1962 (2) TMI 8 - SC - Income Tax

Whether the loss of ₹ 5,19,590 of the year 1948-49 is liable to be set off against the assessee s business income for the assessment years 1950-51 and 1951-52 ? Whether the unabsorbed depreciation of the years 1948-49 and 1949-50 is liable to be set off against the income of the assessee for the assessment years 1950-51 and 1951-52 ? Held that - For determining the nature of the losses under consideration in the present appeals, the relevant year was 1948-49, the year in which the losses occurred and the High Court rightly took the view that for the application of sub-section (2) of section 24, the losses must be such losses as could have been set off under sub-section (1) of section 24. We agree with the view expressed by the High Court that the loss amounting to ₹ 5,19,590 was not such a loss as could have been set off either under sub-section (1) or sub-section (2) of section 24. Appeal dismissed.

Summary

Issues Involved:
1. Whether the loss of Rs. 5,19,590 of the year 1948-49 is liable to be set off against the assessee's business income for the assessment years 1950-51 and 1951-52?
2. Whether the unabsorbed depreciation of the years 1948-49 and 1949-50 is liable to be set off against the income of the assessee for the assessment years 1950-51 and 1951-52?

Issue-wise Detailed Analysis:

1. Set-off of Loss of Rs. 5,19,590 from 1948-49:
The primary issue is whether the assessee company can set off the loss of Rs. 5,19,590 incurred in the year 1948-49 against its business income for the assessment years 1950-51 and 1951-52. The assessee company argued that under section 24(2) of the Indian Income-tax Act, 1922, it was entitled to carry forward and set off the entire loss. The contention was that the business was a single entity within the meaning of section 10, and since Indore became part of the taxable territories in the relevant assessment years, the provisions of section 24(2) should apply.

On the other hand, the respondent argued that section 24 had no application because, in 1948-49, the assessee company was treated as a non-resident. The respondent contended that section 24 applies only to profits and gains assessable under the Indian Income-tax Act. For non-residents, the loss of profits or gains incurred outside the taxable territories is not contemplated to be set off within the provisions of section 24.

The court examined the relevant provisions of the Indian Income-tax Act, including sections 4, 14, and 24. It was noted that section 24(1) refers to taxable profits or gains, meaning those assessable in British India or the taxable territories. The court concluded that the losses incurred in 1948-49, when the assessee was a non-resident, were not such losses that could be set off under section 24(1) or (2). The High Court's view that the loss of Rs. 5,19,590 was not eligible for set-off was upheld.

2. Set-off of Unabsorbed Depreciation for 1948-49 and 1949-50:
The second issue, which was not contested in this appeal, involved the set-off of unabsorbed depreciation from the years 1948-49 and 1949-50 against the income for the assessment years 1950-51 and 1951-52. The High Court had ruled in favor of the assessee company on this issue, allowing the set-off of unabsorbed depreciation. Since this question was not under consideration in the present appeals, the court did not address it further.

Conclusion:
The Supreme Court upheld the High Court's decision, confirming that the loss of Rs. 5,19,590 from the year 1948-49 could not be set off against the assessee's business income for the assessment years 1950-51 and 1951-52. The appeals were dismissed with costs, and the judgment emphasized that section 24 of the Indian Income-tax Act applies only to taxable profits or gains assessable within the taxable territories.