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

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