U. P.
General Clauses Act.
0
The result, therefore, is that this appeal must be
allowed and the award must be declared to be null
and void and we order accordingly. In the circumstances of this case we make no order as to costs.
Appeal allowed.
Agent for the appellant : Ganpat Rai.
Agent for the respondent: S. D. Sekhari.
Agent for the intervener: 0. P. Lal.
ANGLO-FRENCH TEXTIT~E CO., LTD.
v.
COMMISSIONER OF INCOME-TAX, MADRAS.
[MEHR CHAND MAHAJAN, DAS, VIVIAN BOSE and
BHAGWATI JJ.]
India>! Income·tax Act (XI of 19e2), ss. 24 ( 2), 84-Return
shoiving loss-lVhether loss can be recorded and carried forwardProceedings fo1· re-assessment-Whether whole a.ssess·ment can be reopened .
. .\n assessee submitted a return showing the income as l<nil"
~nd this return was accepted by the Income-tax Officer. In the
-
'
'
' .
S.C.R.
SUPREME COURT REPORTS
449
next year the Income-tax Officer sent a notice to the assessee
1952
under s. 34 (1) (bl calling for a fresh return. The assessee submitted ,a return .showing the income as "nil" and a loss of
Anglo-J?i·ench
Rs. 3,92,357 and claimed that the Joss should be recorded il,lld Textile Co., Ltd.
carried forward under s. 24 (2) of the Income-tax Act.
The loss
v.
was arrived at by striking a balance in the profit and loss account Commissioner of
of just one business:
Income-tax,
Held, that the assessee was not entitled to have the loss
Madras.
determined and carried forward for two reasons, first, because
when there is no income under any head at all there is nothing
against which the loss can be set off in that year under s. 24 (1)
and unless that can be done sub-s. (2) of s. 24 does not come into
play ; secondly, a set-off uncler s. 24 (2) can only be claimed when
the loss arises under one head and the profit against which it is
sought to be set off under a different head.
Qnaere : Whether when proceedings are taken under s. 34 for
the assessment of income which has escaped assessment, the
assessee is entitled to re-open the whole proceedings.
CrvIL APPELLATE JURISDICTION:
Civil Appeal
No. 13 of 1952. Appeal from the Judgment and
Order dated 18th January, 1950, of the High Court
of Judicature at Madras (Satyanarayana Rao and
Viswanatha Sastri JJ.) in Case Referred No. 28 of
1947.
0. T. G. Nambiar (S. N. Mukherjee, with him) for
the appellant.
'
·
M. 0. Setalvad, Attorney-General for India, and
0. K. Daphtary, Solicitor-General for India ( G. N. Joshi
and P.A. Mehta, with them) for the respondent.
,,.
1952. December 22. The Judgment of the Court
._
was delivered by
..
BosE J.-The following question was referred to
the High
Court of Madras by the Income-tax
Appellate 'rribunal under section 66 (1) of the Indian
Income-tax Act, 1922:
" Whether on the facts and in the circumstances
-0f the case when an assessment has been made under
section 23 (1) of the Indian Income-tax Act, determining the ass.essee company's income as' nil'
and when proceedings under section 34 were subsequently started to assess the ·income which the
450
SUPREME COURT REPORTS
[1953]
l
1952
Income-tax Officer believed to have escaped assessment the assessee company is entitled to claim that
Anglo-French
h 1
f
fit
d
·
('
l' d'
d
· t'
Textile Co., Ltd. t e oss o pro . s an &a1.ns me u ~ng eprecia 10n
· v.
alfowance) sustamed by 1t m the prev10us year should
Commissioner of be determined in the course of such proceedings."
Income-tax,
We are concerned in this case with the assessment
Madras.
1 4
Th
h
A
year 194 - 2.
e assessee is t e
nglo-French
Bose J.
Textile Company, a company which is incorporated
').
in the United Kingdom. ·It owns spinning and
weaving mills at Pondicherry in French India and
manufactures
yarn
and cloth there.
The raw
materials necessary for the manufacture, or at any
rate much of it, such as cotton, used to be purchased
in what was then the British India, through its
agents Best & Company Ltd. of Madras. ·The bulk
of its manufactured goods was also sold in British
India, the rest being sold elsewhere.
But in the
year material to this case it did no business in British
India and accordingly it submitted no return to the
Income-tax authorities.
On 25th April, 1941, the Income-tax Officer issued
a notice to the assessee and called for a return.
The
assessee replied on 9th June, 1941, that it had" at
all times material to the assessment year no business
in British India " and consequently no profits arose
or accrued or were received in British India and
therefore the assessee "was not liable to comply
with the provisions of the Indian Income-tax Act."
'l'he assessee added.
'
"In the circumstances the company is not liable
to make a return but with a view to preserve the
right of the company to appeal against any order that·
may be passed by you, if necessary, we submit herewith without prejudice a nil return receipt of which
kindly acknowledge."
Appended to the letter was a piece of paper which
has been called a " nil " return. It is the usual
printed form in which returns are normally made but
the only entry in the whole form is the word "nil''.
The following declaration was also added:
...
s.c.:R.
SUPREME COURT REPORTS
45i
" I further declare that the company was not
1952
resident in Briti&h India during the previous year AngZo-l!'renoh
t
,,
e C ·; •
Textile Co., Ltd
•
On 25th March, 1942, the Income-te.x Officer made
. v:
the following order which he called an Assessment 0011
1•missiotner of
0 d
noome· ax,,
r er:
Madras.
"The company made a nil return of income
obviously for the reason that it is not carrying on any
business in British India ... I accept the return of
income filed by the company an~ declare it is not
liable to tax for the year 1941-42."
A year later, namely, on 9th March,· 1943, the
Income-tax Officer sent the assessee a notice under
section 34 (1) (b) in the following terms:
" Whereas in consequence of the definite information which has come into my possession ·r have discovered that your income assessable to income-tax
for the year ending 31st March, 1942, has
(a) escaped assessment.
I therefore propose to assess the said income
that has
(a) escaped assessment.
I hereby require you to deliver to me not later
than ... a return in the attached form of your total
income and total world income assessable for the
.d
"
sa1 year ...
·In reply to this the assessee again submitted the
same "nil " return and filed a statement showing a
loss of Rs. 3,92,357 on its total world income.
This
was on 31st May, 1944.
The Income-tax Officer passed orders on this on
2nd June, 1944. He stated that the assessee was a
non-resident company and that during the year no
sales were effected in British India and concluded
as follows:
"As the net result for the world business is only a
loss, there can be no question of profits attributable
Boss J.
452
SUPREME COURT REPOR,TS
[1953]
1952
to operations in British India under section 42 (1)
A
l F
I and 42 (3) in respect of cotton purchases.
Tbe 'nil'
ng o- renc i
fi l d .
h
f
d
Te•tile co., Ltd. return
e 1s t ere ore accepte .
v.
•Hence there. is no assessment for 1941-42.
As
Commi,,ioner of this is a non-resident company, the loss need not be
Income-ta•,
carried forward under section 24 (2) as tbat section
Madras.
,,
in terms does not apply to non-residents.
Bose J.
The last portion of the order is tbe one which oc-
'l.
casions the assessee's grievance. It claims that the
Income-tax Officer having accepted its statement of
loss was bound to record it and cany it forward.
Appeals.followed to the Appellate Assistant Commissioner of Income-tax and the Income-tax Appellate Tribunal and ultimately there was a reference to
tbe High Court.
The assessee has failed through.-
out and now appeals here .
. 'l'he assessee's contention is based on the following
provision of section 34. _ The first 5ub-section states
that when a notice is issued under that section the
Income-tax Officer may proceed to assess or re-assess
such income, profits or gains or recompute the loss
or depreciation allowance and that -
"the provisions of this Act shall, so far as may be;
apply accordingly as if the
no~ice were a notice
issued under [sub-section ( \l) of section 22]."
This it is said attracts section 24 (2).
vVe need not decide whether this contention- is
well founded, namely, wl;iether tbe assessee can claim
t11
to reopen the proceedings, because, even if he can,
l
we are of opinion that he cannot get what he asks
for.
There is no provision in the Act which entitles
the assessee to have a loss recorded or computed, unless something is to be done with the loss.
Thus,
under section 24 (1) a loss can be set_ off against an
income, profit or gain and under sub-section (2) the
balance of a loss can be carried forward to a following year on the conditions set out there.
Except for
this there is nothing else that can be called in aid.
But under sub-section (<!) the loss can be carried
forward when
•
-
S.0.R.
SUPREME OOUR'r REPOR'fS
453
"the loss cannot be wholly set off under sub19.52
section ( 1) '',
Anglo-French
and in that event only the "portion not so set off" can Textile Co., Ltd.
be carried forward. \Ve are therefore thrown back on
v.
sub-section (1).
)
Commissioner of
l1wo?ne-taro,
Sub section (1) provides that where an assessee
•
!Jfadras.
sustains a loss of profits or gains in any year under
any of the heads mentioned in section 6 he shall be
Bose J.
entitled to haYe the amount of the loss
"set off against his income, profits or gains under
any other head in that year."
Therefore, before any question of set-off can arise,
there must be (1) a loss under one or more of the
heads mentioned in section 6, and (2) an "income,
·profit or gain under some other head. It follows that
when there is no income under any head at all, there
is nothing against which the loss can be set off in
that year and unless that can be done sub-section (2)
does not come into play.
Next, a set-off under. section 24 (1) can only be
claimed when the loss arises under one head and the
profit against which it is sought to be set off arises
under a different head.
·when the two arise under
the same head, of course the loss can be deducted
but that is done under section 10 and not under
section 24 (1). See the decision of the Privy Council in
Rm. Ar. Ar. Rm. Arunachalam Ohettiar v. Commissioner
of Income-tax, Madras (1).
In the present case, the
loss is computed by striking a balance in the profit
and loss account of just the one business and consequently no question of different heads arises.
On
both these grounds, therefore, the assessee's contention must fail because, unless the loss can be set off
under sub-section (1) of section '24, it cannot be
carried forward under sub-section ('2) and if it cannot
be carried forward the question of its determination
and computation becomes irrelevant.
'fhe High Court proceeds on the ground that when
proceedings are taken under sectiGn 34 the assessef,)
(1) [1936] 4 I.T.R. 173 at 178 and 17q.
454
SUPREME COURT REPORTS
[1953]
1952
is not entitled to reopen the whole proceedings as the
,
z-F
1 further proceedings are limited to assessing that
ang o- rtnc I
•
f th •
h' h h
d
Textile co.' Ltd. port10n o
e mcome w 1c
as escape assessment.
v. '
We need not express any opinion on this;
The
Commissioner of question we have to answer is confined to the facts
Income-tax,
and circumstances of this case and those circumMadras.
stances are (1)-that no return was filed at any stage
Bose J.
of the case disclosing any income, profits or gains at
all, (2) that proceedings were later taken under section 34, and (3) in the course of these proceedings
the assessee claimed that a certain loss should be
determined and recorded.
Our answer is that that
cannot be done for the reasons we have given and
that c9nsequently the question referred was rightly
answered in the negative by the High Court.
1952
Dec. 22.
The appeal fails and is dismissed with costs.
Appeal dismissed.
Agent for the appellant:_ P. K. Mukherji.
Agent for the respondent : G. H. Rajadhyaksha.
ANGLO-FRENCH TEXTILE CO. LTD.
, v.
COMMISSIONER OF INCOME-TAX,
MADRAS.
(MEHR CHAND MAHAJAN, DAS, VIVIAN BOSE
and BHAGWATI JJ.]
Indian Income-tax Act (XI of 1922), ss. 42(1),42(3)-Nvnresident-Purchase of materials in India by established agencyWhether an." operation ''-Profits attributable to purchase, whether
assessable in India-"!Jusiness connection," meaning of.
Though a few isolated transactions of purchase of raw mate-
. rials in India by a ·manufacturer carrying on business outside
India may not amount, to the carrying on of an " operation" in
India within the meaning of s. 42 (3) of the Indian Income-tax
Act, where raw materials are purchased systematically and
habitually in India through an established agency having special
skill and competency in selecting the goods, such an activity wiil
be an "operation" within s, 42 (3), and the portion of the profits