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TMI Blog1995 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... after referred to as " the 1922 Act "). Of the six questions referred by the Tribunal for the opinion of the Madras High Court (see [1976] 104 ITR 337) under section 66(1) of the Act, only questions Nos. 2, 3 and 4 are relevant for our purpose. They read (at page 342) : " 2. Whether, on the facts and in the circumstances of the case, the assessee was entitled to have the losses for the assessment years 1952-53 to 1954-55 quantified and set off against its share income from the partnership firm of Dalmia Magnesite Corporation for the assessment years 1960-61 and 1962-62 ? 3. Whether the Appellate Tribunal has jurisdiction to direct the Income-tax Officer to quantify the losses for the assessment years 1952-53 to 1954-55 and allow the set-off against the share income from the partnership-firm for 1960-61 and 1961-62 ? 4. Whether, on the facts and in the circumstances of the case, the assessee was entitled to have the losses of the assessment years 1955-56 to 1959-60 set off against its share income from Dalmia Magnesite Corporation for the assessment years 1960-61 and 1961-62 under the provisions of section 24(2)(iii) of the Indian Income-tax Act, 1922 ? " We shall state the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e before it that inasmuch as the losses have not been quantified for the assessment years 1952-53 to 1954-55, the assessee was not entitled to carry forward the losses of those years for being set off. It also rejected the Revenue's contention that during the course of assessment for the assessment year 1960-61 or for that matter 1961-62, the Tribunal cannot direct the quantification of the losses in respect of the said three earlier assessment years, viz., assessment years 1952-53 to 1954-55. Aggrieved with the said decision of the Tribunal, the Revenue applied for referring the aforesaid questions for the opinion of the High Court, as stated above. Of the three questions concerned herein (questions Nos. 2, 3 and 4), the High Court took up question No. 3 for consideration first. The contentions urged by the Revenue were to the following effect : under the Income-tax Act, each assessment year is a unit by itself. While dealing with an appeal in relation to a particular assessment year, the Tribunal cannot travel outside the scope of the appeal and deal with matters relating to the other assessment years. In respect of the assessment years, 1952-53 to 1954-55, no loss was determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to have the losses redetermined in the subsequent year if the Income-tax Officer had not duly followed the provisions of the statute in determining the quantum of losses in the earlier years. Though that case did not relate to the jurisdiction of the Tribunal, the principle of the said decision has to be applied to the facts of this case. Admittedly, the assessee, in this case, applied for extension of time for the submission of returns for the assessment years 1952-53 to 1954-55 and in fact obtained the required extension from the Income-tax Officer himself. It is also seen that after the submission of the returns within the extended time, the matters were posted for enquiry and the assessee was asked to produce materials in support of the said returns. But, somehow, the Income-tax Officer chose to close the proceedings saying that he will not take cognizance of those returns as they had not been filed within the time provided in section 22(1) or section 22(2A). But, it has been held by the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518 that though a return disclosing the loss is not filed in time as fixed in the general notice under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-judge Bench. We have heard counsel for both the sides at some length. Relevant provisions of the 1922 Act and the corresponding provisions of the present Act : Sub-section (1) of section 22 of the 1922 Act provided that before the 1st day of May in each year, the Income-tax Officer shall give notice, by publication in the press and by publication in the prescribed manner, requiring every person, whose total income during the previous year exceeded the taxable limit, to furnish within sixty days, a return in the prescribed form verified in the prescribed manner and containing the requisite particulars. There is no corresponding provision in the present Act. Sub-section (2) of section 22 provided that in the case of any person whose total income is, in the opinion of the Income-tax Officer, such as to render such person liable to income-tax, the Income-tax Officer may serve a notice upon him requiring him to furnish, within the prescribed period, not being less than thirty days, a return in the prescribed form containing the requisite particulars. The corresponding provision in the 1961 Act is sub-section (2) of section 139. Both the old and the new provisions empower the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year ". The corresponding provision in the present Act is section 71. Clause (ii) of sub-section (2) of section 24 contained a limitation upon the right of the assessee to carry forward the losses. The limitation was that the losses could be carried forward and set off only if the same business was continued in the subsequent year as well. The corresponding provision in the present Act is clause (i) of sub-section (1) of section 72. Sub-section (3) of section 24 provided that " when in the court of the assessment of the total income of any assessee, it is established that a loss of profits or gains has taken place which he is entitled to have set off under the provisions of this section, the Income-tax Officer shall notify to the assessee by order in writing the amount of the loss as computed by him for the purposes of this section ". (emphasis added). This provision is of crucial relevance to the question at issue herein. The corresponding provision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unit under the Income-tax Act. Reliance is placed upon certain decisions of this court in support of the said proposition to which we shall refer at the appropriate stage. A few clarifications by way of clearing the ground : The first feature to be noted in this case is that the assessee did not choose to file an appeal against the intimation given by the Income-tax Officer that he would not take cognizance of the returns filed for the assessment years 1952-53 to 1954-55 on the ground that they were filed beyond the period prescribed by law. Had the assessee preferred appeal(s) against that intimation, the majority decision of this court in Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518 could probably have come to its rescue. Indeed, the facts of that case are more or less similar to the facts of this case, with the crucial difference that in that case the assessee preferred appeals against a similar intimation and it is in those proceedings that it was held by this court ultimately, by a majority, that under the provisions of the 1922 Act, a return of loss filed before making the assessment is a valid return and that the Income-tax Officer is obliged to determine the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year may be set off against the profits of that year. A decision recorded by the Income-tax Officer who computes the loss in the previous year under section 24(3) that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. " The decision thus lays down that it was not the function of the Income-tax Officer while making the assessment to decide or declare whether the loss determined by him for that assessment year can be carried forward and set off against the income of the future year(s) under section 24(2) of the Act or not. The question whether the loss determined for a previous year is to be carried forward and set off against the income of the succeeding year, it is held, is a matter to be decided by the Income-tax Officer dealing with the assessment relating to the subsequent year in which year the loss is sought to be set off by carrying it forward from the previous year. On that basis, it is held that the declaration made by the Income-tax Officer in the assessment order relating to the assessment year 1950-51 that the loss incurred in that year cannot be carried forward was beyond his jurisdiction. Since this court held, agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her section 12B of the Indian Income-tax Act of 1922 is ultra vires the Indian Legislature ; and (2) whether on the facts and in the circumstances of the case, the profit of Rs. 16,400 on the sale of the three houses can be said to be covered by the second proviso to section 12B(1) of the Act. " For these assessment years (1948-49 and 1949-50), yet another question was referred at the instance of the Revenue, viz. (at page 422) : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss suffered by the assessee from his personal business (including his share of loss from another firm) cannot be set off under section 24(1) against his taxed share income from an unregistered firm ? " (The wording of the question suggests that it must have been referred at the instance of the assessee. Be that as it may, we go by the statement of the case). Thus, there were two questions involving section 24, viz., one relating to the first set of assessment years (1941-42 and 1942-43) referred at the instance of the assessee and the other concerning the second set of assessment years (1948-49 and 1949-50) referred at the instance of the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed a contention that the figure of loss determined in the previous year (viz., Rs. 53,840) is incorrect and that it should be much more. This contention was rejected by the Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal too rejected it observing that such a contention could only have been raised in the appeal against the assessment order for the assessment year 1941-42 and that it could not be raised in the appeal preferred against the assessment order relating to the subsequent assessment year, i.e., 1942-43. As a matter of fact, the Tribunal found from the records before it that the assessee had preferred an appeal against the assessment order relating to the assessment year 1941-42 but he did not take up this contention in that appeal. The Tribunal, accordingly, refused to permit the assessee to raise the said contention in the assessment proceedings relating to the subsequent year. The High Court, however, upheld the contention of the assessee on a reasoning, which may be set out in full in its own words (at page 425) : " The first question raised by the assessee is whether he is entitled to raise a question with regard to the determination of loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, there is a substantial difference between the material facts of both the cases. (The facts in the Bombay decision are referred to at a later stage of this judgment). It is on the same basis, it appears, that the Nagpur High Court made the following further observation : " what was done in the preceding year does not affect the right of the assessee to get the amount of the loss which was liable to be carried forward duly determined in the subsequent proceedings ". The High Court also took note of the fact that the Income-tax Officer had failed to notify the loss for the previous year (assessment year 1941-42) as required by section 24(3) of the Act but it observed at the same time that such failure does not make any difference to the principle enunciated in All India Groundnut Syndicate Ltd.'s case [1954] 25 ITR 90 (Bom). We find the reasoning of the High Court rather involved and difficult to follow but that need not detain us since we are concerned only with the ratio and the principle of the decision of this court in appeal. We now turn to the decision of this court. The facts as stated in the first two paragraphs show that this court (see [1961] 42 ITR 177) was led to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y an order in writing the amount of loss computed by him in the previous assessment year as required by section 24(3) of the Act. This court also observed that, because of the failure of the Income-tax Officer to notify the loss by an order in writing, an appeal could not also be taken on that point. (As a matter of fact, it may be reiterated, under the order of assessment made in respect of the assessment year 1941-42, the Income-tax Officer had determined the loss at Rs. 53,840 and that the assessee had preferred an appeal against the said order of assessment though he did not choose to urge therein any ground with respect to the correctness of the amount of loss determined by the Income-tax Officer). In our opinion, the ratio of the said decision must be understood in the light of the legal position obtaining under the 1922 Act. As pointed out by us hereinbefore, under section 23(3) of the Act, the Income-tax Officer was required to " assess the total income. of the assessee and determine the sum payable by him on the basis of such assessment ". The sub-section did not expressly speak of determining the loss as well as the amount of refund as is provided by section 143(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the assessment year 1941-42 was not final and could be reopened and reagitated by the assessee in the assessment proceedings relating to the assessment year 1942-43. It is obvious that such a plea would not be available under the present Act inasmuch as sub-section (3) of section 143 expressly provides the determination of not only the total income but also the loss. Because of the language of sub-section (3) of section 143 of the present Act, the provision contained in section 157 of the present Act (corresponding to section 24(3) of the 1922 Act) cannot be deemed to be mandatory but only directory. In other words, the position under the present Act is that even if the intimation in writing contemplated by section 157 is not given to the assessee, yet the assessee will not be entitled to raise a question similar to the one raised by the assessee in Khushal Chand Daga's case [1961] 42 ITR 177 (SC) because under the present Act he can, and should, raise that question in the appeal preferred against the order of assessment since an order of assessment under the present Act determines not only the assessee's income, if there is one, but also the loss, if there is one. The que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Assistant Commissioner against the assessment or against such refusal or order ". Khushal Chand Daga's case [1961] 42 ITR 177 (SC) seems to say that where such intimation is not given, the assessee cannot question the quantum of loss determined by way of appeal and that such a plea cannot be urged in the appeal preferred against the order of assessment. This holding--rendered in the light of the language of section 24(3) and section 30(1)--is different from a refusal to make the assessment altogether as has happened in the case before us. To repeat, the failure in this case pertained to the anterior stage and could have been appealed against as a " refusal " to make an assessment order under section 30(1) as was done in Kulu Valley Transport's case [1970] 77 ITR 518 (SC), whereas in Khushal Chand Daga's case [1961] 42 ITR 177 (SC), no appeal could be preferred according to the holding in that case--disputing the quantum (" amount ") of loss determined in the assessment proceedings in the absence of an intimation under section 24(3). This is the qualitative difference between both the cases and hence the principle of Khushal Chand Daga's case [1961] 42 ITR 177 (SC) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that non-filing of appeal against it disentitled the assessee from seeking to reopen and reagitate the said issue in the course of assessment proceedings, for the subsequent assessment year. He points out that in Kulu Valley Transport's case [1970] 77 ITR 518 (SC) precisely such an intimation was appealed against. Counsel also relies upon the two decisions of the High Courts in this behalf, to which a reference would be in order. The first one is the decision of the Madhya Pradesh High Court in Jaikishan Gopikishan and Sons v. CIT [1972] 84 ITR 645. In this case, the assessee filed a return of loss beyond the time prescribed under the notification issued under section 22(1) of the 1922 Act. The Income-tax Officer simply " filed " the return on the ground that it was filed beyond the time. The High Court held, following the decision of this court in Kulu Valley Transport's case [1970] 77 ITR 518 (SC) that in such a case the order " filing " the return should be treated as an order by which the officer has determined the loss as nil and, therefore, appealable under section 30 of the Act. The other decision is that of the Patna High Court in Bihar State Electricity Board v. CIT [1975] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is a correct one. Where the Income-tax Officer refused to make an assessment and determine the loss on the ground that returns were filed beyond the prescribed period, the assessee must appeal against such intimation and have the Income-tax Officer compelled to make an assessment. We must reiterate that the controversy of the above nature cannot arise under the present Act. Under the present Act, section 143(3) requires the Assessing Officer to determine not only the profits/income taxable but also to determine the loss, if there is one. In this view of the matter, section 157 of the present Act [corresponding to section 24(3)] loses its significance. It must be understood as merely directory. Under the present Act, the assessee is entitled to and ought to question the amount of loss determined in the appeal preferred against the assessment order itself. He need not wait till he receives the intimation under section 157. Nor does he suffer any disability on account of not appealing against such intimation, if he has already preferred an appeal against the order of assessment. In this connection the language of clause (a) of sub-section (1) of section 246 of the 1961 Act is wort ..... X X X X Extracts X X X X X X X X Extracts X X X X
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