Case: Commissioner of Income Tax, Madrasand Another Vs. Messrs Dalmia Cement (Bharat) Limited

We shall state the facts insofar as they are relevant to the said questions alone.The respondent-assessee is a public limited company carrying on the business of mining Manganese Ore and selling it as such or after calcining it. During the years 1945 to 1956, it claimed to have suffered losses in that business. On April 23, 1956 the respondent-assessee filed its returns, for the first time, for the previous years relating inter alia to assessment years 1952-53 to 1954-55. The Income Tax Officer issued a notice under Section 23(2) and the matters were posted for hearing on May 7, 1956 but later the Income Tax Officer informed the assessee that no cognizance can be taken of the said returns as they had been filed beyond the period stipulated under Section 22(1) and Section 22(2A) of the Act. In respect of the assessment years 1955-56, 1956- 57, 1957-58, 1958-59 and 1959-60, for which years the returns were filed in time, the Income Tax Officer found that the assessee h ad suffered losses and determined the same for each of the saidthe assessment year 1960-61, the assessee filed, in the first instance, a return disclosing a profit of Rs. 1, 00, 136.00, but later filed a revised return showing a loss of Rs. 60, 351.00 after bringing forward and setting off the losses of the earlier assessment years commencing from the assessment year 1950-51. The Income Tax Officer rejected the assessees claim that it was entitled to bring forward and set-off the losses of the earlier years against the profits for the previous year relating to the assessment year 1960-61 in view of clause (ii) of sub-section (2) of Sectionother words, he was of the opinion that the business in which losses arose in the earlier year was not the same business which was carried on during the previous year relevant to assessment year 1960-61. On appeal, the Appellate Assistant Commissioner affirmed the Income Tax Officers view that the income of t he previous year relevant to assessment year 1960-61 arose from a business which was different from the business which was carried on during the earlier years. On further appeal, however, the Tribunal agreed with the assessee. It held that the business carried on during the previous year relevant to 1960-61 and the business carried on during the earlier year was one and the same. The Tribunal also rejected the contention urged by the Revenue before it that in as much as the losses have not been quantified for the assessment years 1952-53 to 1954-55, the assessee was not entitled to carry forward the losses of those years for being set-off. It also rejected the Revenues contention that during the course of assessment for the assessment year 1960-61 or for that matter 1961-62, the Tribunal cannot direct the quantification of the losses in respect of the said three earlier assessment years, viz., assessment years 1952-53 to 1954-55. Aggrieved with the said decision of the Tribunal, the Revenue applied for referring the aforesaid questions for the opinion of the High Court, as stated above.Of the three questions concerned herein (Question Nos.2, 3 and 4), the High Court took up Question No.3 for consideration first. The contentions urged by the Revenue were to the following effect: under the Income Tax Act, each assessment year is an unit by itself. While dealing with an appeal in relation to a particular assessment year, the Tribunal cannot travel outside the scope of the appeal and deal with matters relating to other assessment years. In respect of the assessment years 1952-53 to 1954-55, no loss was determined by the Income Tax Officer for the reason that the returns were filed beyond the period prescribed. On the basis of such returns, no loss could have been determined and allowed to be carried forward in view of the provision contained in sub-section (2A) of Section 22. In any event, the assessment in respect of the said three earlier assessment years - whether right or wrong- had become final and the Tribunal had no jurisdiction while dealing with appeal relating to the assessment year 1960-61 (or assessment year 1961-62, as the case may be), to reopen the assessment relating to the said three earlier assessment years, determine the loss for those years, carry it forward and set it off against the profits made during the year relevant to assessment year 1960-61 (or 1961-62). Reliance was placed on Income Tax Officer v. Muralidhar Bhagwan Das [ 1964 (52) ITR 335 ] and Commissioner of Income Tax v. Manick Sons [ 1969 (74) ITR 1 ] in support of the above propositions. The said contentions were rejected by the High Court in the followingthe facts of this case, it cannot be said that the Tribunal has exceeded its jurisdiction in directing the Income-tax Officer to quantify the losses in relation to the assessment years 1952-53 to 1954-55 and to allow a set-off of the losses for those years in relation to the assessment years 1960-61 and 1961-62. The Tribunal while disposing of the appeal relating to the assessment years 1960-61 and 1961-62 has to actually determine the taxable income of the assessee for these years and for this purpose it has necessarily to find out whether the assessee is entitled to carry forward the losses and set them off against the profits of the years in question. If, in law, the assessee is entitled to carry forward and set off the losses of the previous years in the assessment years in question, then the Tribunal cannot refuse to consider that quest ion on the ground that the losses in respect of which the set off has been claimed relate to some earlier years. As a matter of fact, an identical question came to be considered by the Supreme Court in Commissioner of I ncome-tax Madhya Pradesh v. Khushal Chand Daga [ 1961 (42) ITR 177 ]. The question there was whether the Tribunal could direct the quantification of the losses for the earlier years while dealing with an appeal relating to the subsequent assessment year. The Supreme Court held that the assessee is entitled to have the losses re-determined in the subsequent year if the income-tax Officer had not duly followed the provisions of the statute in determining the quantum of losses in the earlier years. Though that case did not relate to the jurisdiction of the Tribunal, the principle of the said decision has to be applied to the facts of this case.Admittedly, the assessee, in this case, applied for extension of time for the submission of the returns for the assessment years 1952-53 to 1954-55 and in fact obtained the required extension fro m the Income-tax Officer himself. It is also seen that after the submission of the returns within the extended time, the matters were posted for enquiry and the assessee was asked to produce materials in support of the said returns. But, somehow, the Income-tax Officer chose to close the proceedings saying that he will not take cognizance of those returns as they had not been filed within the time provided in section 2 2(1) or section 22(2A). But it has been held by the Supreme Court in Commissioner of Income-tax, Punjab v. Kulu Valley Transport Co. P. Ltd. [ 1970 (77) ITR 518 ] that though a return disclosing the loss is not filed in time as fixed in the general notice under section 22(1) or section 22(2A), the provisions of section 24(1) and (2) of the Act should be taken into account for the purpose of granting relief to the assessee, in relation to the assessment for the subsequent year. It has therefore, to be taken that the non- consideration of the returns and the non-determination of the losses in relation to the years 1952-53 to 1954-55 by the Income-tax Officer cannot be said to stand in the way of the assessee getting the relief under section 24(1) or section 24(2) in relation to the assessment years 1960-61 and 1961-62. We have to, therefore , hold that the Tribunal, in this case, while dealing with the assessment for the years 1960- 61 and 1961-62 is justified in directing the Income-tax Officer to determine the losses in relation to the assessment y ears 1952-53 to 1954-55 for the purpose of granting relief to the assessee under section 24(1) and section 24(2) in relation to the assessment years in question. The third question is, therefore, answered in the affirmative and against theHigh Court then took up Questions 2 and 4 which related to the merits of the claim, viz., whether the business carried on during the previous year relating to assessment year 1960-61 (an d 1961-62) is the same as the business carried on during the earlier years including the previous years relevant to the aforesaid three assessment years. The High Court agreed with the Tribunal that it was the same business. Accordingly, the questions were answered in favour of the assessee and against the Revenue. The correctness of the opinion expressed by the High Court is questioned in these appeals.

Reasoning: It is true that an order of assessment would not only determine the income but also the loss, even so Section 23(3) has to be read along with Section 24(3) of the 1922 Act. So read, it would mean that in case of loss, it was mandatory upon the Income-tax Officer to "notify to the assessee by order in writing the amount of the loss as computed by him for the purposes of this Section". Sub-section (3) of Section 24 must be construed to be mandatory in view of absence of words in sub-section (3) of Section 23 regarding the determination and intimation of loss. Inasmuch as in Khushal Chand Daga the Income Tax Officer failed to notify to the assessee the loss computed by him (for the assessment year 1941-42), this Court said that the assessee could not question the amount of loss so determined by way of an appeal. [Section 30 provided an appeal inter alia against an order computing the loss under Section 24, which means and refers to the order in writing contemplated by Section 24(3)]. It is for this reason that this Court held in Khushal Chand Daga that the computation of loss by the Income Tax Officer in the assessment proceedings relating to assessment year 1941-42 was not final and could be re-opened and re-agitated by the assessee in the assessment proceedings relating to assessment year 1942-43. It is obvious that such a plea would not be available under the present Act inasmuch as sub-section (3) of Section 143 expressly provides the determination o f not only the total income but also the loss. Because of the language of sub- section (3) of Section 143 of the present Act, the provision contained in Section 157 of the present Act (correspondent to Section 24(3) of the 1922 Act) cannot be deem ed to be mandatory but only directory. In other words, the position under the present Act is that even if the intimation in writing contemplated by Section 157 is not given by the assessee, Yet the assessee will not be entitled to raise a question similar to the one raised by the assessee in Khushal Chand Daga because under the present Act he can, and should, raise that question in the appeal preferred against the order of assessment since an order of assessment under the present Act determines not only the assessees income, if there is one, but also the loss, if there isquestion then arises, how far does the ratio of Khushal Chand Daga help the assessee before us. In this case, the Income Tax Officer intimated the assessee that since the loss returns filed for the assessment years 1952-53 to 1954-55 were filed beyond the period prescribed by law, he would not take cognizance of the said returns. In other words, he refused to make an assessment. True it is that this stand of Income Tax Officer was wrong in law as held in Kulu Valley Transport; but that only means that he failed to do his duty by law, viz., refused to make an order of assessment on the basis of such returns and to determine the loss. Had he made an assessment and determined the loss then, he would have been obliged to intimate the assessee of the same under and as required by Section 24(3). As against this, in Khushal Chand Daga, an assessment was duly made for the previous assessment year (1941-42) and loss also computed but the failure of the Income Tax Officer lay in not sending an intimation specifying the amount of loss determined as contemplated by Section 24(3). It was held that such failure to intimate under Section 24(3) disabled the assessee from questioning the quantum of loss determined by way of an appeal. To put it in different words, while the failure in Khushal Chand Daga related to the second stage (failure to intimate the amount of loss determined), the failure in the case before us relates to the anterior stage (failure to make an assessment and determine the loss). In this context, it is essential to keep the language of Section 24(3) and Section 30(1) in mind. Section 24(3) provided that"when in the course of the assessment of the total income of any assessee, it is established 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 assessee by order in writing the amount of the loss computed by him for the purposes of this Section".Section 30(1), which provided for appeal against the Income Tax Officers order read thus (insofar as is relevant):"any assessee objecting to the amount of income assessed under section 23 or section 27 or the amount of loss computed under Section 24....may appeal to the Appellate Assistant Commissioner against the assessment or agains t such refusal or order".Khushal Chand Daga seems to say that where such intimation is not given, the assessee cannot question the quantum of loss determined by way of appeal and that such a plea cannot be urged in the appeal preferred against the order of assessment. This holding rendered in the light of the language of Section 24(3) and Section 30(1) is diferrent from a refusal to make the assessment altogether as has happened in the case before us. To repeat, the failure in this case pertained to the anterior stage and could have been appealed against as a "refusal" to make an assessment order under Section 30(1) as was done in Kulu Valley Transport, whereas in Khushal Chand Daga, no appeal could be preferred according to the holding in that case disputing the quantum (`amount) of loss determined in assessment proceedings in the absence of an intimation under Section 24(3). This is the qualitative difference between both cases and hence the principle of Khushal Chand Daga has no applicationlearned counsel for the assessee relied strongly upon the decision of the Bombay High Court in All India Groundnut Syndicate Limited referred to and relied upon in Seth Khushalchand Daga 1957 (31) ITR 417). In this case, the assessee filed a return of loss of three assessment years, but the Income Tax Officer treated the income of the assessee as nil. Because he took the income as nil and did not determine any loss, obviously there was no occasion for notifying the loss to the assessee under and as contemplated by Section 24(3). In the next assessment year, the assessee made profits and claimed to set off the loss incurred during the earlier three assessment years against the profit made in the subsequent assessment year. The Income Tax Officer disallowed the claim on the ground that the loss was not notified under Section 24(3) of the Act for the three earlier assessment years. When the matter came to the High Court, it was held that the Income Tax Officer was at fault in not determining the loss on the basis of the loss-returns filed by the assessee for the three previous years. The High Courtthis case the assessee has actually submitted his return, that return has not been challenged or disputed by the Income-tax Officer, he comes to no conclusion on that, he does not give a finding, he does not compute the loss. All he says is "incomeIt is difficult to understand how, when the Income-tax Officer does not give a finding and does not compute the loss made by the assessee, the computation of the loss by the assessee has become appealable under Sect ion 30 of the Act and no appeal having been preferred, the computation becomes final. Before we reach this stage, there must be a computation. But in this case there is no computation and no question therefore of either its finality or appealability arises."it was held that the assessee was entitled to have the losses in the three previous assessment years determined, carried forward and set off against the profits of the later assessment year in the assessment proceedings relating to the later assessment year. The learned counsel for the Revenue disputes the correctness of the view taken in this decision. He says that the intimation of assessment of income as `nil was an app ealable order and that non-filing of appeal against it disentitled the assessee from seeking to reopen and re-agitate the said issue in the course of assessment proceedings for the subsequent assessment year. He points out that in Kulu Valley Transport, precisely such an intimation was appealed against. Counsel also relies upon two decisions of High Courts in this behalf, to which a reference would be in order. The first one is the decision of the Madhya Pra desh High Court in Jaikishan Gopikishan and Sons v. Commissioner of Income-tax Madhya Pradesh 1972 (84) ITR 645). In this case, the assessee filed a return of loss beyond the time prescribed under the notification issued under Section 22(1) of the 1922 Act. The Income Tax Officer simply `filed the return on the ground that it was filed beyond the time. The High Court held, following the decision of this Court in Kulu Valley Transport, that in such a case the order `filing the retur n should be treated as an order by which the Officer has determined the loss as nil and therefore appealable under Section 30 of the Act. The other decision is that of Patna High Court in Bihar State Electricity Board v. Commissioner of Income-tax, Bihar 1975 (101) ITR 740 ). This was also a case where the returns were filed beyond the period prescribed by the 1922 Act as well as the 1961 Act.The Income Tax Officer intimated the assessee that since the returns were filed beyond the prescribed period, no action was being taken by him thereon and that the loss for those years would not be carried forward for being set off against the income of the subsequent years. Following the decision of this Court in Kulu Valley Transport, the High Court held that the intimation of the Income Tax Officer must be held to be an order computing the loss as nil and, thereforeis enough for us to say that we do not accept the reasoning of the Bombay High Court in full. The true position has already been indicated by us hereinbefore while indicating the distinction between the facts and ratio of Khushal Chand Daga and the case before us. The intimations of the nature concerned in the said three decisions of the High Courts, as also the intimation concerned in the case before us, should be understood and construed as a refusal to make an assessment and to compute the loss, which is appealable under Section 30 of the 1922 Act as rightly held by the Madhya Pradesh and Patna High Courts, which necessarily means that if not appealed against, that question cannot be re-agitated in the assessment proceedings relating to a subsequent assessment year. Moreover, as eludicated hereinabove, refusal to make an assessment is wholly different and distinct from the failure to intimate the `amount of loss determined as required by Section 24(3). They are two different things and two different stages. The stage of intimation of quantum of loss under Section 24(3) arises only after making an assessment under Section 23(3) and after detemining the loss. Now, a return showing loss need not be accepted implicity. On making the assessment, the Income Tax Officer may find that it is not a case of loss but one of profits or he may agree that there is loss. The amount of loss is also a matter of assessment. In other words, an assessment is necessary for determining the loss. Only after such determination, could the intimation contemplated by Section 24(3) be given specifying the amount of loss. Without an assessment being made, no one can assume that the return showing loss is correct one. Where the Income Tax Officer refused to make an assessment and determine the loss on the ground that returns were filed beyond the prescribed period, the assessee must appeal against such intimation and have the Income Tax Officer compelled to make an assessment.We must reiterate that the controversy of the above nature cannot arise under the present Act. Under the present Act, Section 143(3) requires the Assessing Officer to determine not only the profits/income taxable but also to determine the loss, if there is one. In this view of the matter, Section 157 of the present Act [corresponding to Section 24(3)] loses its significance. It must be understood as merely directory. Under the present Act, the assessee is entitled to and ought to question the amount of loss determined in the appeal preferred against the assessment order itself. He need not wait till he receives the intimation under Section 157. Nor does he suffer any disability on account of not appealing against such intimation, if he has already preferred an appeal against the order of assessment. In this connection, the language of clause (a) of sub-section (1) of Section 246 of the 1961 Act is worth noting. It provides an appealorder of assessment under sub-section (3) of Section 143 or Section 144 where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed..."Section 246 does not provide for an appeal against the intimation under Section 15 7 of the Act. For that matter, none of the provisions in the present Act corresponding to the provisions in Section 24 of the 1922 Act find a mention in Section 246. It can even be said that an intimation by the Income Tax Officer refusing to take cognizance of return - or a similar intimation - implying his refusal to make an assessment and determine the loss is "an order against the assessee" within the meaning of clause (1) of sub-section (1) of Section 246 of the present Act and is appealable as such.