Judgment

SARKARIA; J.:- This appeal is directed against the Judgment, dated 24-1-1969, of the High Court of Delhi answering in the affirmative the following question referred to it under Section 66 (1) of the Indian Income-tax Act, 1922 (for short, the Act) by the Commissioner of Income-tax:

"Whether on the facts and in the circumstances of the case the capital loss of Rs. 28,662/- could be determined and carried forward in accordance with the provisions of Section 24 of the Indian Income-tax Act, 1922, when the provisions of Section 12B of the Income-tax Act,1922 itself were not applicable in the assessment year 1955-56."

2. The assessee respondent is a Private Limited Company. The assessment year under reference is 1955-56 and the relevant previous year is from 1-5-1953 to 30-4-1954. On 10-1-1952 the assessee purchased 1124 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 30-4-1953 the assessee received 562 bonus shares from the same company. It thus acquired a total number of 1686 shares. On 3-953, i.e. during the relevant previous year the assessee sold all these 1686 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 Rupees 84,862 on the ground that it was a loss of a capital nature.

3. 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.

4. Against the decision of the Appellate Assistant Commissioner the assessee preferred an appeal before the Tribunal, challenging the findings of the Commissioner both in regard to the amount of loss and its nature. At the stage of arguments before the Tribunal, the assessee s Counsel did not press these grounds of appeal but took up the plea that the amount of Rs. 28,662/- which had been held to be a capital loss by the authorities below, should be allowed to be carried forward and set off against profits and gains, if any, under the head "capital gains" earned in future, as laid down in sub-sections (2A) and (2B) of Section 24 of the Act. Despite objection from the Departmental Representative, the Tribunal allowed this new ground to be raised with the observation that it was "a pure question of law and did not require investigation of any fresh fact". It further accepted the contention of the assessee and directed that the capital loss of Rs. 28,662/- should be carried forward and set off against "capital gains" if any, in future.

5. At the instance of the Commissioner of Income-tax, the Tribunal referred the above question (set out at the commencement of this judgment) to the High Court under Section 66 (1) of the 1922 Act.

6. It was contended before the High Court on behalf of the Revenue that the expression "capital gains" in sub-section (2A) of Section 24 has reference only to Section 12B so that the loss suffered in the year in which the profits under the head "capital gains" were not taxable, could not fall within sub-sec. (2A) of Section 24. S. K. Kapoor J., speaking for the Division Bench rejected this contention in these terms :

"This argument overlooks the fact that the head of income chargeable to income-tax are set out in Section 6.

Section 12-B deals only with the computation of capital gains and with their taxability if they arise during a particular period. As a matter of fact, Section 12B itself refers to Section 6 inasmuch as it says that "the tax shall be payable by an assessee under the head "capital gains" ". This obviously has reference to the VI th head