TMI Blog1961 (11) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid contributions of $ 2,21,301 and $ 49,433 by the Kuala Lumpur and Johore businesses constitute proper deductions from the computation of foreign profits of the assessee for the calendar year 1945 ? The assessee is a private limited company incorporated under the laws prevailing in the former Pudukottah State. It had its registered office in that State. It carried on a money-lending business and a business in properties as an adjunct to the money-lending business in the Federated Malay States. 2. On the merger of the State of Pudukottah with the Indian Union from the 1st September, 1949, and the extension of the Indian Income Tax Act to Pudukottah, assessments were made under the Indian Income Tax Act. The assessments in question in this reference are those relating to the assessment years 1950-51, 1951-52, 1952-53 and 1953-54, the relevant accounting years being the calendar years immediately preceding. The claim of the assessee was that, during the years prior to the first of the assessments years in questions, the assessee had incurred losses which it was entitled to carry forward and set off against the income, profits and gains brought to assessment in these asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observed : The assessee did not offer the income from Malayan business for assessment on the ground that if the losses sustained in the war years 1942 to 1946 were set off, there would be no income for assessment. There is no need for set-off of the loss, if any, against the income of the year of income. The operation of the Income Tax Act was extended to the merged territory only with effect from 1st April, 1949, and there can, therefore, be no question of making any assessment on the company for any year prior to 1949-50 nor of determining losses for carry forward and set-off against the profits assessable for 1949-50 or subsequent years. The loss of profits and gains of any year referred to in section 24(2) can only refer to losses to which the Indian Income Tax Act applied. It is not, therefore, permissible to set off any losses of prior years under section 24(2) of the Act. 5. The disallowance was concerned in by the Appellate Assistant Commissioner. The Tribunal, in the appeal before it, remanded the case for determination of certain details. After receipt of the remand report, the Tribunal classified the claims under the two heads : loss on account of revaluation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the assessee was doing business, it is entitled to the set-off contemplated in section 24(2) of the Act. After giving careful consideration to this question we are of opinion that the assessee is not entitled to this claim. 9. It is true that in a decision of a Full Bench of this court in Udaya Ltd. v. Commissioner of Income it has been held overruling the decision in Ahamed Sahib v. Commissioner of Income Tax that, where an assessee claims a set-off, it is necessary that the loss required to be set off should have been computed at an anterior point of time. In that case the assessee was doing business in the taxable territories. In the years 1948-49 and 1949-50, its losses in business far exceeded its income from other sources, that is, securities and dividends. In 1950-51, the company derived a net aggregate income of ₹ 13,611. In March, 1951, the company filed its return for all the three years and in November, 1951, it submitted the return for 1951-52. The Income Tax Officer accepted the two later returns for the years 1950-51 and 1951-52, disallowing the claim of the assessee to have the losses of the earlier two years ascertained and carried forward and set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y forward the losses for a period of six years as under the Indian Income Tax Act of whether his right was limited only to the period of two years laid down in the Travancore Act. This called for an interpretation of section 3 of the Taxation Laws (Part B States) (Removal of Difficulties) Order and the learned judges of the Travancore High Court held that, since the State law had been superseded by the Indian Income Tax Act, the larger right contained in the Indian Income Tax Act would be available to the assessee newly brought under that Act. This decision however is not of much help in relation to the facts of the present case. In the case cited, there was a local law in force which gave the right to the assessee to have his loss taken into account in making assessment of his income and gave a right to carry forward such loss for a period of two years. Though it is not quite clear, it appears to be inherent in the decision that the quantum of the loss which the assessee was so entitled to carry forward must be the loss that is computed and arrived at on the application of the law then in force during the year in which the loss occurred. It could not have been contemplated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business in an Indian State. If he brought those profits into British India, then he had to pay tax. But if he kept the profit in the Indian State, then they were exempt from tax; those profits were considered to be exempted from tax or profits which were not liable to tax. Now, having exempted those profits from tax, it stood to reason that when losses were made, the assessee could not take the benefit of the set-off with regard to those losses. Therefore, the proviso to section 24(1) laid down that an assessee could only claim to set off his losses incurred in an Indian State against the profits also earned in the Indian State. 12. Further on, in dealing with the argument that under section 24(1) there is a mandatory provision that these losses shall be carried forward, the learned judges say : But the fallacy in the arguments is this : that before your come to section 24(2), before you can claim to carry forward losses, the losses must be such as could have been set off initially under section 24(1), because section 24(2) says and the loss cannot be wholly set off under sub-section (1), the portion not so set off shall be carried forward. 13. Therefore, not only have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the law that existed and if there was no law relevant to the computation of such loss it should necessarily follow that no loss was available for being carried forward, even if the right to carry forward becomes available under the Income Tax Act. 14. In Anglo-French Textile Co. Ltd. v. Commissioner of Income Tax a somewhat similar question arose. There the assessee company, which was incorporated in the United Kingdom, had a spinning and weaving mills in Pondicherry. In the year material to the assessment, it did not business in British India and accordingly submitted to return to the Income Tax authorities. On a notice issued by the Income Tax Officer, the assessee claimed that, all times material to the assessment year, no business was done in British India and consequently no profits arose or accrued or were received in British India and therefore the assessee was not liable to comply with the provisions of the Indian Income Tax Act. Proceedings under section 34 were taken and, in response to the notice, the assessee submitted a nil return and filed a statement showing a loss on its total world income. The Income Tax Officer accepted the nil return and made no asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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