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TMI Blog1971 (5) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... hased 3,040 shares of Messrs. Gwalior Agriculture Co. Ltd. for a sum of Rs. 1,52,000. Out of these shares, it transferred 700 shares to Messrs. J. P. Srivastava and Sons Private Ltd. for a sum of Rs. 35,000 on 1st of April, 1953. Balance of 2,340 shares valued at Rs. 1,17,000 remained with the assessee. Due to certain reasons, on 15th December, 1954, the assessee wrote off a sum of Rs. 1,16,999 from the value of 2,340 shares amounting to Rs. 1,17,000. The result was that in the assessee's books the value of these 2,340 shares was shown as rupee one only. The assessee claimed the amount written off in its assessment for the year 1955-56, which claim was disallowed. Subsequently, the assessee repurchased 700 shares which had been sold to Messrs. J. P. Srivastava and Sons Private Ltd. for a sum of Rs. 35,000. In the result it again became possessed of 3,040 shares, but in the account books these shares were valued at Rs. 35,001. In the relevant accounting year, the assessee sold these 3,040 shares for a sum of Rs. 3,04,000. After deducting the sum of Rs. 35,001, the book value of these shares, there was a surplus of Rs. 2,68,999. It may also be mentioned that during the year 1951-52, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced the balance-sheets of Messrs. Gwalior Agriculture Co. Ltd., for the years ending 30th June, 1953, and 30th June, 1954, which were the relevant years for determining the higher value under the third proviso to section 12B(2). It was found that the company had suffered losses in both these years. In the circumstances, there was no case for placing a value higher than the cost of acquisition of the shares in question, as on January 1, 1954. So far as the assessee's claim that the capital losses suffered by it in the year 1951-52 should be carried forward and set off against the surplus of Rs. 2,68,999 is concerned, the Income-tax Officer held that under the law it was not possible to carry forward that loss and to adjust the same in the capital gains for the year 1958-59. In the result he determined the capital gains of the assessee at Rs. 1,52,000 and included this amount while computing its taxable income. The assessee went up in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner agreed with the Income-tax Officer. He rejected the assessee's case that it was entitled to carry forward the loss of Rs. 1,05,067 suffered by it in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 1,05,067 suffered by him in the year 1951-52 and to adjust the same as against the capital gains in respect of the assessment year in question. Before the Tribunal, the assessee tried to urge that in the relevant year there had been a lot of appreciation in the value of the company's assets and, therefore, the value of the shares of the company also increased. It was contended that in the circumstances fair market value of the shares as on January 1, 1954, should have been taken into account as provided in the third proviso to section 12B(2). The Tribunal rejected this contention on the ground that from the submissions made on behalf of the assessee, it was not possible to know exactly what effect the appreciation of assets had on the intrinsic value of the shares of the company as on January 1, 1954. The connection suggested by the counsel for the assessee between the increase in the assets of the company and the increase in the market value of the shares was too remote and far-fetched. It also took into consideration other circumstances pointed out by the Appellate Assistant Commissioner and held that the assessee was not entitled to the benefits of the third proviso t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and if it could not be set off, the amounts thereof not so set off could be carried forward to the following year and so on for a period of six years. By the Finance Act of 1949, section 12B as introduced in the year 1947 was amended. According to the amendment, income-tax was to be payable under the head "capital gains" in respect of any profits or gains arising from the sale, exchange or transfer of capital asset effected after the 31st day of March, 1946, and before the 1st day of April, 1948. The provisions of sections 24(2A) and 24(2B), however, remained unchanged. The result was that no tax under the head "capital gains" was payable in respect of transactions entered into after 31st day of March, 1948. Section 12B was substituted by a new section with effect from 1st April, 1957, and it was provided that tax was to be paid by an assessee under the head "capital gains" in respect of any profits and gains arising from sale, exchange, relinquishment of transfer, taking place after March 31, 1956. This history reveals that there was no liability to pay tax under the head "capital gains" in respect of transactions entered into between 1st of April, 1948, and 31st of March, 1956. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 6", obviously, means that the net result of the assessee's activity contemplated under a particular head of section 6, instead of resulting into profit, results into loss. Loss suffered by an assessee in respect of an activity not covered by any of the heads enumerated in section 6 cannot be described as loss of profits sustained under any of the heads enumerated therein. Section 24(2A) is an exception to the general rule enumerated in section 24(1). It lays down that where loss sustained is a loss falling under the head "capital gain" it cannot be set off except against any profit and gain falling under that very head. In other words, loss of profit tinder the head of capital gain cannot be set off against the profit or gain under any other head. Section 24(2B) of the Act further provides that loss of profit sustained by an assessee, and which is not set off as provided in earlier sub-section, is to be carried forward to the following year and set off against capital gains for that year, and if it cannot be set off, the amount thereof not so set off is to be carried forward to the following year and so on up to a certain period. What can be carried forward and set off i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the year 1956 and onwards. Moreover, after amending section 12B of the Income-tax Act in the year 1949 and by retaining sections 24(2A) and 24(2B) in the Income-tax Act, 1922, the legislature could not possibly have intended that the loss suffered by an assessee after April 1, 1948, should be carried forward to the following year and adjusted against the capital gains of that year, when there could be no capital gains in the subsequent years. It was only in the year 1956 that the legislature decided to tax certain income falling under the head "capital gains", which accrued after 1st April, 1956. In the year 1949 the legislature could not contemplate that it would re-introduce tax on income under the head "capital gains" in the year 1956, and for that purpose the loss of profit under the head "capital gains" should becarried forward from year to year. We are, therefore, of opinion that in the circumstances the assessee is not entitled to carry forward losses incurred by it in the year 1951-52 to the year 1959-60 and to adjust them against the profits under the head "capital gains" in that year. Learned counsel for the assessee contended that the question referred to this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso to sub-section (2) of section 12B, however, provides that in a case where the asset was acquired by the assessee before the 1st day of January, 1954, and the transaction which resulted into capital gains was entered into after 1st day of January, 1954, it is open to the Income-tax Officer if he is so satisfied about the fair market value of that asset as on January 1, 1954, to take the fair market value instead of the actual cost of acquisition of the asset into consideration while determining the profits or gains made by the assessee as a result of the transfer of those assets. If, however, the Income-tax Officer is not in a position to determine the fair market value of the asset transferred as on 1st day of January, 1954, he will have to determine the gains or profits on the basis of actual cost of acquisition of the assets as provided in the substantive part of section 12B. In the present case the assessee urged before the income-tax authorities as also before this court that there was enough material on the record to show that the earning capacity of Messrs. Gwalior Agriculture Co. had substantially increased during the years 1953-54. He contended that the Tribunal misl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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