Case: Commissioner Of Income Tax (Central) Delhi Vs. Harprasad &amp; Co. (P) Ltd

2. The assessee respondent is a Private Limited Company. The assessment year under reference is 1955-56 and the relevant previous year is from 1-5-1953 to 30-4-1954. On 10-1-1952 the assessee purchased 1124 shares of M/s. Intercontinent Travancore Pvt. Ltd. at a cost of Rs. 1,12,400/- from M/s. Escorts (A and M) Ltd. In the relevant accounting year ending on 30-4-1953 the assessee received 562 bonus shares from the same company. It thus acquired a total number of 1686 shares. On 3-953, i.e. during the relevant previous year the assessee sold all these 1686 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 Rupees 84,862 on the ground that it was a loss of a capital nature.3. 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 Assistant Commissioner found that the assessees claim was exaggerated and that the actual loss was to the tune of Rs. 28,662/- only. He further held that this loss of Rs. 28,662/- was not a revenue loss but a capital loss arising out of change of investments.4. Against the decision of the Appellate Assistant Commissioner the assessee preferred an appeal before the Tribunal, challenging the findings of the Commissioner both in regard to the amount of loss and its nature. At the stage of arguments before the Tribunal, the assessees Counsel did not press these grounds of appeal but took up the plea that the amount of Rs. 28,662/- which had been held to be a capital loss by the authorities below, should be allowed to be carried forward and set off against profits and gains, if any, under the head "capital gains" earned in future, as laid down in sub-sections (2A) and (2B) of Section 24 of the Act. Despite objection from the Departmental Representative, the Tribunal allowed this new ground to be raised with the observation that it was "a pure question of law and did not require investigation of any fresh fact". It further accepted the contention of the assessee and directed that the capital loss of Rs. 28,662/- should be carried forward and set off against "capital gains" if any, in future.5. At the instance of the Commissioner of Income-tax, the Tribunal referred the above question (set out at the commencement of this judgment) to the High Court under Section 66 (1) of the 1922 Act.6. It was contended before the High Court on behalf of the Revenue that the expression "capital gains" in sub-section (2A) of Section 24 has reference only to Section 12B so that the loss suffered in the year in which the profits under the head "capital gains" were not taxable, could not fall within sub-sec. (2A) of Section 24. S. K. Kapoor J., speaking for the Division Bench rejected this contention in these terms :"This argument overlooks the fact that the head of income chargeable to income-tax are set out in Section 6.Section 12-B deals only with the computation of capital gains and with their taxability if they arise during a particular period. As a matter of fact, Section 12B itself refers to Section 6 inasmuch as it says that "the tax shall be payable by an assessee under the head "capital gains" ". This obviously has reference to the VI th head in Section 6. The effect of sub-sections (2A) and (2B) of Section 24 read with Sections 6 and (2B), 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 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.

Reasoning: the charging provisions of the Act, it is discernible that the words income or profits and gains should be understood as including losses also, so that, in one sense profits  and gains represent plus income whereas losses represent minusm what has been said above it follows as a necessary corollary that during the period S. 12B did not make income under the head capital gains chargeable, an assessee was neither required to show income under that head in his return, nor entitled to file a return showing "capital losses" merely for the purpose of getting the same computed and carried forward. Sub-section (2A) of Section 22 would not give him such a right because the operation of that sub-section is, in terms, confined to (i) a loss which is sustained "under the head profits and gains of business, profession or vocation" and would ordinarily have been carried forward under sub-section (2) of Section 24, and (ii) to "income" which falls within the definition of total income. Both these conditions necessary for the application of the subsection are lacking in the present case.21. Nor do we find any substance in the contention 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.22. 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 presupposes 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 profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be "carried forward." Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year, from a taxable source.23. Now let us test the claim of the assessee in the light of the above principles. The "capital loss" of Rs.28,662/- in the present case, was sustained in September l953 that is, in the previous year 1953-54. Let us assume that in the subsequent years 1955-56 and 1956-57 when the capital gains were not taxable, he made huge capital gains far exceeding this loss, could he be obliged to show those capital gains in his return? Could the loss of the year 1953-54 be absorbed or set off against such capital gains of the subsequent years? The answer is emphatically in the negative.24. The cases cited by Shri Sen are not relevant. In all those cases, the heads of income under which the losses were sustained, were chargeable to tax. None of them was a case of capital loss pertaining to the period, 1948 to 1957.25. For the foregoing reasons, we are of the opinion that the High Court was in error in answering the question referred to it, in favour of the assessee. We would reverse that answer in favour of the Revenue.