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1957 Supreme(Cal) 183
HIGH COURT OF CALCUTTA
P. B. CHAKRAVARTTI, B. K. GUHA
COMMISSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA - Appellant
Versus
GOVINDALAL DUTTA - Respondent
Income-Tax Ref. 108 Of 1954
Decided On : SEPTEMBER 04, 1957
B.L.PAL, E.R.Meyer, J.C.PAL, PRASAV GHOSH
A voluntary return showing loss is not a valid return under Section 22 (1) of the Income-tax Act, 1922, but the Income-tax Officer is bound to investigate the claim of loss in regard to the earlier years and see if it was established that losses had taken place in those years which the assessee was entitled to have set off under the provisions of Section 24 (2) of the Act.
Headnote:
INCOME TAX - Assessment - Voluntary return showing loss - Whether valid return - Whether Income-tax Officer bound to determine losses for earlier years and set them off against profits of subsequent year - Section 22 (1), 22 (2), 22 (3), 24 (2) and 24 (3) of the Income-tax Act, 1922.
Fact of the Case:
The assessee filed voluntary returns of his income for five consecutive years, showing a loss for two of the years. The Income-tax Officer made an assessment on the return for the third year without taking into account the losses of the earlier years. The assessee appealed to the Appellate Assistant Commissioner, who held that the Income-tax Officer was not required to take into account the losses of the earlier years since no claim of any earlier loss had been made in the return. The assessee then appealed to the Tribunal, which held that the Income-tax Officer was bound to determine the losses of the earlier years and set them off against the profits of the third year.
Finding of the Court:
The Court held that the voluntary returns showing loss were not valid returns under Section 22 (1) of the Income-tax Act, 1922, and that the Income-tax Officer was not required to make assessments on them. However, the Court also held that the Income-tax Officer was bound to investigate the claim of loss in regard to the earlier years and see if it was established that losses had taken place in those years which the assessee was entitled to have set off under the provisions of Section 24 (2) of the Act.
Issues: Whether the voluntary returns showing loss were valid returns under Section 22 (1) of the Income-tax Act, 1922.
Ratio Decidendi: The Court held that the voluntary returns showing loss were not valid returns under Section 22 (1) of the Income-tax Act, 1922, because Section 22 (1) only required a person to file a return if his total income during the previous year exceeded the maximum amount which was not chargeable to tax. The Court also held that the Income-tax Officer was bound to investigate the claim of loss in regard to the earlier years and see if it was established that losses had taken place in those years which the assessee was entitled to have set off under the provisions of Section 24 (2) of the Act, because Section 24 (2) gave an assessee an unqualified right to carry forward losses for a period of six years, and there was no justification for refusing to give effect to that right on the ground that the returns for the years in which the losses were claimed to have occurred were voluntary returns showing loss.
Final Decision: The Court answered the question referred to it in the affirmative, but clarified that the Income-tax Officer was not required to make assessments for the earlier years, but only to investigate into the claim of losses and find whether it was established that losses had taken place during the years in question which the assessee was entitled in law to have carried forward and set off against the profits of the third year.
( 1 ) ON the 4th September, 1951, one Govindalal Dutta, an owner of a tea business, filed voluntary returns of his income in respect of five consecutive years. Those were assessment years 1946-47 to 1950-51. Of the returns so filed, that for the assessment year 1946-47 showed a loss of Rs. 37. 925-2-9 and that for 1947-48 snowed a loss of Rs. 36,033-15-0, while that for the year 1948-49 showed a paltry profit of Rs. 75-3-3. In making assessments on these returns, the Income-tax Officer paid no attention to the returns for 1946-47 and 1947-48. The first return to be dealt with was the return for the year 1948-49 and on that return he made an assessment on an income of Rs. 5,545/ -.
( 2 ) IT does not appear from the Income-tax Officer's order that he was asked to take into account the losses of the earlier years and set them off against the profits for the assessment year 1948-49, if he found that losses incurred in earlier years had been made out. In the assessee's appeal to the appellate Assistant Commissioner, however, a specific ground relating to the question was taken. Ground No. 4 was that the Income-tax Officer ought to have carried forward the losses for the two earlier years, that is to say, the accounting years 1945 and 1946 respectively, against the profits of 1948-49. Though that ground was taken, there was no oral argument in its support at the time of the hearing, because the pleader who appeared for the assessee withdrew from the case after his prayer for an adjournment had been refused. It appears that the adjournment was asked for on the ground that notice of the hearing had been received by the appellant only two days earlier, but it occurred to the Appellate Assistant Commissioner to call for the envelope in which the notice served on the assessee had been enclosed and when the envelope was produced, it was found that in fact the notice had been served much earlier. In those circumstances, the Appellate Assistant Commissioner was not disposed to grant the adjournment prayed for and the result was that the pleader withdrew from the case.
( 3 ) THE Appellate Assistant Commissioner disposed of the fourth ground taken on behalf of the assessee shortly. He held that no claim of any earlier loss had been made in the return and, therefore, the action of the Income-tax Officer in not engaging himself in any enquiry about earlier losses had been perfectly in order. The statement of the Appellate Tribunal that the Appellate Assistant Commissioner did not decide this contention of the assessee, as remarked by them in the appellate order, or that he rejected the assessee's appeal "without going into this point", as observed in the Statement of the Case, is correct only to the extent that the Appellate Assistant Commissioner did not deal with the contention on its merits.
( 4 ) IN his further appeal to the Tribunal, the assessee contended that the Income-tax Officer was bound to finalise the assessments for 1946-47, and 1947-48 first and then, if he found that there were losses to be carried forward, to give the assessee the benefit of those losses in his assessment for the year 1948-49. That contention was accepted by the Tribunal. It appears to have been contended on behalf of the Department that the returns for the years 1946-17 and 1947-48 being voluntary returns, showing loss, were not valia returns at all and, therefore, the Income-tax Officer was not required by law to take any notice of them. The Tribunal repelled that argument by holding that the returns for the two years in question were not returns in pursuance of either Section 22 (1) or Section 22 (2) and not being such returns, could be filed as valid returns at any time before the assessment was made. They thought that the view they were taking had the support of the decision in Harakchand Makanji and Co. v. Commr. of Income-tax, Bombay City, 1948-16 ITR 119 : (AIR 1948 Bom 401) (A ). In the Statement of the Case, they have given a f
