All India Groundnut Syndicate Ltd. vs Commissioner of Income Tax, Bombay City

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1953 Supreme(Bom) 63

IN THE HIGH COURT OF BOMBAY
Chagla, C.J. and Tendolkar, J.
Appellants: All India Groundnut Syndicate Ltd.
Vs.
Respondent: Commissioner of Income Tax, Bombay City
Income-tax Reference No. 17 of 1953
Decided On: 04.09.1953
Counsels:
For Appellant/Petitioner/Plaintiff: N.A. Palkhiwala, Adv.
For Respondents/Defendant: Nusserwanji Engineer and G.N. Joshi, Advs.

Headnote:A.Set off - exemption from tax - loss - the assessee company made loss for the years 1944-45 till 1946-47 - loss was shown in assessment every year - Income Tax officer passed order each year under section 23(3) as tax nil for income being "nil" - company earned profit in 1947-48 and sought to set off loss made in earlier years - declined by the department as section 24(3) order of loss notification absent order became final - default committed by income tax department - held, right to carry forward loss given in section 24(2) is an absolute unqualified right and that right is not made conditional upon any computation made by the Income-tax Officer or any notice issued by the Income-tax Officer - ( para 4)
B.non-computation of income - Right to appeal under section 30 - assessee submitted assessment of loss for three years - each year the income tax officer taxed him nil as income being "nil" - the assessee has right to appeal against loss computed under section 24 - in the present case, default committed by income tax officer - no order passed under section 24 - But in this case there is no computation and no question, therefore, of either its finality or appealability arises - no need to appeal.( para 5)

JUDGMENT - Chagla, C.J.

1. The action of the Department as disclosed by the facts submitted to us on this reference is both unjustifiable and entirely indefensible.

2. We are concerned, with the assessment year 1948-49 and the assessee before us is the All India Groundnut Syndicate. In that year of assessment the assessee company sought to set off loss, which it had incurred in the previous years under section 24 (2) of the Income-tax Act. The taxing authorities permitted the assessee company to set, off the loss in respect of certain years but disallowed the claim with regard to the years 1944-45, 1945-15 and 1946-47, and it is in respect of this refusal on the part of the taxing authorities to grant the relief sought by the assessee company that the question has been submitted to us for our decision.

3. It appears that in the assessment year 1944-45 the assessee incurred a loss of Rs. 16,925, and they made a return to that effect, and the Income-tax Officer passed an order that he took the income of the company as "nil" and exempted it under Section 23 (3). It is difficult to understand how the company was exempted under Section 23 (3) because section 23 (3) is not a section dealing, with exemption but with assessment itself. What the Income-tax Officer really meant was that as the assessee company had made no profit, on the-contrary it made loss, the companys income could not be assessed to tax.

The same was the position in 1945-48. In that, year the assessee company returned a loss of Rs. 15,634 and the Income-tax Officer made an order in terms identical to the orders which he had, made in respect of the assessment for the year 1944-45.

In the assessment year 1946-47 the assessee company returned a loss, but did not specify the amount of the loss. In respect of this assessment also the Income-tax Officer passed an identical order. The assessee company made a profit for the first time in the assessment year 1948-49 and therefore it claimed to set off the loss which had been made by it from 1942-43 to 1947-48.

The Department allowed the claim of the assessee company in respect of certain years but disallowed the claim in respect of three relevant years 1944-45, 1945-46 and 1946-47, and the ground on which the relief was refused to the assessee was that inasmuch as the Income-tax Officer had failed to notify the loss as required by Sub-section (3) of Section 24, the assessee was not entitled to any relief and this contention has been upheld by the Tribunal.

(4) Now, Sub-section (3) of Section 24 of the Act provides that:

"When, in the course of the assessment of the total income of any assessee, it is established that a loss of profits or gains has taken place which he is entitled to have set off under the provisions of this section, the Income-tax Officer shall notify to the assessee by order in writing the amount of the loss as computed by him for the purposes of this section."

It is clear that this Sub-section casts a duty upon the Income-tax Officer. The duty is that he has to compute the loss and notify the loss to the assessee. This Sub-section was clearly enacted in order to crystallize the loss in any particular year of assessment, to leave no dispute with regard to that loss and to give notice to the assessee of the amount at which the loss was computed by the Income-tax Officer. But the right which the Legislature confers upon the assessee does not arise under this Sub-section but it arises under Sub-section (2) and that right is to carry forward the loss of the previous years for a period of six years, and that right is an absolute unqualified right and that right is not made conditional upon any computation made by the Income-tax Officer or any notice issued by the Income-tax Officer. Therefore, whereas the right is conferred under Sub-section (2) of Section 24 Sub-section (3) is merely a machinery or procedural section which provides how and when the Income-tax Officer should compute the loss and how ho should communicate

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