1957 (9) TMI 75 - HC - Income Tax

Summary

Issues Involved:
1. Validity of voluntary returns showing loss for the years 1946-47 and 1947-48.
2. Obligation of the Income-tax Officer to assess losses from previous years.
3. Interpretation of Section 24(2) and its application to carry forward and set off losses.

Issue-wise Detailed Analysis:

1. Validity of Voluntary Returns Showing Loss for the Years 1946-47 and 1947-48:

On the 4th of September, 1951, one Govindalal Dutta filed voluntary returns of his income for five consecutive years, including the years 1946-47 and 1947-48, which showed losses. The Income-tax Officer ignored these returns, considering them invalid as they were voluntary returns showing loss. The Tribunal, however, accepted these returns as valid, citing Section 22(3) of the Act, which allows submission of returns at any time before the assessment is made. The Tribunal referenced the decisions in Harakchand Makanji & Co. v. Commissioner of Income-tax and All India Groundnut Syndicate Ltd. v. Commissioner of Income-tax to support their view. However, the High Court held that the voluntary returns showing loss were not valid returns under the law as it stood before the 1953 amendment. Section 22(1) required filing a return only if the total income exceeded the non-taxable limit, and Section 22(3) did not provide for filing a return showing loss. Therefore, the returns for 1946-47 and 1947-48 were not valid returns in law, and the Income-tax Officer was not required to make any assessment on them.

2. Obligation of the Income-tax Officer to Assess Losses from Previous Years:

Despite the invalidity of the returns, the High Court considered whether the Income-tax Officer was still bound to determine the losses for the years 1946-47 and 1947-48 for the purpose of Section 24(2). The Department contended that Section 24(2) did not apply to losses from years without an assessment. The High Court rejected this contention, stating that the right to carry forward losses under Section 24(2) is an unqualified right, subject only to the limitations within the section. The Court emphasized that the word "assessee" in Section 24(2) is used in a general sense, meaning a person whose income-tax affairs are being considered. The Court also interpreted "previous year" in a loose sense, meaning any accounting year relative to an assessment year, regardless of whether an assessment was made. Therefore, the Income-tax Officer was required to investigate the claim of losses for the years 1946-47 and 1947-48 and determine if the losses could be carried forward and set off against the profits of 1948-49.

3. Interpretation of Section 24(2) and Its Application to Carry Forward and Set Off Losses:

The High Court held that the right to carry forward losses under Section 24(2) is an absolute and unqualified right. The Court noted that Section 24(3) supports this interpretation by requiring the Income-tax Officer to notify the amount of loss as computed for the purposes of the section. The Court disagreed with the Madras High Court's decision in Ahamed Sahib v. Commissioner of Income-tax, which held that Section 24(3) required an ascertained loss determined in an earlier assessment. The High Court concluded that the Income-tax Officer was required to investigate the claim of losses for the years 1946-47 and 1947-48, even if no formal assessment could be made. The Tribunal's order directing assessments for the years 1946-47 and 1947-48 was incorrect; the Income-tax Officer should only investigate and determine the losses fit to be carried forward.

Conclusion:

The High Court answered the question referred in the affirmative but clarified that the Income-tax Officer was not to make assessments for the years 1946-47 and 1947-48. Instead, the Officer was to investigate the claim of losses and determine if losses had occurred during those years, which the assessee was entitled to carry forward and set off against the profits of 1948-49. The actual order of the Tribunal was erroneous.

Guha, J.-I agree.