1971 (3) TMI 36 - HC - Income Tax

Carry Forward and Set Off of loss - period of limitation - the set-off of earlier years losses will have to be determined on the basis of the law relevant to that assessment year

Summary

Issues Involved:
1. Set-off of unabsorbed losses from previous years.
2. Interpretation of amendments to Section 24(2) of the Indian Income-tax Act, 1922.
3. Retrospective application of legislative amendments.

Issue-wise Detailed Analysis:

1. Set-off of Unabsorbed Losses from Previous Years:
The primary issue was whether the assessee was entitled to set off the unabsorbed loss of Rs. 15,50,187 from the assessment year 1950-51 against the business income of the assessment year 1960-61. The Income-tax Officer initially set off the unabsorbed losses of 1956-57 and 1957-58 against the business income but did not consider the loss from 1950-51. The Appellate Assistant Commissioner confirmed that losses could not be carried forward for more than 8 years, as per the amendments.

2. Interpretation of Amendments to Section 24(2) of the Indian Income-tax Act, 1922:
The Tribunal examined the amendments made to Section 24(2) by the Finance Acts of 1955 and 1957. The original provision allowed losses to be carried forward for six years. The Finance Act of 1955 introduced changes, permitting losses from 1949-50 onwards to be carried forward indefinitely, subject to specific restrictions. However, the Finance Act of 1957 amended this, restricting the carry-forward period to 8 years. The Tribunal held that the law applicable to the assessment year 1960-61 was the amended law as it stood on April 1, 1960, which included the 8-year restriction.

3. Retrospective Application of Legislative Amendments:
The Tribunal and the High Court both addressed the issue of whether the amendments had retrospective effect. The Tribunal concluded that the amendments were not retrospective but were applicable to the assessment year 1960-61. The High Court supported this view, citing that the carry-forward and set-off of losses are part of the assessment process, which should be governed by the law as it stands in the assessment year. The Court referenced the decision in Helen Rubber Industries Ltd v. Commissioner of Income-tax, emphasizing that the assessment must be made according to the law of the assessment year, not the year the losses occurred.

The High Court further elaborated on the concept of retrospectivity, noting that a statute is not retrospective merely because it affects existing rights or draws on past events. The Court cited Lord Goddard C.J.'s observations in In re A Solicitor's Clerk, which clarified that a statute enabling future disqualification based on past actions is not retrospective if it does not void past actions or impose penalties for them.

Conclusion:
The High Court concluded that the assessee was not entitled to set off the unabsorbed loss of Rs. 15,50,187 from the assessment year 1950-51 against the business income of the assessment year 1960-61. The amendments introduced by the Finance Act of 1957, restricting the carry-forward of losses to 8 years, were applicable. Therefore, the Tribunal's decision was upheld, and the question was answered in the negative, in favor of the department. The assessee was ordered to pay the costs of the reference.