Commissioner of Income-tax, Kanpur v. Behari Lal Ram Charan Ltd
[Citation -1987-LL-0422-3]

Citation 1987-LL-0422-3
Appellant Name Commissioner of Income-tax, Kanpur
Respondent Name Behari Lal Ram Charan Ltd.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 22/04/1987
Assessment Year 1965-66
Judgment View Judgment
Keyword Tags capital loss • carry forward and set off
Bot Summary: Allowing the assessee s claim, the Tribunal however, came to the conclusion that the assessee was entitled to the benefit of set off of loss provided it satisfied that capi- tal loss was computed under the old Act, and as in the instant case the Income-tax Officer had neither computed the loss nor passed an adverse order. The Income-tax Officer disallowed the claim for set off on the footing that when in the assessment year 1957-58 the loss was claimed it was excluded in the computa- tion of income as capital loss and the Appellate Assistant Commissioner while disposing of the assessee s appeal had stated that it was a notional capital loss. In its view as the assessee had filed its return show- ing the loss and the Income-tax Officer neither computed the loss nor passed an adverse order, the Income-tax Officer was not entitled to take advantage of his own failure and reject the assessee s claim of carry forward and set off of loss on the ground that loss had not been determined as required under section 24(3) of the Income-tax Act, 1922. Apply to the loss falling under the head capital The High Court found that the Income-tax Officer in the assessment order for 1957-58 had mentioned: Net loss as per profit and loss account-adjust Rs.3, 17,205. Section 24 of the 1922 Act which applied to the assess- ment year 1957-58 as far as relevant provided: Where any 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 ....... Notwithstanding anything contained in sub-section, where the loss sustained is a loss falling under the head capital gains. Such loss shall not be set off except against any profits and gains falling under that head. 1164 Where an assessee sustains a loss such as is referred to in sub-section and the loss cannot be wholly set off in accordance with the provisions of that sub-section, the portion not so set off shall be carried for- ward to the following year and set off against capital gains for that year, and if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following year and so on. The net result of the compu- tation under the head capital gains is a loss such loss shall.


http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6 PETITIONER: COMMISSIONER OF INCOME-TAX, KANPUR Vs. RESPONDENT: BEHARI LAL RAM CHARAN LTD. DATE OF JUDGMENT22/04/1987 BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH PATHAK, R.S. (CJ) CITATION: 1987 AIR 1380 1987 SCR (2)1159 1987 SCC (2) 452 JT 1987 (2) 261 1987 SCALE (1)970 ACT: Income-tax Act, 1961: ss. 74 and 80--Claim of set off--When admissible-Assessee whether entitled to benefit conferred under s. 24 of 1922 Act. HEADNOTE: Sub-section (3) of s. 24 of Income-tax Act, 1922, required that when it was established that loss of profits or gains had taken place. Which assessee was entitled to have set off, Income-tax Officer should notify to assessee by order in writing amount of loss as com- puted by him. This benefit was continued in s. 74 of Income-tax Act, 1961 which provides for carrying forward to following years net loss computed under head capital gains in respect of assessment year. Section 80, however, interdicts that no loss which has not been so determined shall be carried forward and set off. assessee, private limited company disclosed in its return for assessment year 1965-66 capital gains of Rs.3 lacs and odd but claimed set off of capital loss of like amount sustained during assessment year 1957-58 over sale of shares. This claim was disallowed by Income-tax Officer on footing that when in assessment year 1957-58 loss was claimed it was excluded in computa- tion of income as capital loss. challenge to that order by assessee was rejected by Appellate Assistant Commis- sioner who took view that loss was essentially notional in nature, and that claim for set off to be admissible, had to be notified by income-tax Officer under s. 24(3) of 1922 Act to assessee by order in writing. That having not been done claim was not admissible. Allowing assessee s claim, Tribunal however, came to conclusion that assessee was entitled to benefit of set off of loss provided it satisfied that capi- tal loss was computed under old Act, and as in instant case Income-tax Officer had neither computed loss nor passed adverse order. Income-tax Officer was not entitled to take advantage of his own failure and reject assessee s 1160 http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6 claim on ground that loss had not been determined as required under s. 24(3) of Income-tax Act, 1922. High Court agreed with conclusion of Tribu- nal and found against Revenue. Dismissing Appeal, Court, HELD: Reading provisions of s. 74(1)(b) and s. 80 of Income-tax Act, 1961 together makes it evident that benefit conferred under s. 24 of 1922 Act has been continued to be given effect to under 1961 Act. and notwithstanding words of s. 80 of latter Act, claim of set off was admissible. conclusion reached by High Court was. therefore. correct. [1166CD] Income-tax Officer in instant case, did compute amount by specifying it in his assessment order. When assessee had made claim and Income-tax Officer took Rote of it, his failure to comply strictly With requirement of sub-s. (3) of s. 24 of 1922 Act could not be permitted to be taken advantage of by Revenue. nor could it be used to prejudice of assessee. [1164D] JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 74 of 1975. From Judgment and Order dated 9.11. 1973 of Allahabad High.Court in L.T. Ref. No. 722 of 1971. S.C. Manchanda, Ms. A. Subhashini and M.N. Tandon for Appellant. J.P. Goyal, Rajesh, Malt Ram Bidwar. and D.P. Mukherjee for Respondent. Judgment of Court was delivered by RANGANATH MISRA, J. This appeal is by special leave and judgment of Allahabad High Court on reference under Section 256(1) of Income Tax Act. 1961 (hereinaf- ter referred to as Act ) is assailed by Revenue. relevant assessment year is 1965-66 corresponding to previous year ending on 31.12. 1964. In its return assessee, pri- 1161 vate limited company. disclosed capital gains of Rs.3.10,200 but claimed set off of capital loss of Rs.3.17,500 sustained by it during assessment year 1957-58 over sale of shares to three associate concerns. It was maintained by asses- see that loss was sustained in previous year rele- vant to assessment year 1957-58 and same should be set off against capital gains in assessment year in question. Income-tax Officer disallowed claim for set off on footing that when in assessment year 1957-58 loss was claimed it was excluded in computa- tion of income as capital loss and Appellate Assistant Commissioner while disposing of assessee s appeal had stated that it was notional capital loss. As no further appeal was carried by assessee, with first appellate order matter had become final. assessee challenged rejection of its claim of set off before Appellate Assistant Commissioner and he dismissed appeal by holding that there was no genuine loss; it was essentially notional in nature and that claim for set off to be admissible had to be notified by Income-tax Officer under Section 24(3) of 1922 Act to assessee by order in writing. That having not been done, claim was not admissible. Thereupon assessee went before Appellate Tribunal and reiterated its claim. Tribunal came to .conclusion that assessee was http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6 entitled to benefit of set off of loss provided it satisfied that its capital loss was computed under old Act. In its view as assessee had filed its return show- ing loss and Income-tax Officer neither computed loss nor passed adverse order, Income-tax Officer was not entitled to take advantage of his own failure and reject assessee s claim of carry forward and set off of loss on ground that loss had not been determined as required under section 24(3) of Income-tax Act, 1922. Tribu- nal further found that Income-tax Officer had clearly disallowed assessee s claim of revenue loss by holding that it was capital loss. It found that Appellate Assistant Commissioner had no justification to hold that claim of loss was not genuine while disposing of appeal for assessment year 1957-58 and ultimately allowed assessee s claim. At instance of Revenue four ques- tions were referred for opinion of High Court. 1. Whether on facts and in circum- stances of case, Income-tax Officer s order for assessment year 1957-58 had not merged in Appellate Assistant Commission- er s order in which Appellate Assistant Commissioner had given clear finding that loss was notional? 1162 2. If answer to above question is in negative, whether any loss could be said to have been determined for assessment year 1957-58, which could be carried forward to subsequent years? 3. Whether in view of provisions of Sec- tion 80 of Income-tax Act, 1961, loss claimed for assessment year 1957-58 could be set off against income determined for assessment year 1965-66? 4. Whether Tribunal was justified in law in holding that provisions in Section 24(3) regarding intimation of losses deter- mined by Income-tax Officer do not. apply to loss falling under head capital ? High Court found that Income-tax Officer in assessment order for 1957-58 had mentioned: "Net loss as per profit and loss account--adjust Rs.3, 17,205. (i) Loss on sale of investment being capital : Rs.3, 17,500-00 (ii) Income-tax :Rs. 204-00 Total : Rs.3, 17,704-00 Income :Rs. 499-00" It is true that in appeal Appellate Assistant Com- missioner had held:- "A perusal of assessment records show that appellant held 2,500 ordinary shares in M/s. B.R. Ltd. These shares were held on investment account and were not stock-in-trade of Company. M/s. B.R. Ltd. is associat- ed concern and shares were sold to allied concerns and loss of Rs.3, 17,500 was worked out. Firstly, shares were investment shares. Secondly, price for which shares were transferred to another associated concern was notional price. management just transferred shares held by one compa- ny to another company http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6 1163 under their control and management. Of course, transfer was not trading activity. In these circumstances, I hold that Income- tax Officer has rightly disallowed loss claimed, same being notional capital loss." High Court found that both Income-tax Officer as also Appellate Assistant Commissioner had found that loss was capital loss. High Court fur:her found:- "In our opinion this Section (Section 80 of 1961 Act) cannot apply to case where in law return could not have been filed under Section 139. That is to say in relation to assessment years prior to coming into force of Income-tax Act, 1961 return could not possibly have been filed under Section 139 because in these years this Sec- tion was not on Statute Book. But if Section 80 is construed to mean that return filed under Income-tax Act 1922 is also within its purview then in our opinion requirement of this Section was equally ful- filled because assessee has for as- sessment year 1957-58 filed return of loss which loss had been determined by Income- tax Officer in assessment order." High Court took view that in order for assessment year 1957-58. Appellate Assistant Commission- er has referred to claims of loss as notional when he really meant that it was estimate. It agreed with conclusion of Tribunal and found against Revenue. Section 24 of 1922 Act which applied to assess- ment year 1957-58 as far as relevant provided: "(1) Where any assessee sustains loss of profits or gains in any year under any of heads mentioned in Section 6, he shall be entitled to have amount of loss set off against his income, profits or gains under any other head in that year ....... " (2A) Notwithstanding anything contained in sub-section (1), where loss sustained is loss falling under head capital gains . such loss shall not be set off except against any profits and gains falling under that head." 1164 (2B) Where assessee sustains loss such as is referred to in sub-section (2A) and loss cannot be wholly set off in accordance with provisions of that sub-section, portion not so set off shall be carried for- ward to following year and set off against capital gains for that year, and if it cannot be so set off, amount thereof not so set off shall be carried forward to following year and so on. So. however, that no loss shall be carried forward for more than eight years ..................................... (3) "When, in course of assessment of total income of any assessee. it is estab- lished that loss of profits or gains has taken place which he is entitled to have set off under provisions of this section, Income-tax Officer shall notify to asses- http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6 see by order in writing amount of loss as computed by him for purposes of this section." High Court has found that Income-tax Officer did compute amount by specifying it in his assessment order. When assessee had made claim and he took note of it. his failure to comply strictly with requirement of sub- section (3) of section 24 should not be permitted to be taken advantage of by Revenue, nor should it be used to prejudice of assessee. Since set off has been claimed in assessment year 1965-66 to which Act of 1961 applied, it is necessary to turn attention to relevant provisions thereof and they are in sections 74 and 80. For convenience they are extract- ed: "Section 74: (1)(a) Where in respect of any assessment year. net result of compu- tation under head "capital gains" is loss such loss shall. subject to other provisions of this Chapter. be dealt with as follows: "(i) such portion of net loss (relating to short-term capital/assets as cannot be or is not wholly set off against income under any head in accordance with provisions of section 71 shall be carried forward to following assessment year and set off against capital gains, if any, relating to short- term capital assets assessable for that as- sessment year. and, if it cannot be so set off, amount thereof not so set off shall be carried forward to following assessment year and so on." 1165 "(ii) such portion of net loss as relates to capital assets other than short-term capi- tal assets shall be carried forward to following assessment year and set off against capital gains. if any. relating to capital assets other than short-term capital assets assessable for that assessment year and. if it cannot be so set off. amount thereof not so set off shall be carried forward to following assessment year and so on: Provided that where. in case of any assessee not being company. net loss computed in respect of such capital assets for any assessment year does not exceed five thousand rupees. it shall not be carried forward under this section." "(b) Notwithstanding anything contained in Indian Income-tax Act. 1922 (11) of 1922), any loss computed under head capital gains in respect of assessment year.commencing on 1st day of April. 1961. or any earlier assessment year which is car- ried forward in accordance with provisions of sub-section (2B) of section 24 of that Act. shall be dealt with in assessment year commencing on 1st day of April. 1962. or any subsequent assessment year as follows: (i) in so far as it relates to short-term capital assets, it shall be carried forward and set off in accordance with provisions of sub-clause (i) of clause (a) and sub-sec- http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6 tion (2): and (ii) in so far as it relates to capital assets other than short-term capital assets. it shall be carried forward and set off in accordance with provisions of sub-clause (ii) of clause (a) and sub-section (2)." "(2)(a) No loss referred to in sub-section (i) of clause (a) of sub-section (1) or sub-clause (i) or sub-clause (ii) of clause (b) of that sub-section shall be carried forward under this section for more than eight assessment years immediately succeeding assessment year for which loss was first computed under Act or as case may be. Indian Income-tax Act. 1922 ( 11 of 1922). 1166 "(b) No loss referred to in sub- clause (ii)of clause (a) of sub-section (1) shall be carried forward under this section for more than four assessment years immediate- ly succeeding assessment year for which loss was first computed under Act," "Section 80: Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of return filed under Section 139 shall be carried for- ward and set off under sub-section (1) of Section 72 or sub-section (2) of Section 73 or sub-section (1) of Section 74 or sub-section (3) of Section 74A." Reading provisions of Section 74(1)(b} and Section 80 together. we agree with submission advanced on Behalf of assessee that benefit conferred under Section 24 of 1922 Act continued to be given effect to under 1961 Act and notwithstanding wordings of section 80 of latter Act, High Court was Fight in holding that claim of set off was admissible in our view . on bare analysis of these provisions, and without reference to anything more, this appeal can be disposed of. We find that High Court reached correct conclusion and there is no merit in appeal. Accordingly. it is dismissed with costs. P.S.S. Appeal dismissed. 1167 Commissioner of Income-tax, Kanpur v. Behari Lal Ram Charan Ltd
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