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TMI Blog1990 (4) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... er 2nd Jan., 1987 gave substantial relief in the estimate of G.P. and the ITO by his order dt. 21st Jan., 1987 gave effect to the order of the CIT(A) resulting in the computation of the aforementioned loss. We were informed in the course of appeal hearing that the Revenue had filed appeal against the order of the CIT(A) on quantum and the matter is pending before the Tribunal. For the asst. yr. 1983-84 the trust filed a return showing loss of Rs. 1,52,40,560 on 29th Oct., 1983. On completion of the assessment the loss was determined at Rs. 79,38,565. The ITO in his order dt. 19th Feb., 1986 observed that the loss was allowed to be carried forward in the hands of the trust. This figure of loss was modified to Rs. 81,61,475 by an order under s. 155 passed by the ITO on 21st Jan., 1987. The assessment for the asst. yr. 1984-85 was first completed by the ITO, CC-XXX on 28th July, 1986. He determined the total income of the trust at Rs. 70,90,113 and adjusted out of loss of asst. yr. 1983-84 amounting to Rs. 79,38,563 the loss to the extent of Rs. 70,90,113 which was set off against the total income to arrive at 'nil' net income. It is this order passed by the ITO on 28th July, 1986 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the real sense being not responsible for the losses suffered by the business in earlier years, could not have any loss computed under the IT Act for an earlier year which could be available for set off under s. 72 of the Act. Therefore, the entire profits of the business pertaining to the previous year relevant to the asst. yr. 1984-85 were to be treated as income chargeable to tax in the hands of the beneficiaries for the asst. yr. 1984-85. Since the ITO while framing the assessment order dt. 23rd July, 1986 had failed to do so, this order was erroneous. The order was also prejudicial to the interests of the Revenue. The beneficiaries should have been charged to tax on the entire amount of their shares in the profits of the year without any adjustment on account of losses of earlier years because since they were not responsible for the loss of the business, no such loss could have been computed in their cases. It is this order of the CIT that is challenged in the present appeal. 4. Sri Dastur, the learned counsel of the appellant, firstly pointed out that the ITO who completed the assessment for the asst. yr. 1983-84 had determined the loss in the case of the trust and given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary stand or change its stand. It causes prejudice. In this context Sri Dastur referred to the decision of the Bombay High Court in the case of CIT vs. Army and Navy Stores Ltd. (1957) 31 ITR 959 (Bom). In that case the assessee-company had obtained a particular benefit and escaped a particular obligation by reason of a representation made by it to the Taxing Department. It had contended that it was liable to excess profits tax to United Kingdom and had succeeded in inducing the Department to attract to its case the proviso to s. 10(1) of the Indian Finance Act, 1946. But for this representation and but for the statement that it was liable to pay excess profits tax in the U.K., the company would have been liable to make a compulsory deposit. It could escape the obligation to make compulsory deposit only if its profits were liable to excess profits tax in the U.K. and it escaped that liability because it represented to the department that its profits were liable to excess profits tax in the U.K. W hen the question arose under s. 11(11) of the Finance Act, 1946 as to how the refund should be brought to tax, the company completely changed its stand and took up the attitude that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the order passed by the ITO which might set a bad trend or pattern for similar assessments, which on a broad reckoning might think to be prejudicial to the interests of revenue administration. If an order of the ITO is in accordance with law, such order cannot be said to be erroneous and prejudicial to the interests of Revenue. Sri Dastur, therefore, argued that the original order of the ITO which was in accordance with law, inasmuch as, it was in accordance with the provisions of ss. 72 and 80 read together was not erroneous nor prejudicial to the interests of the Revenue. 5. Referring to the merits of the case, Sri Dastur argued that s. 161 is to be interpreted to mean that it refers to cases where positive income is earned because it speaks of liability to tax upon representative assessee in the like manner and to the same extent. According to Sri Dastur, provisions of s. 161(1) do not affect the carry forward of loss in the hands of the trustees. The loss earned by the trust till it is set off is to be assessed in the hands of the trust. Sri Dastur also referred to the provisions of Indian Trust Act and cited certain authorities like Rangachari and Scott on Trust in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Bombay High Court in the case of Western India Oil Distributing Co. Ltd. vs. CIT 1978 CTR (Bom) 662 : (1980) 126 ITR 497 (Bom), wherein the Bombay High Court has held that the question whether the loss of any year can be carried forward to the following year and set off against the profits and gains of the same business is to be determined by the ITO who deals with the assessment of the subsequent year. It was for the ITO who dealt with the assessment for the asst. yr. 1984-85 to decide whether the carry forward of the loss in the trust case was correct. Since he had erred in setting off the loss of the earlier years against the profits of the trust without adjusting such profits between the beneficiaries he had committed an error and the CIT was fully justified in proceeding under s. 263 of the Act. 7. In reply. Sri Dastur argued that if the department had elected to tax the beneficiaries in the asst. yr. 1981-82, it should have adopted the same stand to the subsequent years. The loss had not been apportioned in the case of beneficiaries in subsequent years. He argued that all the cases cited by Sri Minocha were under the old Act. There was a sea change in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are the real assessees. This is because the loss has not been determined in the case of the beneficiaries for the earlier years and s. 80 clearly says that no loss which has not been determined in accordance with the return filed will be allowed to be carried forward. Therefore, the question of adjustment of loss of the earlier year in the hands of the beneficiaries does not arise in the present case at all No. doubt, the right of carry forward and set off of loss is not inherent. It is subject to the conditions prescribed under the Act. But the learned CIT has not been able to show before us that the conditions prescribed under ss. 70, 71, 72 and 80 have not been fulfilled in the present case. The only two conditions which are required, in our opinion, to be seen in this context are that the loss should have been determined in the earlier year and that the business in which the said loss was sustained should have been carried on by the same assessee in the year in which the set off of loss is allowed. These two conditions have been fulfilled. Sri Minocha relied on the Supreme Court decision in the case of CIT vs. Manmohan Das. 9. This decision in our opinion, does not really sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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