2001 (9) TMI 42 - HC - Income Tax

Summary

Issues involved: Interpretation of provisions related to set off of losses in agricultural income u/s Finance Act for the year 1979.

Issue 1:
The Revenue contended that losses from agricultural activity in earlier years should not be considered for carry forward to subsequent years. The Tribunal rejected this contention, leading to the reference before the High Court. The key question was whether the assessee could set off losses from earlier years against income in the current year without the losses being computed by the Income-tax Officer.

The Finance Act for 1979, in Part IV, Rule 9, allows for the set off of losses from previous years against agricultural income for the current year. Sub-rule (5) specifies that losses determined by the Income-tax Officer under the Act cannot be set off. However, the Act does not specify the timing of when losses should be determined under the rules of previous years. The Act does not address situations where an assessee has no non-agricultural income and incurs losses in agricultural activities.

The High Court held that an assessee with losses from agricultural activities in earlier years, despite not filing returns due to lack of non-agricultural income, should not be deprived of the carry forward benefit under the Finance Act, 1979. The Court emphasized that as long as the assessee can demonstrate losses incurred as per the rules of previous Finance Acts, the benefit of set off should not be denied, even if returns were not filed in earlier years.

Issue 2:
The Commissioner and Tribunal correctly held that in the absence of an express prohibition, an assessee should not be denied the set off benefit under Rule 9 of the Finance Act, 1979. As long as the assessee can prove losses from agricultural activities in earlier years as per the rules of relevant Finance Acts, the benefit should be granted. The Court emphasized that when interpreting taxing statutes, a view favoring the assessee without causing injustice to the Revenue should be preferred. Granting the set off of losses ensures the intended benefit by Parliament is enjoyed by the assessee without denying revenue due to the State.

In conclusion, the High Court ruled in favor of the assessee, allowing the set off of losses from agricultural activities in earlier years against income in the current year, as per the provisions of the Finance Act, 1979.