1952 (12) TMI 1 - SC - Income Tax

Whether no return was filed at any stage of the case disclosing an income profits or gains at all? Whether proceedings were later take under Section 34? Whether in the course of these proceedings the assess claimed that a certain loss should be determined and recorded? Held that - Question referred was rightly answered in the negative by the High Court. Appeal dismissed.

Summary

Issues:
1. Interpretation of Section 34 of the Indian Income-tax Act, 1922 regarding the treatment of losses in assessment proceedings.
2. Entitlement of an assessee company to claim loss determination during proceedings under Section 34 after a nil assessment under Section 23(1).

Analysis:

The case involved a reference to the High Court regarding the treatment of losses by an assessee company, the Anglo-French Textile Company, during assessment proceedings for the year 1941-42. The company, a non-resident, had submitted a "nil" return as it had not conducted any business in British India during the relevant period. Subsequently, proceedings were initiated under Section 34 to assess the income that had allegedly escaped assessment. The company claimed a loss of Rs. 3,92,357 during these proceedings, seeking its determination and recording by the Income-tax Officer.

The main contention of the assessee was based on Section 34 of the Income-tax Act, which allows for reassessment of income, profits, gains, or losses. The company argued that it should be entitled to have its loss recorded and carried forward under Section 24(2) during the reassessment proceedings. However, the Court held that even if the assessee could claim to reopen the proceedings, there was no provision in the Act to mandate the recording or computation of a loss unless it could be set off against income, profit, or gain.

The Court analyzed Section 24(1) and (2) of the Act, which govern the set-off and carry-forward of losses. It was emphasized that for a loss to be set off, there must be an income, profit, or gain under a different head against which the loss can be adjusted. In this case, as the loss arose from the same business operations, there was no separate head under which the loss could be set off. Therefore, the assessee's claim for loss determination and recording during the reassessment proceedings was deemed irrelevant and unsustainable.

The High Court's decision, which restricted the assessee from reopening the entire proceedings under Section 34 and limited it to assessing the escaped income only, was upheld by the Supreme Court. The Court concluded that since no income was disclosed in the original return and the subsequent proceedings were focused on assessing the escaped income, the claim for loss determination could not be entertained. As a result, the appeal was dismissed, affirming the High Court's decision and denying the assessee's claim for loss computation and recording during the reassessment process.