Civil Appeal No 466 of 1960
Appeal from the judgment and order dated October 31 1958 of the Kerala High Court in I T R No 2 of 1956 K
K N Rajagopal Sastri and P D Menon for appellant
The respondent did not appear
January 16
The Judgment of the Court was delivered by HIDAYATULLAH J
The Commissioner of Income Tax Kerala and Coimbatore has filed this appeal against the judgment and order of the High Court of Kerala dated October 31 1958 by which the High Court answered in favour of the respondent Helen Rubber Industries Ltd Kottayam the following question Whether under the provisions of the Indian Income tax Act the petitioner is entitled to carry forward the loss for a period of six years notwithstanding the fact that during the period when the loss had occurred the law applicable was the Travancore Income tax Act  The High Court has granted a certificate under section 66A2 of the Income tax Act
Two questions were referred to the High Court in compliance with an earlier order of the High Court under section 662 607 but with the other question we are not concerned in this appeal
Messrs Helen Rubber Industries Ltd is a Company which was incorporated in the former State of Travancore with its registered office at Kottayam
In the year 1941 the assessee Company granted a lease of the factory to certain persons for a period of 15 years
From that year the rent and royalty received from the lessees were the only source of income
Disputes having arisen the lessees suspended payment from June 1946
Litigation followed but the dispute was settled by the assessee Company receiving Rs 23000 odd in full satisfaction
With the details of these disputes and their settlement we are not concerned
The year of account of the assessee Company is the Calendar year
Before the extension of the Indian Income tax Act there was in force in Travancore State the Travancore Income tax Act 1121 M E Act XXIII of 1121 M E which came into force on the first day of Chingom 1122 M E August 17 1946
The assessment year under the Travancore Act ended on the last day of Karkadakom which corresponds to August 16 1947
Thus for the account year 1 1 1946 to 31 12 1946 of the firm the assessment year was 1123 M E 17 8 1947 to 16 8 1948
The assessee Company declared losses in the account years 1946 1947 and 1948
These losses together with the dates of the account years and the assessment years are tabulated below Year of account Year of assessment
Loss 19461 1 1946 to 1123 M E 17 8 1947 Rs 4031 10 0 31 12 1946 to 16 8 1948 19471 1 1947 to 1124 M E17 8 1948 Rs 6605 1 6 31 12 1947 to 16 8 1949 1948 1 1 1948 to 1125 M E 17 8 1949 Rs 2604 13 9 31 12 1948 to 16 8 1950 Total Rs 13241 9 3 608 The dispute in this case is about the right of the assessee Company to carry forward the loss of the year 1946 under the provisions of the Travancore Act read with section 242 of the Indian Income tax Act and the Taxation Laws Part B States Removal of Difficulties Order 1950 to the assessment year 1951 52 in the assessment of the Company for its year of account the Calendar Year 1950
The Income tax Officer held that the loss of the year 1946 could not be carried forward to that year since it had lapsed after two years under section 32 of the Travancore Act and section 242 was not applicable in view of paragraph 3 of the Order mentioned above
The order of the Income tax Officer was confirmed in appeal by the Appellate Assistant Commissioner and the Appellate Tribunal
The Tribunal was moved for a case but declined to state one but the High Court called for a statement of the case under section 662 and the above mentioned question was decided in favour of the assessee Company
The only question argued in this appeal is whether the High Court was right in the answer it gave
The assessee Company was not represented at the hearing before this Court
The Indian Income tax Act was extended to Travancore Cochin by section 3 of the Indian Finance Act 1950
By section 131 of the same Act it was provided If immediately before the 1st day of April 1950 there is in force in any part B State any law relating to income tax that law shall cease to have effect except for the purposes of the levy assessment and collection of income tax  in respect of any period not included in the previous year for the purposes of assessment under the Indian Income tax Act 1922 XI of 1922 for the year ending on the 31st day of March 1951 or for any subsequent year  609 By this section a clear division was made between the operation of the prior law and the Indian Income tax Act
The assessment for the year 1951 52 was thus made on the assessee Company under the Indian Income tax Act
Under section 242 of the Indian Income tax Act as it existed prior to its amendment by the Finance Act 1955 it was provided 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 under the head Profits and gains of business profession or vocation  and the loss cannot be wholly set off under sub section1 the portion not so set off shall be carried forward to the following year and so on but no loss shall be so carried forward for more than six years and a loss arising in the previous years for the assessment for the years ending on the 31st day of March 1940 the 31st day of March 1941 the 31st day of March 1942 the 31st day of March 1943 and the 31st day of March 1944 respectively shall be carried forward only for one two three four and five years respectively
 Since we are concerned with the loss for the year which does not correspond to the years named in the latter part of the section above quoted that part of the section does not apply to the assessee Company s case
What was thus claimed was the benefit of the earlier part where the loss was allowed to be carried forward for six years
This position taken by the assessee Company can hardly be considered in view of the provisions of section 32 of the Travancore Act read with the Removal of Difficulties Order passed in 1950
Section 32 of the Travancore Act was a reproduction of the Indian section 242 except for a change of the 610 dates mentioned therein due obviously to the fact that the Travancore Act came into force on the first day of Chingom 1122 M E August 17 1946
It is enough to point out that instead of 31st March wherever they occurred the words the last day of Karkadakom August 16 were substituted and instead of the years 1940 1941 1942 1943 and 1944 were substituted the Malayalam years 1122 17 8 1946 to 16 8 1947 1123 17 8 1947 to 16 8 1948 1124 17 8 1948 to 16 8 1949 1125 17 8 1949 to 16 8 1950 and 1126 17 8 1950 to 16 8 1951
These were the only differences between the two sections and section 242 of the Indian Income tax Act so modified can be read as section 32 of the Travancore Act
The existance of these two sections in the two Acts was likely to lead to some difficulty and a question was likely to arise which law was to prevail
Section 12 of the Indian Finance Act 1950 therefore enabled the Central Government to pass an Order removing any such difficulty
The Taxation Laws Part B States Removal of Difficulties Order 1950 was thus passed
Paragraph 3 of that order provided 3
Carry forward and set off of previous losses where in any previous year prior to the previous year for the assessment for the year ending on the 31st day of March 1950 an assessee has sustained a loss of profits or gains in any business profession or vocation carried on by him and such loss would had the State law continued to be in force have been set off against the profits and gains if any from the same business chargeable to tax in the said year of assessment or in any year subsequent thereto such loss would be so set off in the same manner to the same extent and up to the same year of assessment as it would have been set off had the State law continued to be in force
 611 The critical words are those contained in the later part namely in the same manner to the same extent and up to the same year of assessment as it would have been set off had the State law continued to be in force
They show that the law to apply to the loss of any previous year prior to the previous year for the assessment for the year ending on the 31st day of March 1950 was the law in force in a Part B State here the Travancore Act
Now taking the case of the assessee Company we shall indicate which previous year or years would be governed by the Travancore Act
The previous year of the assessee Company for the assessment year ending 31st day of March 1950 would be the Calendar year 1 1 1949 to 31 12 1949
To that the Indian Income tax Act would apply
The application of the Travancore Act by para 3 of the order was limited to the previous year before 1 1 1949 and other earlier previous years
The previous year with which we are concerned 1 1 1946 to 31 12 1946 is so clearly a previous year to which the Travancore Act applies
that it does not admit of any doubt or difference
The matter is thus governed by the Travancore Act
The Travancore Act laid down inter alia that a loss arising in the previous year for the assessment for the year ending on the last day of Karkadakom 1123 could be carried forward for two years
The assessment year for 1123 ME covered the period 17 8 1947 to 16 8 1948 and the previous year of the assessee Company relative to that assessment year was 1 1 1946 to 31 12 1946
The loss of the Calendar year 1946 could be carried forward to the Calendar years 1947 and 1948 and given effect to till the assessment year 1125 17 8 1949 to 16 8 1950
The assessment year 1 4 1951 to 31 3 1952 corresponded to the account year of the assessee Company 1 1 1950 to 31 12 1950 and that is beyond two years whether one takes 612 the account year or the assessment year as the basis of the calculation of two years
The High Court with all due respect was not right in thinking that the Removal of Difficulties Order 1950 was meant to enlarge the rights of the new assessees brought within the reach of the Indian Income tax law
The intention of the law was to make a dividing line between those previous years to which the provisions of the earlier law would apply and those previous years to which the provisions of the Indian Income tax Act would apply
The rights were neither enlarged nor curtailed
As pointed out by Chagla CJ in the Indore Malwa United Mills Ltd vs Commissioner of Income tax 1
the only right integration has given to an assessee is the right contained in clauses sic 3 of the Removal of Difficulties Order 1950 and that right is that if the law of his own State permitted him to carry forward the losses then that right is preserved under the Indian Income tax Act
 paragraph 3 of the Order clearly said that the right was available in the same manner to the same extent and up to the year of assessment as laid down in the State law here the Travancore Act
Since in this case the carry forward of the loss was for only two years and those years were before the previous year from which the Indian Income tax Act began to apply there is no question of the application of the Indian Income tax Act
The appeal thus succeeds and is allowed
The assessee Company shall pay the costs of the appeal in the High Court but there shall be no order about costs in this Court
Appeal allowed


Summary:
The respondent company was incorporated in the former State of Travancore
The dispute was about the right of the respondent assessee company to carry forward the loss of the years 1946 under the provisions of the Travancore Act read with section 24 2 of the Indian Income tax Act and the Taxation laws Part B StatesRemoval of Difficulties Order 1950 to the assessment year 1951 52 in the assessment of the company for its year of account
The Income tax Officer held that the loss of the year 1946 could not be carried forward to that year since it had lapsed after two years under section 32 of the Travancore Act and section 24 2 was not applicable in view of para 3 of the order  Held that the Taxation laws Part B State Removal of Difficulties Order 1950 passed under section 12 of the Indian 606 Finance Act 1950 was not intended to make a dividing line between those previous years to which the provisions of the earlier law would apply and those previous years to which the provisions of the Income tax Act would apply
The rights were neither enlarged or curtailed by para 3 of the order
That paragraph said that the right was available in the same manner to the same extent and upto the same year of assessment as laid down in the State law
The law to apply was thus the State law and the carry forward could only be for two years
Indore Malwa United Mills Ltd vs Commissioner of Income tax 1959 35 I T R 271 approved