PETITIONER:
ANGLO-FRENCH TEXTILE CO., LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, MADRAS.
DATE OF JUDGMENT:
22/12/1952
BENCH:
MAHAJAN, MEHR CHAND
BENCH:
MAHAJAN, MEHR CHAND
DAS, SUDHI RANJAN
BOSE, VIVIAN
BHAGWATI, NATWARLAL H.
CITATION:
1953 AIR 105 1953 SCR 454
CITATOR INFO :
C 1954 SC 198 (10,10A)
R 1958 SC 269 (14)
R 1958 SC 861 (15)
RF 1965 SC1526 (15)
ACT:
Indian Income-tax Act (XI of 1922), ss. 24 (2), 34-Return
showing loss-Whether loss can be recorded and carried
forward–Proceedings for re-assessment-Whether whole
assessment can be reopened.
HEADNOTE:
An assessee submitted a return showing the income as “nil”
and this return was accepted by the Income-tax Officer, In
the
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next year the Income-tax Officer sent a notice to the
assessee under s. 34 (1) (b) calling for a fresh return,.,
The assesses submitted a return showing the income as nil ”
and a loss of Rs. 3,92,357 and claimed that the loss should
be recorded and carried forward under s. 24 (2) of the
Income-tax Act. The loss was arrived at by striking a
balance in the profit and loss account of just one business:
Held, that the assessee was not entitled to ‘have the loss
determined and carried forward for two reasons, first,
because when there is no income under any head at all there
is nothing against which the loss can be set off in that
year under s. 24 (1) and unless that can be done sub-s. (2)
of s. 24 does not come into play ; secondly, a set-off under
s. 24 (2) can only be claimed when the loss arises under one
head and the profit against which it is sought to be set off
under a different head.
Quaere: Whether when proceedings are taken under s. 34 for
the assessment of income which has escaped assessment, the
assesses is entitled to re-open the whole proceedings.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 13 of 1952.
Appeal from the Judgment and Order dated 18th January, 1950,
of the High Court of Judicature at Madras (Satyanarayana Rao
and Viswanaths Sastri JJ.) in Case Referred No. 28 of 1947.
O. T. G. Nambiar (S. N. Mukherjee, with him) for the
appellant.
M. C. Setalvad, Attorney-General of India, and C.K.
Daphtary, Solicitor-General for India (G. N. Joshi and P.
A. Mehta, with them) for the respondent.
1952. December 22. The Judgment of the Court was delivered
by
BOSE J.-The following question was referred to the High
Court of Madras by the Income-tax Appellate Tribunal under
section 66 (1) of the Indian Income-tax Act, 1922
Whether on the facts and in the circumstances of the case
when an assessment has been made under section 23 (1) of the
Indian Income-tax Act, determining the assessee company’s
income as ‘nil’ and when proceedings under section 34 were
subsequently started to assess the income which the
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Income-tax Officer believed to have escaped assessment the
assessee company is entitled to claim that the loss of
profits and gains (including depreciation allowance)
sustained by it in the previous year should be determined in
the course of such proceedings.”
We are concerned in this case with the- assessment year
1941-42. The assessee is the Anglo-French Textile Company,
a company which is incorporated in the United Kingdom. It
owns spinning and weaving mills at Pondicherry in French
India and manufactures yarn and cloth there. The raw
materials necessary for the manufacture, or at any rate much
of it, such as cotton, used to be purchased in what was then
the British India, through its agents Best & Company Ltd. of
Madras. The bulk of its manufactured goods ‘was’ also sold
in British India, the rest being sold elsewhere. But in the
year material to this case it did no business in British
India and accordingly it submitted no return to the Income-
tax authorities.
On 26th April, 1941, the Income-tax Officer issued a notice
to the assessee and called for a return. The assessee
replied on 9th June, 1941, that it had “,at all times
material to the assessment year no business in British India
“ and consequently no profits arose or accrued or were
received in British India and therefore the assessee ”was
not liable to comply with the provisions of the Indian.
Income-tax Act.”
The assessee added.
In the Circumstances the company is not liable to make a
return but with a view to preserve the right of the company
to appeal against any order that may be passed by you, if
necessary, we submit herewith without prejudice a nil return
receipt of which kindly acknowledge.”
Appended to the letter was a piece of paper which has been
called a ” nil” return. It is the usual printed form in
which returns are, normally made but the only entry.in the
whole form is the word ” nil The following declaration was
also added:
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“I further declare that the company was not resident in
British India during the previous year etc…”
On 25th March, 1942, the Income-tax Officer made the
following order which he called an Assessment Order:
“The company made a nil return of income obviously for the
reason that it is not carrying on any business in British
India … I accept the return of income filed by the company
and declare it is not liable to tax for the year 1941-42.”
A year later, namely, on 9th March, 1943, the Income-tax
Officer sent the assessee a notice under section 34 (1) (b)
in the following terms:
Whereas in consequence of the definite information which has
come into my possession I have discovered that your
income assessable to income-tax for the year ending 31st
March, 1942 has
(a) escaped assessment.
I therefore propose to assess the said income that has
(a) escaped assessment.
I hereby require you to deliver to me not later than … a
return in the attached form of your total income and total
world income assessable for the said year…”
In reply to this the assessee again submitted the same CC
nil “ return and filed a statement showing a loss of Rs.
3,92,357 on its total world income. This was on 31st May,
1944..
The Income-tax Officer passed orders on this on 2nd June,
1944. He stated that the assessee was a non-resident
company and that during the year no sales were effected in
British India and concluded as follows:
As the net result for the world business is only a loss,
there can be no question of profits attributable
452
co-operations in British India under section 42 (1) and 42
(3) in respect of cotton purchases. The nil’ return filed
is therefore accepted,
Hence there is no assessment for 1941-42. As this is a non-
resident company, the loss need not be carried forward under
section 24 (2) as that section in terms does not apply to
non-residents.”
The last portion of the order is the one which occasions the
assessee’B grievance. It claims that the Income tax Officer
having accepted its statement of loss was bound to record it
and carry it forward.
Appeals followed to the Appellate Assistant Commissioner of
Income-tax and the Income-tax Appellate Tribunal and
ultimately there was a reference to the High Court. The
assessee has failed throughout.and now appeals here.
The assessee’s contention is based on the following
provision of section 34. The first sub-section states that
when a notice is issued under that section the Income-tax
Officer may proceed to assess or re-assess such income,
profits or gains or recompute the loss or depreciation
allowance and that
” the provisions of this Act shall, so far as may be, apply,
accordingly as if the notice were a notice issued under
[sub-section (2) of section 22].”
This it is said attracts section 24 (2).
We need not decide whether this contention is well founded,
namely, whether the assessee can claim to reopen the
proceedings, because, even if he can, we are of opinion that
he cannot get what he asks for. There is no provision in
the Act which entitles the assesses to have a loss recorded
or computed, unless something is to be done with the loss.
Thus, under section 24 (1) a loss can be set off against an
income, profit or gain and under sub-section (2) the balance
of a loss can be carried forward to a following year on the
conditions set out there. Except for this there is nothing
else that can be called in aid. But under’ sub-section (2)
the loss can be carried forward when
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“the loss cannot be wholly set. off under subsection (1)
and in that event only the “portion not so set off ” can be
carried forward. We are therefore. thrown back o sub-
section (1).
Sub section (1) provides that where an assessee 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.”
Therefore, before any question of set-off can arise, there
must be (1) a loss under one or more of the heads mentioned
in section 6, and (2) an income, profit or gain under some
other head. It follows that when there is no income under
any head at all, there is nothing against which the loss can
be set off in that year and unless that can be done sub-
section (2) does not come into play.
Next, a set-off Under section 24 (1) can only be claimed
when the loss arises under one head and the profit against
which it is sought to be set off arises under a different
head. When the two arise under the same head, of course the
loss can be deducted but that is done under section 10 and
not under section 24 (1). See the decision of the Privy
Council in Rm. Ar. Ar. Rm. Arunachalam Chettiar v.
Commissioner of Income-tax, Madras (1). In the present
case, the loss is computed by striking a balance in the
profit and loss account of just the one business and con-
sequently no question of different heads arises. On both
these grounds, therefore, the assessee’s contention must
fail because, unless the loss can be set off under sub-
section (1) of section 24, it cannot be carried forward
under sub-section (2) and if it cannot be carried forward
the question of its determination and computation becomes
irrelevant.
The High Court proceeds on the ground that when proceedings
are taken under section 34 the assesses
(1) [1936] 4 I.T.R. 173 at 178 and 179.
454
is not entitled to reopen the whole proceedings as the
further proceedings are limited to assessing that portion of
the income which has escaped assessment.
We need not express any opinion on this. The question we
have to answer is confined to the facts and circumstances of
this case and those circumstances are (1) that no return was
filed at any stage of the case disclosing any income,
profits or gains at all, (2) that proceedings were later
taken under section 34, and (3) in the course of these
proceedings the assessee claimed that a certain loss should
be determined and recorded. Our answer is that cannot be
done for the reasons we have given and that consequently the
question referred was rightly answered in the negative by
the High Court.
The appeal fails and is dismissed with costs.
Appeal dismissed.
Agent for the appellant: P. H. Mukherji.
Agent for the respondent: G. H. Rajadhyaksha.