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TMI Blog1957 (9) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... s had been made out. In the assessee's appeal to the Appellate Assistant Commissioner, however, a specific ground relating to the question was taken. Ground No. 4 was that the Income-tax Officer ought to have carried forward the losses for the two earlier years, that is to say, the accounting years 1945 and 1946 respectively, against the profits of 1948-49. Though that ground was taken, there was no oral argument in its support at the time of the hearing, because the pleader who appeared for the assessee withdrew from the case after his prayer for an adjournment had been refused. It appears that the adjournment was asked for on the ground that notice of the hearing had been received by the appellant only two days earlier, but it occurred to the Appellate Assistant Commissioner to call for the envelope in which the notice served on the assessee had been enclosed and when the envelope was produced, it was found that in fact the notice had been served much earlier. In those circumstances, the Appellate Assistant Commissioner was not disposed to grant the adjournment prayed for and the result was that the pleader withdrew from the case. The Appellate Assistant Commissioner dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses were claimed to have occurred, were voluntary returns, showing loss. The Income-tax Officer, the Tribunal thought, had no right to ignore such returns and, according to them, it had been so held in the case of All India Groundnut Syndicate Ltd. v. Commissioner of Income-tax [1954] 25 ITR 90. In that view, the Tribunal held that since the years in respect of which losses had been claimed were years immediately preceding the assessment year in question, the Income-tax Officer could not make a valid assessment for that year until and unless he had determined the losses in respect of the earlier years, because if there had been in fact losses in those years, such losses would have to be set off against the income of the assessment year in question. In the result, the Tribunal set aside the assessment and directed the Income-tax Officer to deal with the returns filed by the assessee for the assessment years 1946-47 and 1947-48 and then to make the assessment for the year 1948-49. The Commissioner of Income-tax was unable to accept the decision of the Tribunal and required them to refer the matter to this court for its opinion. Accordingly, the Tribunal have referred the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of loss and not even a return of income, but a return of taxable income, if the person concerned himself thought that his income of the previous year had reached the assessable limit. If, on the other hand, he had suffered a loss or even if he had earned an income but such income was below the taxable limit, he was not required to come forward with a return and proclaim his loss to the Income-tax Officer or proclaim the meagreness of the income which he had made. Not only had a person no duty to file a return voluntarily in compliance with a general notice under section 22(1), if he had suffered a loss, but it is clear that he had even no right to report his loss to the Income-tax Officer by filing a return. The view of the Appellate Tribunal that section 22(3) of the Act provides for the filing of a voluntary return, showing loss, at any time before the assessment is made, appears to me to be completely mistaken. What section 22(3) says is that if a person has not furnished a return within the time allowed by or under section 22(1) or section 22(2), he may furnish a return at any time before the assessment is made. Obviously, what is contemplated is that if no notice under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 119, the question was neither raised nor decided and all that can be said is that a voluntary return, showing loss, was treated in that case as a valid return without any question as to its validity being raised. What happened was that in the course of the assessee's assessment for the assessment year 1943-44, he filed a voluntary return in respect of the year 1942-43, showing a loss, and the date on which he did so was the 18th of June, 1943, which was after the expiry of the assessment year 1942-43. In those circumstances, it was contended on behalf of the assessee that no return having been filed within the assessment year in question income for the year had escaped assessment and consequently the Department was not entitled in law to assess him in respect of the year in question without first issuing a notice under section 34 of the Act. It was that contention which was repelled by the court and the ground given was that since a return had in fact been filed by the assessee in respect of the year in question, it could not be said that income had escaped assessment and, therefore, the Department was not required to serve a notice under section 34. No point as to whether a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the years 1946-47 and 1947-48, but whether he was still bound to determine the losses for those years for the purposes of section 24(2), as applied to the assessment year 1948-49, is a further question. Before I deal with that question, it may be convenient to dispose of a short point. I have already pointed out that in the return held by him for the assessment year 1948-49, the assessee did not claim any set-off in respect of the losses of the earlier years. It would be recalled that that was the sole ground on which the Appellate Assistant Commissioner disposed of the assessee's claim that the losses of the earlier years should have been determined. If there had been no further fact in the case, it would be difficult to allow the assessee to raise this question at subsequent stages of the assessment proceedings, since, so far as the Income-tax Officer's order goes, it is not stated that he raised the question before him. If the returns filed for 1946-47 and 1947-48 were no returns in law, it could be argued that they were not before the Income-tax Officer at all and since his attention was also not drawn to them by any claim of set-off in the return for 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the word person , the latter used the word assessee . He accordingly contended that in order that section 24(2) would apply to a person and the benefit of it could be available to him, he had to be, as the section expressly stated, an assessee, that is to say, he had to be a person by whom income-tax was payable. A person who had suffered loss was not a person by whom income-tax was payable and, therefore, the section did not contemplate a person who had suffered losses as the assessee in the present case had. The contention thus put forward on the basis of the word assessee is plainly untenable and it is only fair to Mr. Meyer to say that, after some discussion, he himself conceded that it could not be correct. If in order to qualify for the benefit of section 24(2), a person has to be a person by whom income-tax is payable, the section cannot apply to any case at all and there cannot be any loss to be carried forward from any year to any year. The stage of section 24(2) is reached after the stage of section 24(1) has been passed and it is only when the operation contemplated by section 24(1), that is to say, the operation of setting off the loss under any of the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because for the assessment years, relative to those accounting years, no assessment had been made or was going to be made. It appears to me, however, that it will not be right, nor consistent with the intention of the section to take the expression previous year in the literal sense of its definition. The section gives a person who has in his hands some business losses which could not be set off against profits the right to carry it forward for six years. That right is not qualified in any manner and I cannot imagine that although it is not expressly so stated, the Legislature, nevertheless, intended, by the use of the expression previous year, to limit the commencement of the carrying forward to the first accounting year for which there would be an assessment. So regarded, the section would mean that if a person, starting a business in a particular year, went on making losses for five successive years but in the sixth year made some income, he would be entitled to set of against the income of the sixth year only the surplus loss of the fifth year but not any earlier loss. To read the section in that sense would be, to my mind, to adopt a construction that would defeat its purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss against the profits from the same business of subsequent years. I think I ought to mention that the view I am taking is opposed to what was held by the Madras High Court in the case of Ahamed Sahib v. Commissioner of Income-tax [1952] 22 ITR 87which was not cited before us. The facts in that case were that during the assessee's assessment for the year 1943-44, the Income-tax Officer discovered that he had carried on business even in the year 1942-43 and, upon that discovery, he issued a notice under section 34 of the Act. It was, however, found after the return had been filed that the assessee had not made an income in the year 1942-43. When the assessment for 1943-44 was resumed, it was contended on behalf of the assessee that the Income-tax Officer should have computed his loss for the year 1942-43 in the proceeding under section 34 in respect of that year. The contention was easily repelled because section 24(3) speaks of assessment proceedings and not proceedings under section 34. It was next contended that the loss of the year 1942-43 should be investigated in the course of the assessment for the year 1943-44 and that the assessee had a right to such investigation u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t not the whole of the losses had been incurred in those particular years, but a large part had been brought forward from still earlier years. In any investigation which he might make, the Income-tax Officer would, therefore, have to see, since the assessee's right was limited to losses which he would be entitled to have set off under the provisions of the section, if any part of the losses had been suffered beyond six years. And so would he have to see whether the losses were such losses as could be carried forward in law and in that connection see whether there were other heads of income in the relative years and also whether the losses were business losses. This, however, bears only upon the question as to how the Income-tax Officer would have to determine the losses. In my opinion, although the view taken by the Appellate Tribunal as to the true import and effect of section 24(2) was correct, the order directing assessments to be made on the returns for 1946-47 and 1947-48 was plainly not correct. The utmost which the Income-tax Officer could be required to do was to investigate into and determine the losses of the earlier years fit to be carried forward, if there were a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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