9911796707
TMI Blog1975 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... il 30, 1954. On January 10, 1952, the assessee purchased 1,124 shares of M/s. Intercontinent Travancore Pvt. Ltd. at a cost of Rs. 1,12,400 from M/s. Escorts (A & M) Ltd. In the relevant accounting year ending on April 30, 1953, the assessee received 562 bonus shares from the same company. It thus acquired a total number of 1,686 shares. On September 3, 1953, i.e., during the relevant previous year, the assessee sold all these 1,686 shares to M/s. Escorts (Agents) Ltd. for Rs. 84,300 and claimed a loss of Rs. 84,862 in the income-tax return filed by it. The Income-tax Officer disallowed the entire loss of Rs. 84,862 on the ground that it was a loss of a capital nature. The assessee carried an appeal to the Appellate Assistant Commissioner and contended that this loss of Rs. 84,862 was a revenue loss arising out of dealing in shares. The Appellate Assistant Commissioner found that the assessee's claim was exaggerated and that the actual loss was to the tune of Rs. 28,662 only. He further held that this loss of Rs. 28,662 was not a "revenue loss" but a "capital loss" arising out of change of investments. Against the decision of the Appellate Assistant Commissioner the assessee pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be carried forward and set off against the taxable capital gain. The Tribunal was, in my opinion, right in coming to the conclusion that it did." Hence this appeal by the Commissioner of Income-tax (Central), Delhi. Capital gains tax for the first time was introduced by the Income-tax and Excess Profits Tax (Amendment) Act, 1947 (22 of 1947), which inserted section 12B in the Act. This section made taxable "capital gains" which arose after March 31, 1946. The same Act of 1947 added as the Vlth head "capital gains" in section 6 of the Act. It also inserted sub-sections (2A) and (2B) in section 24 of the Act. The Indian Finance Act, 1949, virtually abolished the levy and restricted the operation of section 12B to "capital gains" arising before the 1st April, 1948. But section 12B, in its restricted form, and the VIth head, "capital gains" in section 6, and sub-sections (2A) and (2B) of section 24 were not deleted and continued to form part of the Act. The Finance (No. 3) Act, 1956, reintroduced the "capital gains" tax with effect from the 31st March, 1956. It substantially altered the old section 12B and brought it into its present form. As a result of the Finance (No. 3) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Kul Valley Transport Co. Ltd., Jaikishan Gopikishian and Sons v. Commissioner of Income-tax and Commissioner of Income-tax v. Khushal Chand Daga. Before dealing with the contentions canvassed, it will be appropriate to have a clear idea of the terms "income", "total income", "computation of total income", "carrying forward" of a loss and its purpose, in the context of the scheme of the Act. Section 2, clause (15), defines "total income" to mean total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in this Act. Section 3, captioned as "Charge of income-tax", emphasises that the income tax shall be charged in respect of the total income of the previous year of every assessee. Section 4 defines the ambit of that total income. Section 6 enumerates six heads of income, profits and gains chargeable to income-tax. They are : "(i) Salaries. (ii) Interest on securities. (iii) Income from property. (iv) Profits and gains of business, profession or vocation. (v) Income from other sources. (vi) Capital gains." Sections 7, 8, 9, 10, 12 and 12B relate to payability and computation of tax under the various head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and (i) where the loss was sustained by him in a business consisting of speculative transactions, it shall be set off only against the profits and gains, if any, of any business in speculative transactions carried on by him in that year; (ii) where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year: provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year; and (iii) if the loss in either case cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on. . . . . . (2A) Notwithstanding anything contained in sub-section (1), where the loss sustained is a loss falling under the head "Capital gains", such loss shall not be set off except against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 12B. As noticed already, section 12B as modified by the Finance Act, 1949, did not charge any "capital gains" arising between April 1, 1948, and April 1, 1957. Indeed section 12B was not operative in these years (1948-57). During this period, "capital gains", whether on the positive or the negative side, could not be computed and charged under section 12B or any other provisions of the Act. In the instant case, the second condition, namely, "the manner of computation laid down in the Act" which to use the words of Stone C.J.-- "forms an integral part of the definition of 'total income'" was not satisfied. Thus, in the relevant previous year and the assessment year, or even in the subsequent year, capital gains or if "capital losses" did not form part of the "total income" of the assessee which could be brought to charge, and were, therefore, not required to be computed under the Act. Before the insertion of sub-section (2A) in section 22 by the amendment of April 1, 1952, an assessee was entitled to carry forward a loss even if he had submitted no return for the year in which the loss was sustained. After the enactment of sub-section (2A), it is a condition precedent to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or vocation". It does not cover a "capital loss", or the minus income under the head "capital gains" which at the relevant time were not chargeable and did not enter into computation of the "total income" of the assessee under the Act. It may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set-off. Its sole purpose is to set off the loss against the profits of a subsequent year. It pre-supposes the permissibility and possibility of the carried-forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such set-off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be "carried forward". Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable source. Now, let us test the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
