# COMMISSIONER OF INCOME TAX, MADRAS AND ANR v. MIS DALMIA CEMENT

- **Citation:** [1995] Supp. 2 S.C.R. 708
- **Court:** Supreme Court of India
- **Decided:** 1995-08-16
- **Bench:** B.P. Jeevan Reddy, Suhas C. Sen, G.T. Nanavati
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-madras-and-anr-v-mis-dalmia-cement-13186
- **Pages:** 25

## Headnote

Income tax Act, 1922-Sections 23(3) and 24(3}-Detennination and
intimation of loss-Sub section (3) of Section 24 must be construed to be
c
mandat01y--Section 23(3) to be read alongwith Section 24(3)-ln case of
loss-Mandatory upon Income Tax Officer to notify to assessee the amount
of loss-Income Tax Act, 1961...,-Sections 143(3) and 157.
Sections 23(3 ), 24(3) and 30-Retums showing losses-Order of refusal
to make assessment as returns filed beyond period stipulated-Appealable u/s
D 30-If not appealed against-Question cannot be reagi,tated in assessment
proceedings relating to a subsequent assessment yea1'--lncome Tax Act,
1961-Sections 143(3), 157, 246(1).
The respondent assessee, a public limited company filed its returns,
E
for the first time in the year 1956 for the previous years relating inter-alia
to assessment years 1952-53 to 1954-55. The Income Tax Officer informed
the assessee that no cognizance could be taken of the said returns as they
had been filed beyond the period stipulated u/ss 22(1) and 22(2A) of the
Income Tax Act, 1922. In respect of the assessment years 1955-56 to
1959-60, the Income Tax Officer found that the assessee had suffered losses
F
and determined the same for each of the said years. For the assessment
year 1960-61, the assessee filed a return showing a loss after bringing
forward and setting off the losses of the earlier assessment years commencing from the assessment years 1950-51. The assessee's claim that it was
-:
entitled to bring forward and set off the losses of the earlier years against
G
the profits for the previous relating to the assessment year 1960-61 was
rejected. It was held that the business in which losses arose in the earlier
years was not the same business which was carried on during the previous
year relevant to assessment year 1960-61. On appeal, the Appellate Assistant Commissioner affirmed the Income Tax Officer's view. On further
appeal, the Tribunal allowed assessee's claim holding that the business
H carried on during the previous year and the business carried on during
708
COMMR. OF INCOME TAX v. DALMIA CEMENT
709
the earlier years was one and the same. the Tribunal rejected the contenA
tion urged by the Revenue that inasmuch as the losses had not been
quantified for the year assessment years 1952-53 to 1954-55, the assessment was not entitled to carry forward the losses of those years for being
set off. It also rejected the Revenue's contention that during the course of
assessment for the assessment year 1960-61or1961-62, the Tribunal could
not direct the quantification of the losses in respect of the said three earlier
assessment years, 1952-53 to 1954-55. Against the decision of the Tribunal,
the Revenue applied for referring the matter for the opinion of the High
Court.
B
The Revenue urged that under the Income Tax Act, each assessment C
year is an unit by itself; that 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 other assessment years;
that 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 D
filed beyond the period prescribed and on the basis of such returns, no
loss could have been determined and allowed to be carried forward in view
of provisions contained in Sec. 22(2A); that the assessment in respect of
the said three assessment years had become final and Tribunal had no
jurisdiction, while dealing with appeal relating to the assessment year
1960-61 or 1961-62, to reopen the assessment and determine the loss for E
those earlier assessment years, carry it forward and set it off against the
profits made during the year relevant to assessment year 1960-61 of
1961-62.
The High Court rejected revenue's case. Hence this appeal.
F
The assessee submitted that inasmuch as the requirement of Section
24(3) had not complied with in respect of the three earlier a

## Text

_Characters 0–39,956 of 62,794. This is a partial read: ask again with offset=39956 for what follows._

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'
A
COMMISSIONER OF INCOME TAX, MADRAS AND ANR.
v.
MIS DALMIA CEMENT
AUGUST 16, 1995
B
[B.P. JEEVAN REDDY, SUHAS C. SEN AND G.T. NANAVATI, JJ.]
Income tax Act, 1922-Sections 23(3) and 24(3}-Detennination and
intimation of loss-Sub section (3) of Section 24 must be construed to be
c
mandat01y--Section 23(3) to be read alongwith Section 24(3)-ln case of
loss-Mandatory upon Income Tax Officer to notify to assessee the amount
of loss-Income Tax Act, 1961...,-Sections 143(3) and 157.
Sections 23(3 ), 24(3) and 30-Retums showing losses-Order of refusal
to make assessment as returns filed beyond period stipulated-Appealable u/s
D 30-If not appealed against-Question cannot be reagi,tated in assessment
proceedings relating to a subsequent assessment yea1'--lncome Tax Act,
1961-Sections 143(3), 157, 246(1).
The respondent assessee, a public limited company filed its returns,
E
for the first time in the year 1956 for the previous years relating inter-alia
to assessment years 1952-53 to 1954-55. The Income Tax Officer informed
the assessee that no cognizance could be taken of the said returns as they
had been filed beyond the period stipulated u/ss 22(1) and 22(2A) of the
Income Tax Act, 1922. In respect of the assessment years 1955-56 to
1959-60, the Income Tax Officer found that the assessee had suffered losses
F
and determined the same for each of the said years. For the assessment
year 1960-61, the assessee filed a return showing a loss after bringing
forward and setting off the losses of the earlier assessment years commencing from the assessment years 1950-51. The assessee's claim that it was
-:
entitled to bring forward and set off the losses of the earlier years against
G
the profits for the previous relating to the assessment year 1960-61 was
rejected. It was held that the business in which losses arose in the earlier
years was not the same business which was carried on during the previous
year relevant to assessment year 1960-61. On appeal, the Appellate Assistant Commissioner affirmed the Income Tax Officer's view. On further
appeal, the Tribunal allowed assessee's claim holding that the business
H carried on during the previous year and the business carried on during
708
COMMR. OF INCOME TAX v. DALMIA CEMENT
709
the earlier years was one and the same. the Tribunal rejected the contenA
tion urged by the Revenue that inasmuch as the losses had not been
quantified for the year assessment years 1952-53 to 1954-55, the assessment was not entitled to carry forward the losses of those years for being
set off. It also rejected the Revenue's contention that during the course of
assessment for the assessment year 1960-61or1961-62, the Tribunal could
not direct the quantification of the losses in respect of the said three earlier
assessment years, 1952-53 to 1954-55. Against the decision of the Tribunal,
the Revenue applied for referring the matter for the opinion of the High
Court.
B
The Revenue urged that under the Income Tax Act, each assessment C
year is an unit by itself; that 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 other assessment years;
that 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 D
filed beyond the period prescribed and on the basis of such returns, no
loss could have been determined and allowed to be carried forward in view
of provisions contained in Sec. 22(2A); that the assessment in respect of
the said three assessment years had become final and Tribunal had no
jurisdiction, while dealing with appeal relating to the assessment year
1960-61 or 1961-62, to reopen the assessment and determine the loss for E
those earlier assessment years, carry it forward and set it off against the
profits made during the year relevant to assessment year 1960-61 of
1961-62.
The High Court rejected revenue's case. Hence this appeal.
F
The assessee submitted that inasmuch as the requirement of Section
24(3) had not complied with in respect of the three earlier assessment
years (1952-53 to 1954-55), the assessee was entitled to claim in the
assessment proceedings relating to the assessment year 1960-61and196162 that the loss sustained during· earlier assessment years be determined, G
be carried forward and set off against the profits arising during the
previous years relating to assessment years 1960-61and1961-62; that the
intimation given by the Income Tax Officer that no cognizance could be
taken of the returns of the said three assessment years on the ground that
they were filed beyond the period stipulated u/ss 22(1) and 22(2A) was H
710
SUPREME COURT REPORTS [1995]SUPP. 2 S.C.R.
A
neither an order of assessment nor an order within the meaning of Section
24(3) and, therefore, the assessee was entitled to have the losses for the
said three assessment years determined and carried forward to be set off
against the profits of the subsequent assessment years.
The Revenue contended that the intimation of the income Tax officer
B
that no cognizance could be taken of the returns filed with respect to the
said three assessment years was an order which could have been appealed
against by the assessee and since the assessee failed to prefer an appeal
against the said intimation, his right to have the losses determined for
those years stood negatived and in such a case he could not re-agitate or
C
seek to re-open the very same question in the assessment proceedings
relating to subsequent years.
Allowing .the appeals, this Court
HELD : 1.1. Where the Income Tax officer refused to make an assessD
ment and determine the loss on the ground that returns were filed beyond
the prescribed period, the assessee must appeal against such intimation
and have the Income Tax Officer compelled to make an assessment. If the
refusal to make an assessment is not appealed against, that question cannot be re-agitated in the assessment proceedings relating to a subsequent
E
assessment year. The assessee, having failed to appeal against the intimation of the Income Tax Officer refusing to take cognizance of the loss
returns filed by the assessee for the assessment years 1952-53 to 1954-55,
could not claim in the assessment proceedings relating to subsequent years
that the loss in the said earlier assessment years (1952-53 to 1954-55) be
determined, carried forward and set off against the profits of the subF
sequent years or years, as the case may be. (731-F, 732-F]
1.2. Refusal to make an assessment is wholly different and distinct
from the failure to intimate the amount of loss determined as required by
Section 24(3) of the Income Tax Act, 1922. The stage of intimation of
quantum ofloss u/s. 24(3) arises only after making an assessment u/s 23(3)
G and after determining the loss. [731-D]
Commissioner of Income Tax, Madhya Pradesh v. Khushal Chand
Daqa, (1961) 42 I.T.R. 177 and Commissioner of Income Tax, Uttar Pradesh
v. Man Mohan Das, 59 I.T.R. 699, distinguished.
H
Commissioner of Income Tax, Punjab v. Kulu Valley Transport Co. Pvt.
\
-··
COMMROFINCOMETAX v. DALMIACEMENT[B.P.JEEVANREDDY,J.} 711
Ltd., (1970) 77 ITR 518, distinguished.
Income Tax Officer v. \furlidhar Bhagwan Das, (1964) 52 I.T.R. 355
and Commissioner of Inc01)'(' Tax v. Manick Sons, (1969] 74 I.T.R. 1,
referred to.
A
An order assessment would not only determine the income but also B
the loss; even so Section 23(J) has to be read along with Section 24(3) of
the 1922 Act. In case of loss, it was mandatory upon the Income Tax Officer
to notify to the assessee by order in writing the amount of the loss as
computed by him for the purposes of this Section. Sub-section (3) of
Section 24 must be construed to be mandatory in view of absence of words C
in sub-section (3) of Section 23 regarding the determination and intimation of loss. (727-D-E]
CIVIL APPELLATE .1 URISDICTION : Civil Appeal Nos. 745-46
of 1976.
From the Judgment and Order dated 27.9.73 of the Madras High
Court in T.C. No. 103 of 1968.
J. Ramamurthy, B.S. Ahuja, R. Sathish and S.N. Terdol for the
Appellants.
Hari Har Lal, R. K. Maheshwari and Vineet Maheshwari for the
Respondents.
The Judgment of the Court was delivered by
D
E
B.P. JEEVAN REDDY, J. Cardozo, J. had once exclaimed: "The F
precedents have turn upon us and they are engulfing and annihilating us,
engulfing and annihilating the very devotees that worshipped at their
share". We were inclined to repeat his observation after hearing this matter,
a feeling which will be borne out as the judgment proceeds.
The matter arises under the Indian Income Tax Act, 1922
(hereinafter referred to as "1922 Act"). Of the six questions referred by the
Tribunal for the opinion of the Madras High Court under Section 66(1) of
the Act, only Questions 2, 3 and 4 are relevant for our purpose. They read:
G
"2. Whethe-, on the facts and in the circumstances of the case, the H
A
B
c
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712
SUPREME COURT REPORTS [1995] SUPP.2S.C.R.
assessee was entitled to have the losses for the assessment years
1952-53 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 1961- 62?
3. Whether the Appellate Tribunal has jun:->diction 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 1960-61and1961- 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 1960-61and196162 under the provisions of Section 24(iii) of 1 he Indian Income-tax
Act, 1922?
We shall state the facts insofar 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 i956, it claimed to have suffered losses in that
E
business. On april 23, 1956 the respondent-assessee filed it returns, for the
first time, for the previous years relating inter alia to assessment years
1952-53 to 1954-55. The Income Tax Officer issued a notice under Section
23(2) and the matters were posted for hearing on May 7, 1956 but later the
Income Tax Officer informed the assessee that no cognizance can be taken
F
of the said returns as they had been filed beyond the period stipulated
under Section 22(1) and Section 22(2A) of the Act. In respect of the
assessment years 1955-56, 1956-57, .1957-58, 1958-59 and 1959-60,
for
which years the returns were filed in time, the Income Tax Officer found
that the assessee had suffered losses and determined the same for each of
G the said years.
For the assessment year 1960-61, the assessee filed, in the first
instance, a return disclosing a profit of Rs. 1,00,136.00 but later filed a
revised return showing a loss of Rs. 60,351.00 after bringing forward and
setting off the losses of the earlier assessment years commencing from the
H assessment year 1950-51. The Income Tax Officer rejected the assessee's
.. -
t
COMMR.OFINCOMETAX v. DALMIACEMENT[B.P.JEEVANREDDY,J.) 713
rclaim that it was entitled to bring forward and set-off the losses of the A
earlier against the profits for the previous year relating to the assessment
year 1960-61 in view of clause (ii) of sub-section (2) of Section 24. In other
words, he was the opinion that the business in which losses arose in the
earlier years was not the same business which was carried on during the
previous year relevant to assessment year 1960-61. On appeal, the AppelB
late Assistant Commissioner affirmed the Income Tax Officer's view that
the income of the previous year relevant to assessment year 1960-61 arose
from a business which was different from the business which was carried
on during the earlier years. On further appeal, however, the Tribunal
agreed with the assessee. It held that the business carried on during the c
previous year relevant to 1960-61 and the business carried on during the
earlier years was one and the same. The Tribunal also rejected the contention urged by the Revenue before it that inasmuch as the losses have not
been quantified for the assessment years 1952-53 to 1954-55, the assessee
was not entitled to carry forward the losses of those years for being set-off.
It also rejected the Revenue's contention that during the course of assessD
ment for the assessment year 1960-61 or for that matter 1961-62, the
Tribunal cannot direct the quantification of the losses in respect 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 E
stated above.
Of the three questions concerned herein (Question 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
F
~·
Income Tax Act, each assessment year is an 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 other assessment years. In respect of the assessment years 1952-53 to
1954-55, no loss determined by the Income Tax Officer for the reason that
the returns were filed beyond the period prescribed. On the basis of such G
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
Tribunal had no jurisdiction, while dealing with appeal relating to the H
714
SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.
A
assessment year 1960-61 (or assessment year 1961-62, as the case may be),
to reopen the assessment relating to the said three earlier assessment years,
determine the loss for those years, carry it forward and set it off against
the profits made during the year relevant to assessment year 1960-61 (or
1961-62). Reliance was placed on Income Tax Officer v. Murlidhar Bhagwan
B
c
D
E
F
G
H
Das, (1964) 52 I.T.R. 335 and Commissioner of Income Tax v. Manick
Sons, (1969) 74 I.T.R. 1 in support of the above propositions. The said
contentions were rejected by the High Court in the following words:
"On the facts of this case, it cannot be said that the Tribunal has
exceeded its jurisdiction in directing the Income-tax Officer to
quantify the losses in relation to the assessment years 1952-53 to
1954-55 and to allow a set-off of the losses for those years in
relation to the assessment years 1960-61 and 1961- 62. The Tribunal
while disposing of the appeal relating to the assessment years
1960-61 and 1961-62 has to actually determine the taxable income
of the assessee for these years and for this purpose it has necessarily to find out whether the assessee is entitled to carry forward
the losses and set them off against the profits of the years in
question. If, in law, the assessee is entitled to carry forward and
set off the losses of the previous years in the assessment years in
question, then the Tribunal cannot refuse to consider that question
of the ground that the losses in respect of which the set off has
been claimed relate to some earlier years. As a matter of fact, an
identical question came to be considered by the Supreme Court
in Commissioner of Income-tax Madhya Pradesh v. Khushal Chand
Daga, (1961) 42 1.T.R. 177. The question there was whether the
Tribunal could direct the quantification of the losses for the earlier
years while dealing with an appeal relating to the subsequent
assessment year. The Supreme Court held that the assessee is
entitled to have the losses re-determined in the subsequent year if
the Income-tax Officer had not duly followed the provisions of
the statute in determining the quantum of losses in the earlier
years. Though that case did not relate to the jurisdiction of the
Tribunal, the principle of the said decision has to be applied to
the facts of this case.
Admittedly, the assessee, in this case, applied for extension of
time for the submission of the returns for the assessment years
COMMR. OF INCOME TAX v. DALMIA CEMENT [B.P. JEEVAN REDDY, J.] 715
1952-53 to 1954-55 and inf act obtained the required el.tension from A
the bicome-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 B
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 Conunissio11er of Income-tax, Punjab
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 C
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 D
Income-tax Officer cannot be said to stand in the way of the
assessee getting the relief under section 24(1) or section 24(2) in
relation to the assessment years 1960-61and1961-62. We have to,
therefore, hold that the Tribunal, in this case, while dealing with
the assessment for the years 1960-61 and 1961-62 is justified in E
directing the Income-tax Officer to determine the losses in relation
to the assessment years 1952-53 to 1954-55 for the purpose of
granting relief to the assessee under section 24(1) and section
24(2) in relation to the assessment years in question. The third
question is, therefore, answered in the affirmative and against the F
revenue."
The High Court then took up Questions 2 and 4 which related to the
merits so of the claim, viz., whether the business carried on during the
previous year relating to assessment year 1960-61 (and 1961- 62) is the
same as the business carried on during the earlier years including the G
previous years relevant to the afore&aid three assessment years. The High
Court agreed with the Tribunal that it was the same business. Accordingly,
the questions were answered in favour of the assessee and against the
Revenue. The correctness of the opinion expressed by the High Court is
questioned in these appeals.
H
A
B
c
D
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F
716
SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.
The appeals had come up earlier before a Bench comprising one of
us (B.P. Jeevan Reddy, J.) and S.P. Bharucha, J. The learned counsel for
the respondent assessee placed strong reliance upon the decision of this
Court in Commissioner of Income -tax, Madhya Pradesh v. Klmshal Chand
Daga, 42 l.T.R. 177 - which was also relied upon by the High Court. On a
careful perusal of the said judgment, however, the Bench found some
difficulty with respect to the precise ratio of the judgment. The Bench was
of the opinion that the matter requires consideration by a larger Bench for
the reasons mentioned in its order of reference. The matter was accordingly directed to be placed before the Hon'ble Chief Justice of India for
placing it before a larger Bench. The appeals have now .come up before
this three- Judge Bench. We have heard the counsel for both the sides at
some length.
Relevant Provisions of the 1922 Act and the Corresponding
Provisions of the present Act:
Sub-section (1) of Section 22 of the 1922 Act provided that before
the 1st day of May in each year, the Income Tax Officer shall give notice,
by publication in the press and by publication in the prescribed manner,
requiring every person 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 from
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
G 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 may allow in
H any case. It would be appropriate to set out the sub-section in its entirety:
...
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COMMR OF INCOME TAX v. DALMIACEMENf (B.P.JEEVANREDDY,J.] 717
"22(2A). If any person, who has not been served with a notice A
under sub-section (2) has sustained a loss of profits of gains in any
year under the head 'profits and gains of business, profession or
vocation', and such loss or any part thereof would ordinarily have
been carried forward under sub-section (2) of section 24, he shall,
if he is to be entitled to the benefit of the carry forward of loss in
any subsequent assessment, furnish within the time specified in the
general notice given under sub-section (1) or within such further
time as the Income-tax Officer in any case may allow, all the
particulars required under the prescribed form of return of total
income and total world income in the same manner as he would
have furnished a return under sub-section (1) had his income
exceeded the maximum amount not liable to income-tax in his case,
and all the provisions of this Act shall apply as if it were a return
under sub-section (1)."
B
c
The corresponding provisions in the present Act are Section 139(3) and D
Section 80.
Sub-section (3) of section 23 dealt with assessment. It provided that
on the day specified in the notice issued under Section 23(2) or on any
subsequent date, the Income tax Officer shall, after hearing the evidence
produced by the assessee, pass an order in writing assessing the total E
income of the assessee and also determine the amount payable by him as
tax on the basis of such assessment. The corresponding provision in the
present Act is sub-section (3) of Section 143. Section 143(3), however,
speaks specifically of determining not only the income of the assessee but
also the loss - and as would be emphasised later, this is a very relevant
distinction between the two provisions.
Section 24 of the 1992 Act contained provisions relating to set- off
of losses in computing the aggregate income. The main limb of sub-section
(1) provided that "where any assessee sustains a loss of profits or gains in
F
any year under any of the heads mentioned in section 6, he shall be entitled G
to have the amount of the loss set-off against his income, profits or gains
under any other head in that year". The corresponding provision in the
present Act is Section 71.
Clause (ii) of Sub-section (2) of section 24 contained a limitation
upon the right of the assessee to carry forward the losses. The limitation H
718
SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.
A
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.
B
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F
Sub-section (3) of Section 24 provided that "when in the course 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 the 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
(1952-53 to 1954-55), the assessee is entitled to claim in the assessment
proceedings relating to the assessment year 1960-61 (and 1961-62) that the
loss sustained during those three earlier assessment years be determined
now, be carried forward and set-off against the profits arising during the
previous year relating to assessment year 1960-61 (and 1961-62). It is
further submitted that the intimation given by the Income Tax Officer that
no cognizance can be taken of the returns of the said three assessment
years on the ground that they were filed beyond the period stipulated under
Section 22(1) and Section 22(2A) is neither an order of assessment nor an
order within the meaning of Section 24(3). For this reason also, the
assessee is entitled to have the losses for the said three assessment years
determined and carried forward to be set-off against the profits of the
G subsequent assessment years 1960-61 (and 1961-62). Strong reliance in
support of the above proposition is placed upon the decisions of this Court
in Khushal Chand Daga, Commissioner of Income-tax, Punjab v. Ku.llu
Valley Transport Company Private Limited, (1970) 77 I.T.R. 518 and Commissioner of Income Tax, Uttar Pradesh v. Manmohan Das 59 I.T.R. 699.
H
On the other hand, the contention of the learned counsel for the
COMMR.OFINCOMETAX v. DALMIACEMENT(B.P.JEEVANREDDY,J.) 719
Revenue is that the intimation of the Income Tax Officer that no cogA
nizance can be taken of the returns filed by the assessee with respect to
the said three earlier assessment years was an order which could have been
appealed against by the assessee, if he so choose. (In such a situation, the
question of intimation of the amount of loss determined under Section
24(3) could not have arisen, says the counsel.) Since the assessee failed to
prefer an appeal against the said intimation, his right to have the losses
determined for those years stood negatived. In such a case, he cannot
re-agitate or seek re-open the very same question in the assessment
proceedings relating to subsequent assessment year(s) inasmuch as each
assessment year is a separate unit under the Income Tax Act. Reliance is
placed upon certain decisions of this Court in support of the said proposition to which we shall refer at the appropriate stage.
A few clarification by way or clea1i11g the ground :
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The first feature to be noted in this case is that the assessee did not D
choose to file an appeal against the intimation given by the Income tax
Officer that he 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 Kullu Valley
Transp01t Company Private Limited could probably have come to its rescue. E
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 F
valid return and the Income Tax Officer is obliged to determine the loss
on the basis of such return.
Strong reliance is placed by the learned counsel for the assessee upon
the decision of this court in Manmohan Das. In our opinion, however, the
principle of the said decision is of no relevance to the facts and circumstan- G
ces of this case. The main question considered in the said decision was
whether income received by the assessee under the agreement dated
January 2, 1931 (whereunder he was appointed as the Treasurer of the
Allahabad Bank) was business income assessable under Section 10 or
salary income under Section 7 or income from other sources under Section H
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SUPREME COURT REPORTS [1995) SUPP. 2 S.C.R.
A
12. The Income Tax Officer and the Appellate Assistant Commissioner
held that it was not business income while the Tribunal held that it was
business income. The other question concerning Section 24 arose in the
following circumstances: for the assessment year 1950-51, though the assessee suffered a net loss of Rs. 38,027.00 the Income Tax Officer declared
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that "the loss computed in that year could not be carried forward to the
next year under Section 24(2) of the Income Tax Act as it was not a
business loss". (This was consistent with his holding that the income of the
assessee accruing under the said agreement, whereunder the loss was
incurred, was not business income). The Tribunal however, held that the
income accruing under the said agreement (whereunder the said loss was
incurred) was business income and accordingly allowed the loss to be
carried forward and set-off against the income of the succeeding year. The
matter was carried to this Court mainly on the question as to the nature
of the income. The entire discussion in the decision pertained to the said
question. Before taking up the said main question, however, Shah, J., (who
D delivered the opinion of the Court) took up the other question (concerning
Section 24) more by way of clearing the ground for the main question. The.
learned Judge observed:
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"Whether the loss of profits or gains in any year may be carried
forward to the following year and set off against the profits and
gains of the same business, profession or vocation under Section
24(2) has to be determined by the Income-tax Officer who deals
with the assessment of the subsequent year. It is for the Income-tax
Officer dealing with. the assessment in the subsequ~nt year to
determine whether the loss of the previous year may be set off
against the profits of that year. A decision recorded by the Incometax Officer who computes the loss in the previous year . under
section 24 (3) that the loss cannot be set off against the income of
the subsequent year is ncit binding on the assessee."
G The decision thus lays down that it was not the function of the Income Tax
Officer while making the assessment. to 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 ft>l'Ward and set off against the income of the succeeding year,
H it is held, is a ·matter to be decided by the Income Tax Officer dealing with
..
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COMMR OF INCOME TAX v. DALMIA CEMENT [B.P. JEEV AN REDDY, J.) 7~1
the assessment relating to the subsequent year in which year the loss is A
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 High Court, that the B
income arising under the agreement aforesaid was business income, itheld
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 reascn, we say that
the ratio or the principle of this decision has no application to the facts of
this case.
C
MAIN ISSUE:
Now coming to the main contention of the assessee, which is based
upon the language of Section 24(3) and the decision qf this Court in D
Khushal Chand Daga, it would be appropriate to first ascertain the facts
of the said decision. The decision of this Court records that ".!.earned
counsel for the commissioner (commissioner was the appellant before this
Court) stated that the Department was not very anxious for the decision,
because this particular assessee has had only losses in the years following
and no loss would be occasioned to the Revenue, if the losses brought E
forward be re-determined". Though this Court observed that it was not
really concerned with the said aspect, yet it appears that the lack of interest
on the part of the appellant led to certain errors in stating the relevant
facts. With a view to ascertain the correct factual position, we turned to
the decision of the High Court reported in Seth Khushal Chand Daga v. F
Commissioner of Income-tax, Madhya Pradesh, 311.T.R. 417, a decision of
the Nagpur High Court. The report contains the statement of the case
submitted by the Tribunal as well. The statement of the case shows that
the questions referred to the High Court therein related to two different
sets of assessment years. The first set of assessment years is 1941-42 and
1942-43. The question ref erred for these assessment years, at the instance G
of the assessee, was to the following effect :
"Whether the assessee was competent in law to raise a question
with regard to the determination of loss for the assessment year
1941-42, as finally determined in appeal, in the course of proceed- H
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~UPREME COURT REPORTS (1995] SUPP. 2 S.C.R.
ings for the assessment year 1942-43 when the loss brought forward
from 1941-42 was being set off?
The other set of assessment years concerned in the said case is 1948-49
and 1949-50. In respect of these assessment years, the following two
questions were referred at the instance of the assessee, viz., "(1) Whether
Section 12-B of the Indian Income-tax Act of 1922 is ultra vires the Indian
Legislature; and (2) whether on the facts and in the circumstances of the
case the profit of Rs. 16,400 on the sale of the three houses can be said to
be covered by the second proviso to Section 12B(l) of the Act." For these
assessment years, (1948-49 and 1949-50), yet another question was referred
at the instance of the Revenue viz.,
"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
Revenue. The report in Seth Khushal Chand Daga (311.T.R. 417) does not
contain the reasons for which the question, referred at the instance of the
Revenue, relating to assessment years 1948-49 and 1949-50 was answered
against the Revenue. Para 10 of the report merely says; "As regards the
question raised in Miscellaneous Civil Case No. 98 of 1954 decided by us
today, for the reasons stated therein we answer the question in the affirmative." The report (decision), however, contains the reasons for which the
other questions referred at the instance of the assessee (one relating to
G assessment year 1942-43 and the other two questions relating to assessment
years 1948-49) were answered for or against the assessee, as the case may
be. We must refer to the same. So far as the question relating to the validity
of Section 12B was concerned, the High ·Court answered it against the
assessee relying upon the decision of this Court in Naveenchandra Mafatlal
H v. Commissioner of Inconie-tax, Bombay City, 26 l.T.R. 758. The other
)
...
COMMROFINCOMETAX v. DALMIACEMENT[B.P.JEEVANREDDY,J.) 723
question regarding the applicability of the second proviso to Section 12A
B(l) was also answered against the assessee in view of the finding of feet
recorded by the Tribunal. So far as the question relating to assessment year
1942-43 is concerned, the High Court answered it in favour of the assessee
and against the Revenue. (In reality, the said
question arose in the
assessment proceedings relating to assessment year 1942-43, though it
involved consideration of the question relating to carrying forward of the
loss incurred in the previous assessment year 1941-42). The facts relevant
to this question, as stated in the order of the Tribunal (as extracted in the
State of the Case) are the following : "The assessee was a partner of an
unregistered firm in the year of account relevant for the assessment year
1941-42. His share of profits in that unregistered firm amounted to Rs.
1,75,256 according to the assessment order. The assessee, it appears, had
suffered a loss of more than Rs. 2 1/2 lakhs. The Income-tax Officer set
off the assessee's share of profit in the unregistered firm against the loss
of Rs. 2 1/2 lakhs. Thus, according to the Income-tax Officer there was only
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a loss of Rs. 53,840 to be carried forward to the next year." In the D
assessment proceedings relating to assessment year 1942-43, the assessee
raised a contention that the figure of loss determined in the previous year
(viz., Rs. 53,840.00 is incorrect and that it should be much more. this
contention was rejected by the Income Tax Officer and Appellate Assistant
Commission. The Tribunal too rejected it observing that such a contention
could only have been raised in the appeal against the assessment order for E
the assessment 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 p
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 :
"The first questions 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 1941G
42 was being set off. A similar question arose in All India H
724
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SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.
Groundnut Syndicate Ltd. v. Commissioner of Income-tax, (1954)
25 ITR 90 and was answered as below:
'It is then urged that inasmuch as the loss was not computed
in the relevant year of assessment, there is no right left to the
assessee in the assessment year 1948-49.