Appeal No 74 of 1975
From the Judgment and Order dated 911
1973 of the Allahabad High
Court in LT Ref
No 722 of 1971
SC Manchanda Ms A Subhashini and MN Tandon for the Appellant
JP Goyal Rajesh Malt Ram Bidwar
and DP Mukherjee for the Respondent
The Judgment of the Court was delivered by RANGANATH MISRA J
This appeal is by special leave and the judgment of the Allahabad High Court on a reference under Section 2561 of the Income Tax Act
1961 hereinaf ter referred to as the Act  is assailed by the Revenue
The relevant assessment year is 1965 66 corresponding to the previous year ending on 3112
In its return the assessee a pri 1161 vate limited company
disclosed capital gains of Rs310200 but claimed set off of capital loss of Rs317500 sustained by it during the assessment year 1957 58 over sale of shares to three associate concerns
It was maintained by the asses see that the loss was sustained in the previous year rele vant to the assessment year 1957 58 and the same should be set off against the capital gains in the assessment year in question
The Income tax Officer disallowed the claim for set off on the footing that when in the assessment year 1957 58 the loss was claimed it was excluded in the computa tion of income as capital loss and the Appellate Assistant Commissioner while disposing of the assessee s appeal had stated that it was a notional capital loss
As no further appeal was carried by the assessee with the first appellate order the matter had become final
The assessee challenged the rejection of its claim of set off before the Appellate Assistant Commissioner and he dismissed the appeal by holding that there was no genuine loss it was essentially notional in nature and that the claim for set off to be admissible had to be notified by the Income tax Officer under Section 243 of the 1922 Act to the assessee by an order in writing
That having not been done the claim was not admissible
Thereupon the assessee went before the Appellate Tribunal and reiterated its claim
The Tribunal came to the conclusion that the assessee was entitled to the benefit of set off of loss provided it satisfied that its capital loss was computed under the old Act
In its view as the assessee had filed its return show ing the loss and the Income tax Officer neither computed the loss nor passed an adverse order the Income tax Officer was not entitled to take advantage of his own failure and reject the assessee s claim of carry forward and set off of loss on the ground that loss had not been determined as required under section 243 of the Income tax Act 1922
The Tribu nal further found that the Income tax Officer had clearly disallowed the assessee s claim of revenue loss by holding that it was a capital loss
It found that the Appellate Assistant Commissioner had no justification to hold that the claim of loss was not genuine while disposing of the appeal for the assessment year 1957 58 and ultimately allowed the assessee s claim
At the instance of the Revenue four ques tions were referred for opinion of the High Court
Whether on the facts and in the circum stances of the case the Income tax Officer s order for the assessment year 1957 58 had not merged in the Appellate Assistant Commission er s order in which the Appellate Assistant Commissioner had given a clear finding that the loss was notional 1162 2
If the answer to the above question is in the negative whether any loss could be said to have been determined for the assessment year 1957 58 which could be carried forward to subsequent years 3
Whether in view of the provisions of Sec tion 80 of the Income tax Act 1961 the loss claimed for the assessment year 1957 58 could be set off against the income determined for the assessment year 1965 66 4
Whether the Tribunal was justified in law in holding that the provisions in Section 243 regarding intimation of losses deter mined by the Income tax Officer do not
apply to the loss falling under the head capital  The High Court found that the Income tax Officer in the assessment order for 1957 58 had mentioned Net loss as per profit and loss account adjust Rs3 17205
i Loss on sale of investment being capital  Rs3 17500 00 ii Income tax Rs 204 00 Total  Rs3 17704 00 Income Rs 499 00 It is true that in appeal the Appellate Assistant Com missioner had held A perusal of the assessment records show that the appellant held 2500 ordinary shares in Ms BR Ltd These shares were held on investment account and were not stock in trade of the Company
Ms BR Ltd is an associat ed concern and the shares were sold to allied concerns and a loss of Rs3 17500 was worked out
Firstly the shares were investment shares
Secondly the price for which the shares were transferred to another associated concern was a notional price
The management just transferred the shares held by one compa ny to another company 1163 under their control and management
Of course the transfer was not a trading activity
In these circumstances I hold that the Income tax Officer has rightly disallowed the loss claimed the same being notional capital loss
 The High Court found that both the Income tax Officer as also the Appellate Assistant Commissioner had found that the loss was a capital loss
The High Court furher found In our opinion this Section Section 80 of the 1961 Act cannot apply to a case where in law a return could not have been filed under Section 139
That is to say in relation to assessment years prior to the coming into force of the Income tax Act 1961 a return could not possibly have been filed under Section 139 because in these years this Sec tion was not on the Statute Book
But if Section 80 is construed to mean that a return filed under the Income tax Act 1922 is also within its purview then in our opinion the requirement of this Section was equally ful filled because the assessee has for the as sessment year 1957 58 filed a return of loss which loss had been determined by the Income tax Officer in the assessment order
 The High Court took the view that in the order for assessment year 1957 58
the Appellate Assistant Commission er has referred to the claims of loss as notional when he really meant that it was an estimate
It agreed with the conclusion of the Tribunal and found against the Revenue
Section 24 of the 1922 Act which applied to the assess ment year 1957 58 as far as relevant provided 1 Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6 he shall be entitled to have the amount of the loss set off against his income profits or gains under any other head in that year    2A Notwithstanding anything contained in sub section 1 where the loss sustained is a loss falling under the head capital gains 
such loss shall not be set off except against any profits and gains falling under that head 1164 2B Where an assessee sustains a loss such as is referred to in sub section 2A and the loss cannot be wholly set off in accordance with the provisions of that sub section the portion not so set off shall be carried for ward to the following year and set off against capital gains for that year and if it cannot be so set off the amount thereof not so set off shall be carried forward to the following year and so on
however that no loss shall be carried forward for more than eight years        3 When in the course of the assessment of the total income of any assessee
it is estab lished that a loss of profits or gains has taken place which he is entitled to have set off under the provisions of this section the Income tax Officer shall notify to the asses see by order in writing the amount of the loss as computed by him for the purposes of this section
 The High Court has found that the Income tax Officer did compute the amount by specifying it in his assessment order
When the assessee had made the claim and he took note of it
his failure to comply strictly with the requirement of sub section 3 of section 24 should not be permitted to be taken advantage of by the Revenue nor should it be used to the prejudice of the assessee
Since set off has been claimed in the assessment year 1965 66 to which the Act of 1961 applied it is necessary to turn attention to the relevant provisions thereof and they are in sections 74 and 80
For convenience they are extract ed Section 74 1a Where in respect of any assessment year
the net result of the compu tation under the head capital gains is a loss such loss shall
subject to the other provisions of this Chapter
be dealt with as follows i such portion of the net loss relating to short term capitalassets as cannot be or is not wholly set off against income under any head in accordance with the provisions of section 71 shall be carried forward to the following assessment year and set off against the capital gains if any relating to short term capital assets assessable for that as sessment year
and if it cannot be so set off the amount thereof not so set off shall be carried forward to the following assessment year and so on
 1165 ii such portion of the net loss as relates to capital assets other than short term capi tal assets shall be carried forward to the following assessment year and set off against the capital gains
if any
relating to capital assets other than short term capital assets assessable for that assessment year and
if it cannot be so set off
the amount thereof not so set off shall be carried forward to the following assessment year and so on Provided that where
in the case of any assessee not being a company
the net loss computed in respect of such capital assets for any assessment year does not exceed five thousand rupees
it shall not be carried forward under this section b Notwithstanding anything contained in the Indian Income tax Act 1922 11 of 1922 any loss computed under the head capital gains  in respect of the assessment yearcommencing on the 1st day of April 1961
or any earlier assessment year which is car ried forward in accordance with the provisions of sub section 2B of section 24 of that Act
shall be dealt with in the assessment year commencing on the 1st day of April
or any subsequent assessment year as follows i in so far as it relates to short term capital assets it shall be carried forward and set off in accordance with the provisions of sub clause i of clause a and sub sec tion 2 and ii in so far as it relates to capital assets other than short term capital assets
it shall be carried forward and set off in accordance with the provisions of sub clause ii of clause a and sub section 2 2a No loss referred to in sub section i of clause a of sub section 1 or sub clause i or sub clause ii of clause b of that sub section shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed under the Act or as the case may be
the Indian Income tax Act
1922  11 of 1922
1166 b No loss referred to in sub clause iiof clause a of sub section 1 shall be carried forward under this section for more than four assessment years immediate ly succeeding the assessment year for which the loss was first computed under the Act Section 80 Notwithstanding anything contained in this Chapter no loss which has not been determined in pursuance of a return filed under Section 139 shall be carried for ward and set off under sub section 1 of Section 72 or sub section 2 of Section 73 or sub section 1 of Section 74 or sub section 3 of Section 74A Reading the provisions of Section 741b and Section 80 together
we agree with the submission advanced on Behalf of the assessee that the benefit conferred under Section 24 of 1922 Act continued to be given effect to under the 1961 Act and notwithstanding the wordings of section 80 of the latter Act the High Court was Fight in holding that the claim of set off was admissible in our view 
on a bare analysis of these provisions and without reference to anything more this appeal can be disposed of
We find that the High Court reached the correct conclusion and there is no merit in the appeal
Accordingly
it is dismissed with costs
PSS Appeal dismissed


Summary:
Sub section 3 of section 24 of the Income tax Act 1922 required that when it was established that a loss of profits or gains had taken place
Which the assessee was entitled to have set off the Income tax Officer should notify to the assessee by an order in writing the amount of loss as com puted by him
This benefit was continued in section 74 of the Income tax Act 1961 which provides for carrying forward to the following years the net loss computed under the head capital gains  in respect of an assessment year
Section 80 however interdicts that no loss which has not been so determined shall be carried forward and set off
The assessee a private limited company disclosed in its return for the assessment year 1965 66 capital gains of Rs3 lacs and odd but claimed set off of capital loss of a like amount sustained during the assessment year 1957 58 over sale of shares
This claim was disallowed by the Income tax Officer on the footing that when in the assessment year 1957 58 the loss was claimed it was excluded in the computa tion of income as capital loss
A challenge to that order by the assessee was rejected by the Appellate Assistant Commis sioner who took the view that the loss was essentially notional in nature and that the claim for set off to be admissible had to be notified by the income tax Officer under section 243 of the 1922 Act to the assessee by an order in writing
That having not been done the claim was not admissible
Allowing the assessee s claim the Tribunal however came to the conclusion that the assessee was entitled to the benefit of set off of loss provided it satisfied that capi tal loss was computed under the old Act and as in the instant case the Income tax Officer had neither computed the loss nor passed an adverse order
the Income tax Officer was not entitled to take advantage of his own failure and reject the assessee s 1160 claim on the ground that loss had not been determined as required under section 243 of the Income tax Act 1922
The High Court agreed with the conclusion of the Tribu nal and found against the Revenue
Dismissing the Appeal the Court HELD Reading the provisions of section 741b and section 80 of the Income tax Act 1961 together makes it evident that the benefit conferred under section 24 of the 1922 Act has been continued to be given effect to under the 1961 Act
and notwithstanding the words of section 80 of the latter Act the claim of set off was admissible
The conclusion reached by the High Court was
therefore
correct
1166CD The Income tax Officer in the instant case did compute the amount by specifying it in his assessment order
When the assessee had made the claim and the Income tax Officer took Rote of it his failure to comply strictly With the requirement of sub section
3 of section 24 of the 1922 Act could not be permitted to be taken advantage of by the Revenue
nor could it be used to the prejudice of the assessee
1164D