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Petitioner: COMMISSIONER OF INCOME TAX and another VS Respondent: DALMIA CEMENT (BHARAT) JUDGMENT
Court Name: Supreme Court of India Judge(s): G. T. Nanavati, B. P. Jeevan Reddy, Suhas C. Sen Title:COMMISSIONER OF INCOME TAX and another vs DALMIA CEMENT (BHARAT)
JUDGMENT
Reported As: 1996 PTD 840 Result: Appeals allowed Judgment JUDGMENT ' B.P. JEEVAN REDDY, J.---Cardozo J. Had once exclaimed: "The precedents have turned upon us and they are engulfing and annihilating us, engulfing and annihilating the very devotees that worshipped at their shrine". We were inclined to repeat his observation after hearing this matter, a feeling which will be borne out as the judgment proceeds. The matter arises under the Indian Income Tax Act, 1922 (hereinafter referred to as "the 1922 Act"). Of the six questions referred by the Tribunal for the opinion of the Madras High Court (see (1976) 104 ITR 337) under section 66(1) of the Act, only questions Nos. 2, 3 and 4 are relevant for our purpose. They read (at page 342): "(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to have the losses for the assessm ent years 1952-53 to 1954-55 quantified and set off against its share income from the partnership firm of Dalmia Magnesite Corporation for the assessment years 1960- 61,and 1961-62? (3) Whether the Appellate Tribunal has jurisdiction to direct the Income Tax Officer to quantify the losses for the assessm ent years 1952-53 to 1954-55 and allow the set-off against the share income from the partnership-firm for 1960-61 and 1961-62? (4) Whether, on the facts and in the circumstances of the case, the assessee was entitled to have the losses of the assessm ent years 1955-56 to 1959-60 set off against its share income from Dalmia Magnesite Corporation for the assessment years 1960-61 and 1961-62 under the provisions of section 24(2)(iii) of the Indian Income Tax Act, 1922?" ' We shall state the facts in so far as they are relevant to the said questions alone.
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' 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 year's relating, inter alia, to the 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(2-A) 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 had suffered losses and determined the same for each of the said years. ' For the assessm ent year 1960-61, the assessee filed, in the first instance, a return disclosing a pr,,fit of Rs,1,00,136, but later filed a revised return showing a loss of Rs,60,351 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 assessee's 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 assessm ent year 1960-61 in view of clause (ii) of subsection (2) of section 24. In other words, he was of the opinion that the business in which losses arose in the earlier years was not the same business which was carried on during the previous year relevant to the assessment year 1960-61. On appeal, the Appellate Assistant Commissioner affirmed the Income Tax Officer's view that the income of the previous year relevant to the 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 years was one and the same. The Tribunal also rejected the contention urged by the Revenue before it that inasmuch 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 Revenue's 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 assessm ent 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 (questions 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 a 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 the other assessment years. In respect of the assessm ent 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 subsection (2-A) of section 22. In any event, the assessment in respect of the said three earlier assessm ent years---whether right or wrong---had become final and the Tribunal had no jurisdiction, while dealing with the appeal relating to the assessment year 1960-61 (or the assessm ent year 1961-62, -as the case may be), to reopen the assessment relating to the said three earlier assessm ent years, determine the loss for those years, carry it forward and set it off against the profits made during the year relevant to the assessment year 1960-61 (or 1961-62). Reliance was placed on ITO v. Murlidhar Bhagwan Das (1964) 52 ITR 335 (SC) and CIT v. Manich Sons (1969) 74 ITR 1 (SC) in support of the above propositions. The said contentions were rejected by the. High Court in the following words (at page 344 of 104 ITR):
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"On the 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 question 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 CIT 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 predetermined 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 returns for the assessm ent years 1952-53 to 1954-55 and in fact obtained the required extension from 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 22(1) or section 22(2-A). But, it has been held by the Supreme Court in CIT 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(2-A), 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 assessm ent years 1960-61 and 1961-62. We have to, therefore, hold that the Tribunal, in this case, while dealing with the assessm ent 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 years 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 assessm ent years in question. The third question is, therefore, answered in the affirmative and against the Revenue." ' The High Court then took up questions Nos. 2 and 4 which related to the merits of the claim, viz., whether the business carried on during the previous year relating to the assessment year 1960-61 (and 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. ' The appeals had come up earlier before a Bench comprising one of us (B.P. Jeevan Reddy, J.) and S.P. Bharucha, J. Learned counsel for the respondent-assessee placed strong reliance upon the decision of this Court in CIT v. Khushal Chand Daga (1961) 42 ITR 177---which was also relied upon by the High Court. On a careful perusal of the said judgment, however, the Bench found -some
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difficulty with respect to the precise ratio of the judgment. The Bench was of the opinion that the matter requires consideration by a larger Bench for the reasons mentioned in its order of reference. The matter was accordingly directed to be placed before the Chief Justice of India for placing it before a larger Bench. The appeals have now come up before this three-Judge Bench. We have heard counsel for both the sides at some length. ' Relevant provisions of the 1922 Act and the corresponding provisions of the present Act: ' Subsection (1) of section 22 of the 1922 Act provided that before the 1st day of May in each year, the Income Tax Officer shall give notice, by publication in the press and by publication in the prescribed manner, requiring every person, whose total income during the previous year exceeded the taxable limit, to furnish within sixty days, a return in the prescribed form verified in the prescribed manner and containing the requisite particulars. There is no corresponding provision in the present Act. Subsection (2) of section 22 provided that in the case of any person whose total income is, in the opinion of the Income Tax Officer such as to render such person liable to income- tax, the Income Tax Officer may serve a notice upon him requiring him to furnish, within the prescribed period, not being less than thirty days, a return in the prescribed form containing the requisite particulars. The corresponding provision in the 1961 Act is subsection (2) of section 139. Both the old and the new provisions empower the Income Tax Office to extend the period for filing the return on proper cause being shown. Subsection (2-A) of section 22 provided that where a person claimed to have suffered losses and to carry them forward under subsection (2) of section 24, he must furnish his return within the time specified in the general notice issued under section 22(1) or within such further time as the Income Tax Officer may allow in any case. It would be appropriate to set out the subsection in its entirety: "22. (2A) If any person, who has not been served with a notice under subsection (2) has sustained a loss of profits or gains in any year under the head 'Profits and gains of business, profession or vocation' , and such loss or any part thereof would ordinarily have been carried forward under subsection (2) of section 24, he shall, if he is to be entitled to the benefit of the carry forward of loss in any subsequent assessm ent, furnish within the time specified in the general notice given under subsection (1) or within such further time as the Income Tax Officer in any case may allow, all the particulars required under the prescribed form of return of total income and total world income in the same manner as he would have furnished a return under subsection (1) had his income exceeded the maximum amount not liable to income-tax in his case, and all the provisions of this Act shall apply as if it were a return under subsection (1)." ' The corresponding provisions in the present Act are section 139(3) and section 80. ' Subsection (3) of section 23 dealt with assessment. It provided that on the day specified in the notice issued under section 23(2), or on any subsequent date, the Income Tax Officer shall, after hearing the evidence produced by the assessee, pass an order in writing assessing the total income of the assessee and also determine the amount payable by him as tax on the basis of such assessm ent. The corresponding provision in the present Act is subsection (3) of section 143. Section 143(3), however, speaks specifically of determining not only the income of the assessee, but also the loss---and as would be emphasised later, this is a very relevant distinction between the two provisions. ' Section 24 of the 1922 Act contained provisions relating to set-off of losses in computing the aggregate income. The main limb of subsection (1) provided that "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". The corresponding provision in the present Act is section 71. ' Clause (ii) of subsection (2) of section 24 contained a limitation upon the right of the assessee to carry forward the losses. The limitation was that the losses could be carried forward and set off
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only if the same business was continued in the subsequent year as well. The corresponding provision in the present Act is clause (i) of subsection (1) of section 72. ' Subsection (3) of section 24 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 as computed by him for the purposes of this section". (Emphasis added). This provision is of crucial relevance to the question at issue herein. The corresponding provision in the present Act is section 157.[When we referred to the "corresponding provision" in the present Act, we meant only a broad correspondence.] ' Contentions of the parties: ' The submission of learned counsel for the assessee in the appeals before us is that inasmuch as the requirement of section 24(3) has not been complied with in respect of the aforesaid three earlier assessm ent years (1952-53 to 1954-55), the assessee is entitled to claim in the assessment proceedings relating to the assessm ent year 1960-61 (and 1961-62) that the loss sustained during those three earlier assessm ent years be determined now, be carried forward and set off against the profits arising during the previous year relating to the assessment year 1960-61 (and 1961-62). It is further submitted that the intimation given by the Income Tax Officer that no cognizance can be taken of the returns of the said three assessment years on the ground that they were filed beyond the period stipulated under section 22(1) and section 22(2-A) is neither an order of assessment nor an order within the meaning of section 24(3). For this reason also, the assessee is entitled to have the losses for the said three assessment years determined and carried forward to be set off against the profits of the subsequent assessment years 1960-61 (and 1961-62). Strong reliance in support of the above proposition is placed upon the decisions of this Court in CIT v. Khushal Chand Daga (1961) 42 ITR 177, CIT v. Kulu Valley Transport Co. P. Ltd. (1970) 77 ITR 518 (SC) and CIT v. Manmohan Das (1966) 59 ITR 699 (SC). ' On the other hand, the contention of learned counsel for the Revenue is that the intimation of the Income Tax Officer that no cognizance can be taken of the returns filed by the assessee with respect to the said three earlier assessment years was an order which could have been appealed against by the assessee, if he so chose. (In such a situation, the question of intimation of the amount of loss determined under section 24(3) could not have arisen, says counsel). Since the assessee failed to prefer an appeal against the said intimation, his right to have the losses determined for those years stood negatived. In such a case, he cannot reagitate or seek to reopen the very same question in the assessment proceedings relating to the subsequent assessment year(s) inasmuch as each assessm ent year is a separate unit under the Income Tax Act. Reliance is placed upon certain decisions of this Court in support of the said proposition to which we shall refer at the appropriate stage. ' A few clarifications by way of clearing the ground: ' The first feature to be noted in this case is that the assessee did not choose to file an appeal against the intimation given by the Income Tax Officer that he would not take cognizance of the returns filed for the assessm ent years 1952-53 to 1954-55 on the ground that they were filed beyond the period prescribed by law. Had the assessee preferred appeal(s) against that intimation, the majority decision of this Court in Kulu Valley Transport Co. P. Ltd. (1970) 77 ITR 518 could probably have come to its rescue. Indeed, the facts of that case are more or less similar to the facts of this case, with the crucial difference that in that case the assessee preferred appeals against a similar intimation and it is in those proceedings that it was held by this Court ultimately, by a majority, that under the provisions of the 1922 Act, a return of loss filed before making the assessm ent is a valid return and that the Income Tax Officer is obliged to determine the loss on the basis of such return.
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' Strong reliance is placed by learned counsel for the assessee upon the decision of this Court in Manmohan Das case (1966) 59 ITR 699. In our opinion, however, the principle of the said decision is of no relevance to the facts and circumstances of this case. The main question considered in the said decision was whether income received by the assessee under the agreement dated January 2, 1931 (where under he was appointed as the treasurer of the Allahabad Bank) was business income assessable under section 10 or salary income under section 7 or income from other sources under section 12. The Income Tax Officer and the Appellate Assistant Commissioner held that it was not business income while the Tribunal held that it was business income. The other question concerning section 24 arose in the following circumstances for the assessment year 1950-51, though the assessee suffered a net loss of Rs,38,027, the Income Tax Officer declared that "the loss computed in that year could not be carried forward to the next year under section 24(2) of the Income tax Act as it was not a business loss". (This was consistent with his holding that the income of the assessee accruing under the said agreement, whereunder the loss was incurred, was not business income). The Tribunal, however, held that the income accruing under the said agreement (where under the said loss was incurred) was business income and accordingly allowed the loss to be carried forward and set off against the income of the succeeding year. The matter was carried to this Court mainly on the question as to the nature of the income. The entire discussion in the decision pertained to the said question. Before taking up the said main question, however, Shah, J. (who delivered the opinion of the Court) took up the other question (concerning section 24) more by way of clearing the ground for the main question. The learned Judge observed (at page 702): "Whether the loss of profits or gains in any year may be carried forward to the following year and set off against the profits and gains of the same business, profession or vocation under section 24(2) has to be determined by the Income Tax Officer who deals with the assessment of the subsequent year. It is for the Income Tax Officer dealing with the assessment in the subsequent year to determine whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the Income Tax Officer who computes the loss in the previous year under section 24(3) that the loss cannot be set off against the income of the subsequent year is not binding on the assessee." ' The decision thus lays down that it was not the function of the Income Tax Officer while making the assessm ent to decide or declare whether the loss determined by him for that assessment year can be carried forward and set off against the income of the future year(s) under section 24(2) of the Act or not. The question whether the loss determined for a previous year is to be carried forward and set off against the income of the succeeding year, it is held, is a matter to be decided by the Income Tax Officer dealing with the assessment relating to the subsequent year in which year the loss is sought to be set off by carrying it forward from the previous year. On that basis, it is held that the declaration made by the Income Tax Officer in the assessment order relating to the assessm ent year 1950-51 that the loss incurred in that year cannot be carried forward was beyond his jurisdiction. Since this Court held, agreeing with the Tribunal and the High Court, that .The income arising under the agreement aforesaid was business income, it held that the loss determined in the previous assessm ent year can be carried forward and set off against the profits of the succeeding/subsequent assessment year under section 24(2) df the Act. It is for this reason we say that the ratio or the principle of this decision has no application to the facts of this case. Main issue: ' Now, coming to the main contention of the assessee, which is based upon the language of section 24(3) and the decision of this Court in Khushal Chand Daga's case (1961) 42 ITR 177, it would be appropriate to first ascertain the facts of the said decision. The decision of this Court records that "learned counsel for the Commissioner (the Commissioner was the appellant before this Court)
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stated that the Department was not very anxious for the decision, because this particular assessee has had only losses in the years following, and no loss would be occasioned to the Revenue, if the losses brought forward be redetermined". Though this Court observed that it was not really concerned with the said aspect, yet it appears that the lack of interest on the part of the appellant led to certain errors in stating the relevant facts. With a view to ascertain the correct factual position, we turned to the decision of the High Court in Seth Khushalchand Daga v. CIT (1957) 31 ITR 417, a decision of the Nagpur High…
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