TMI Blog1975 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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." The assessee (respondent) is a private limited company. The assessment year under reference is 1955-56 and the relevant previous year is from May 1, 1953, to April 30, 1954. On January 10, 1952, the assessee purchased 1,124 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 April 30, 1953, the assessee received 562 bonus shares from the same company. It thus acquired a total number of 1,686 shares. On September 3, 1953, i.e., during the relevant previous year, the assessee sold all these 1,686 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 Rs. 84,862 on the ground that it was a loss of a capital nature. 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 Assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-sections (2A) and 2(B) of section 24 read with sections 6 and 12B, therefore, is that if a capital loss is incurred in a year in which a capital gain did not attract tax under section 12B such loss would still be loss under the head 'capital gains' and if in a subsequent year the assessee has any profit under that head it can still be carried forward and set off against the taxable capital gain. The Tribunal was, in my opinion, right in coming to the conclusion that it did." Hence this appeal by the Commissioner of Income-tax (Central), Delhi. Capital gains tax for the first time was introduced by the Income-tax and Excess Profits Tax (Amendment) Act, 1947 (22 of 1947), which inserted section 12B in the Act. This section made taxable "capital gains" which arose after March 31, 1946. The same Act of 1947 added as the Vlth head "capital gains" in section 6 of the Act. It also inserted sub-sections (2A) and (2B) in section 24 of the Act. The Indian Finance Act, 1949, virtually abolished the levy and restricted the operation of section 12B to "capital gains" arising before the 1st April, 1948. But section 12B, in its restricted form, and the VIth head, "capital gains" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn and get his losses computed by the Income-tax Officer merely for the purpose of carrying forward the loss. The Income-tax Officer, it is added, cannot ignore the return filed by the assessee, voluntarily, showing losses even though such a return is filed beyond time. In this connection, Shri Sen has referred to Commissioner of Income-tax v. Kul Valley Transport Co. Ltd., Jaikishan Gopikishian and Sons v. Commissioner of Income-tax and Commissioner of Income-tax v. Khushal Chand Daga. Before dealing with the contentions canvassed, it will be appropriate to have a clear idea of the terms "income", "total income", "computation of total income", "carrying forward" of a loss and its purpose, in the context of the scheme of the Act. Section 2, clause (15), defines "total income" to mean total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in this Act. Section 3, captioned as "Charge of income-tax", emphasises that the income tax shall be charged in respect of the total income of the previous year of every assessee. Section 4 defines the ambit of that total income. Section 6 enumerates six heads of income, profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions : .... (2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and (i) where the loss was sustained by him in a business consisting of speculative transactions, it shall be set off only against the profits and gains, if any, of any business in speculative transactions carried on by him in that year; (ii) where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year: provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits and gains referred to in section 4(1) Secondly, it must be "computed in the manner laid down in the Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge. Now, capital gains would be covered by the definition of "income" in sub-section (6C) of section 2, only if they were chargeable under section 12B. As noticed already, section 12B as modified by the Finance Act, 1949, did not charge any "capital gains" arising between April 1, 1948, and April 1, 1957. Indeed section 12B was not operative in these years (1948-57). During this period, "capital gains", whether on the positive or the negative side, could not be computed and charged under section 12B or any other provisions of the Act. In the instant case, the second condition, namely, "the manner of computation laid down in the Act" which to use the words of Stone C.J.-- "forms an integral part of the definition of 'total income'" was not satisfied. Thus, in the relevant previous year and the assessment year, or even in the subsequent year, capital gains or if "capital losses" did not form part of the "total income" of the assessee which could be brought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention that under sub-section (2) read with sub-section (1) of section 24, the assessee had an independent right to carry forward his capital loss, even if it could not be set off, owing to the non-taxability of capital gains, against future profits, if any, in the immediate subsequent years. Sub-section (2) of section 24 expressly refers to loss "in any business, profession or vocation". It does not cover a "capital loss", or the minus income under the head "capital gains" which at the relevant time were not chargeable and did not enter into computation of the "total income" of the assessee under the Act. It may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set-off. Its sole purpose is to set off the loss against the profits of a subsequent year. It pre-supposes the permissibility and possibility of the carried-forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such set-off is not permissible or possible owing to the income or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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