Civil Appeal No 2366 of 1972
From the Judgment and order dated 25 3 1971 of the Calcutta High Court in Income Tax Ref
No 12069
V section Deasi section R Agarwal Anil Sachthey Praveen Kumar and Miss Bina Gupta for the Appellant
T A Ramachandran and Miss A Subhashini for the Respondent
The assessee is a company carrying on the business of manufacturing jute goods
The case relates to the assessment year 1960 61 for which the relevant accounting period is the financial year ending Match 31 1960
While making the assessment for the assessment year 1959 60 the Income Tax officer set off the unabsorbed business loss of Rs 158845 for 1949 50 and Rs 570952 for 1950 51 against the business income of that year and directed that Rs 1550189 representing the loss remaining unabsorbed should be carried forward
In the assessment proceeding for the assessment year 1960 61 with which we are concerned the assessee claimed that the unabsorbed loss should be carried forward and set off against the business income of the current year
The Income Tax officer rejected the claim on the ground that the unabsorbed loss related to 1950 51 and could not be carried forward for more than eight years
The assessee pressed the claim in appeal before the Appellate Assistant Commissioner but without success
A second appeal was dismissed by the Income Tax Appellate Tribunal
At the instance of the assessee the Appellate 908 Tribunal referred the following question of law to the High Court at Calcutta Whether on the facts and circumstances of the case the assessee was entitled in law to set off unabsorbed loss of Rs 1550189 of the assessment year 1950 51 against the business income of the assessment year 1960 61  The High Court answered the question in the negative
In this appeal by the assessee it is contended that by virtue of section 242 iii of the Indian Income Tax Act 1922 as it stood before its amendment with effect from April 1 1957 the assessee had acquired a vested right to have the unabsorbed loss carried forward from year to year until it was completely set off and the subsequent amendment limiting the period for carrying forward the loss to eight years could not divest the assessee of the vested right which had thus accrued to him
It is pointed out that the amendment effected in 1957 is not retrospective in operation
In our judgment there is no substance in the assesse s claim
Section 242 has suffered amendment a number of times
Prior to its amendment by the Finance Act 1955 it permitted a business loss to be carried forward for not more than six years except in the case of losses pertaining to certain assessment years ending with the assessment year 1943 44 where the period for carrying forward was shorter
Section 16 of the Finance Act 1955 amended section 242 and as a result of the amendment section 242 iii provided that a businesss loss which was not wholly set off could be carried forward from year to year
Thereafter Finance No 2 Act of 1957 amended s242 iii with effect from April 1 1957 and in consequence an unabsorbed loss could not now be carried forward for more than eight years
The assessee claims a vested right under section 242 iii as it stood before its amendment in 1957 to have the unabsorbed loss of 1950 51 carried forward from year to year until the loss is completely absorbed
The claim is based on a misconception of the fundamental basis underlying every income tax assessment
It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication Commissioner of Income Tax West Bengal vs Isthmian Steamship Lines and Karimtharuvi Tea Estate Ltd vs State of Kerala on that principle it is abundantly clear that when an 909 assessment for the assessment year 1960 61 is to be made and section 242 is invoked it is s242 as in force in that assessment year which has to be applied  That is the provision as amended by the Finance No There is no question of the assessee possessing any vested right under the law as it stood before the amendment
The assessment for one assessment year cannot in the absence of a contrary provision be affected by the law in force in another assessment year
A right claimed by an assessee under the law in force in a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year
Therefore inasmuch as the provisions of section 242 as amended in 1957 govern the assessment for the assessment year 1960 61 the High Court is right in affirming that the unabsorbed loss of Rs 1550189 of the assessment year 1950 Sl cannot be carried forward for more than eight years and consequently cannot be set off against the business income of the assessment year 1960 61
It is pointed out that the Appellate Assistant Commissioner mentioned in his order for the assessment year 1959 60 that the unabsorbed loss of Rs 1550189 should be carried forward
That direction has meaning only if the law in force in the assessment year 1960 61 permits the unabsorbed loss to be carried forward into the assessment of that year
The direction by the Appellate Assistant Commissioner assumes that it the law permits the unabsorbed loss to be carried forward into future years but as we have seen that is not the law and therefore the assessee can derive no advantage from that direction
The assessee relies on the judgment of this Court in Commissioner of Income Tax Kerala vs Helen Rubber Industries Ltdl That was a case however where paragraph 3 of the Taxation Laws Removal of Difficulties order 1950 operated to divide the previous years to which the provision of the Travancore Income Tax Act 1946 applied from those previous years to which the provisions of the Indian Income Tax Act 1922 brought into force in the State of Travancore in 1950 would apply
It was because of the Removal of Difficulties order that the Court held that since under the Travancore Law the loss could be carried forward for two years only and those two years ended be fore the previous years for which the Indian Income Tax Act began to apply the benefit of the period of six years under the Indian Income Tax Act would not be available
The case is clearly distinguishable
In the result the appeal fails and is dismissed
PBR Appeal dismissed


Summary:
Section 242iii of the Indian Income Tax Act 1922 as it stood in 1955 provided that a business loss which was not wholly set off should be carried forward from year to year
In consequence of an amendment to the section made in 1957 the carry forward of unabsorbed loss could not be effected for more than eight years
After setting off unabsorbed losses for the assessment years 1949 50 and 1950 51 the Income Tax officer directed that the loss remaining unabsorbed in the year 1950 51 be carried forward
The assessee s plea that the unabsorbed loss of the year 1950 51 should be set off against the business income of the assessment year 196061 was rejected by the Income Tax officer on the ground that the unabsorbed loss of the year 1950 51 could not be carried forward for more than eight years
The assessee was unsuccessful in appeal before the Appellate Assistant Commissioner and the Appellate Tribunal
The High Court answered the reference against the Assessee
In appeal to this Court it was contended that by virtue of section 242 iii of the Act as it stood before its amendment in 1957 the assessee had acquired a vested right to have the unabsorbed loss carried forward from year to year until it was completely set off and that the subsequent amendment limiting the period to eight years could not divest the assessee of the vested right already accrued to him
Dismissing the appeal  HELD The unabsorbed loss of the assessment year 1950 51 could not be carried forward for more than eight years and consequently could not be set off against the business income of the assessment year 1960 61
909 C 1
a It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication right claimed by an assessee under the law in force In a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that years
908 G 909 B Commissioner of Income Tax West Bengal vs Isthmian Steamship Lines and Karimtharuvi Tea Estate Ltd vs State of Kerala  referred to
907 b When an assessment for the assessment year 1960 61 was to be made A and section 242 was invoked it was the section in force as ill that assessment year which had to be applied
There is no question of the assessee possessing any vested right under the law as it stood before the amendment
908 H 909 A B 2
The direction of the Appellate Assistant Commissioner that the unabsorbed loss should be carried forward have meaning only if the law in force in the relevant assessment year permits the unabsorbed loss to be carried forward into the assessment of that year the instant case the Appellate Assistant Commissioner assumed that the law permitted the unabsorbed loss to be carried forward into future year
But that was not the law in the relevant assessment year and therefore the assessee could derive no advantage from that direction
909 D E Commissioner of Income Tax Kerala vs Helen Rubber Industries Ltd  distinguished