1965 (3) TMI 91 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee can set off losses from previous years against profits earned in the assessment year 1956-57 under section 24(2) of the Income-tax Act.
2. Interpretation of the term "continued" in the context of section 24(2) of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Set-off of Losses from Previous Years:
The primary issue revolves around whether the assessee can set off losses of Rs. 99,815 and Rs. 98,152 from the assessment years 1952-53 and 1953-54 against the profits of Rs. 1,69,342 earned in the assessment year 1956-57. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal all rejected the claim, stating that the business in which the loss was sustained had been discontinued by the assessee in the assessment year 1954-55. Therefore, the assessee was not entitled to set off the loss since the business was not continued in the assessment year 1956-57.

2. Interpretation of "Continued" in Section 24(2):
The assessee argued that the term "continued" should be interpreted to mean "resumed," allowing for the set-off of losses even after a break in business activities. The assessee's counsel referred to dictionary definitions to support this interpretation. However, the court held that the term "continued" implies an uninterrupted continuation of the business. The court emphasized that the scheme of section 24(2) requires the business to be carried on without a break for the set-off of losses to be applicable.

The court examined the legislative intent and the scheme of section 24, which allows for the set-off of losses within the same head of income, provided the business is carried on continuously. The court concluded that the unabsorbed losses must be carried forward and set off against profits in subsequent years only if the business in which the loss was originally sustained is continued without interruption.

Conclusion:
The court answered the question referred to it in the negative, holding that the assessee was not entitled to set off the losses from the assessment years 1952-53 and 1953-54 against the profits earned in the assessment year 1956-57. The court emphasized that the business must be continued without a break for the set-off provisions of section 24(2) to apply. The assessee was ordered to pay the costs of the Commissioner.