Satyanarayana Rao J. -
(1.) THE question referred to us for decision under Section 66(1), Income-tax Act by the Income-tax Appellate Tribunal is:
"Whether on the facts of the case, the loss of Rs. 7875 claimed, but which had not been determined in the assessment for the year 1942-43 can be set off in the assessment for the year 1843-44 under Section 24(2), Income-tax Act?"
THE assessee is a merchant carrying on business in yarn and cloth. He apparently started his business only in 1941-42 and in the course of the assessment for the year 1943-44 the Income-tax Officer discovered that the assessee was doing business in the assessment year 1942-43 also, though he did not submit a return of income; & therefore he issued a notice to the assessee under Section 34 of the Act read with Section 22 (2) on 21st September 1945. THE assessee submitted a return of his income, but it was discovered thereafter by the Income-tax Officer that there was no income at all during that period. During the assessment year 1943-44 the assessee claimed that his loss in the previous assessment year 1942-43 was Rs. 7875 and that he was entitled to set if off against the profits of the year 1943-44 under Section 24(2), Income-tax Act. This claim was rejected by the revenue authorities on the ground that as the loss was not determined in the previous assessment year the assessee could not claim the benefit of Section 24(2) of the Act.
(2.) ON behalf of the assessee two contentions were raised on the strength of the provision in Section 24(3), which states;
"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 purpose of this section."
The first contention was that in the proceedings under Section 34, the Income-tax Officer was bound, under Section 24(3) of the Act to ascertain the amount of the loss, and his failure to discharge the statutory duty cannot be now taken advantage of by the department to disentitle the assessee to claim the benefit of the provision in Section 24(2) of the Act. This argument is answered by the decision in the -- 'Anglo French Textile Co. Ltd. v. Commissioner of Income-tax', Madras, 1950-18 ITR 906 (Mad) where it was pointed out that the relief contemplated by Section 24(2) court be granted only in the course of the assessment of the total income of the assessee, and as the proceeding initiated under Section 34 was not a proceeding intended to assess the total income of the asses-see, the duty under Section 24 (3) is not cast on the Income-tax Officer, as that provision is not attracted by Section 34 of the Act. Counsel for the assessee attempted to draw a distinction between that case, and the present on the ground, that in that case there was a nil return, whereas in the present case there was no assessment at all and there was no return. But we think that this distinction does not make any difference in the application of the principle. The scope of a proceeding under Section 34, as pointed out in that decision which follows earlier decisions, is very limited, & is not in the nature of a proceeding for assessing the total income under Section 22 and the other sections of the Act.
The next contention urged on behalf of the assessee was that in any event, in this assessment year 1943-44 the Income-tax Officer should have, for the purpose of giving the benefit to the assessee of the provision in Section 24(2), determined the loss which the assessee had suffered during the previous year; and for this he relied again on Section 24(3). His contention was that the language does not restrict the duty of the Income-tax Officer to determine the loss only of the particular assessment year which was being considered, but he was bound to determine the amount of the loss of even the previous year with a view to give the benefit to the assessee of Section 24(2). At first sight the argument might appear to be attractive as there is no express restriction in the sub-section limiting the duty of the Income-tax Officer to the determination of the loss of the particular assessment year with which he was dealing because it says "it is established that a loss of profits or gains has taken place" and does not say whether the loss took place in the assessment year under consideration or in the previous year. Therefore it was argued that whenever a right to set off is claimed under the provisions of Section 24, the Income-tax Officer was bound to ascertain the amount of loss under Section 24(3).
It must, however, be pointed out that the duty is cast only if the assessee Is entitled to have the loss set off under the provisions of this section, i.e., Section 24. The provisions under this section which were introduced for the first time by the Amending Act of 1939 which entitled an assessee to claim relief in respect of loss are twofold. Under Section 24(1), if an assessee sustained a loss of profits or gains in any year under any of the various heads enumerated in Section 6, but made profits in the same year under any of the other heads of that section, he could claim that the loss should be set off against the profits. But that is restricted only to the loss and profit which accrued during the particular assessment year, and is confined only for setting off loss accrued on one head as against the profit earned under another head. If after so setting off there is still a balance of loss that loss could be carried forward to the successive year under Section 24(2) of the Act subject to the limitations therein imposed. Under this Sub-clause (2) to Section 24 that portion of the loss which could not be completely wiped out by setting it off against the profits under Section 24(1), the balance of loss carried forward, could be set off in the succeeding year against the profits and gains of the assessee from the same business carried on by him in the succeeding year and he could carry it forward to the following year also up to a limit of six years as stated in the section. But, the peculiarity under this sub-clause is that while under Clause (1) the loss under one head could be set off against the profits under another head, the balance of loss carried forward under Section 24(2) could be set off only against the profits of the particular business in which the loss had previously accrued and not against the profits under other heads.
To claim therefore the benefit of Section 24(2) it must be established that there was a loss which was already ascertained but which could not be completely wiped out by setting it off against the profits under a different head under Section 24(1) and that there was a balance which was carried forward to the subsequent year. The balance of loss, therefore contemplated under Section 24(2) is an ascertained balance and not an undetermined balance. Where a right is claimed under Section 24(2), the question, therefore, of ascertaining the loss of a previous year would never arise and cannot arise and therefore there would be no duty where a right under Section 24(2) exists compelling the Income-tax Officer to determine the loss of the previous assessment year. Section 24(3) can only apply, therefore, to a case where in the same assessment year there was loss under one head and profit under another head; but the Income-tax Officer for reasons best known to himself refuses to determine the loss but proceeds with the assessment of the income of the heads under which there is profit. Section 24(3), in our opinion, does not help the assessee in his claim that he is entitled to the benefit of Section 24(2) and to compel the Income-tax Officer to determine the loss of the previous assessment year 1942-43. The policy underlying the provisions of the Income-tax Act is that generally there is no case where during a given assessment year the revenue authorities are called upon to determine either the loss or the income of the previous year except to the limited extent recognised under Section 34 of the Act. It is, therefore, difficult to accept the contention that under Section 24(3), the Income-tax Officer was bound to determine during the assessment year 1943-44 the loss which accrued, to the assessee in the accounting year corresponding to the assessment year 1942-43.
If the assessee carried on only one business and that business ended in loss, there is no machinery provided under the Act to have that loss determined by the Income-tax authorities. There is no provision compelling the Income-tax authorities to do it. It is unnecessary to consider in this case the further, question that might arise whether if the assessee carried on only one business falling under one head of Section 6 -and there was a loss but there was no profit under any different head in that year, he could claim the benefit of Section 24(1) or Section 24(2) of the Act. No doubt the argument that the right to carry forward the loss under Section 24(2) could be claimed only if there were different heads of income for the assessee and there was a loss in one or more heads which could be set off against the profits of a different head or heads under Section 24(1) and if the loss exceeded the profits in the year leaving a balance, then alone it could be carried forward under Section 24(2), seems plausible. But it is unnecessary to express a final opinion on this question. It is no doubt true, as pointed out by the Appellate Tribunal, there is a lacuna in the Act in not making it compulsory upon the Income-tax authorities to assess the loss of an assessee in a particular year when he has no assessable income to enable him to carry it forward and claim to set off In the succeeding year. But it is a matter for the Legislature to consider whether they would adopt a policy of giving relief to assessees in such cases but we are not concerned with it.
The question referred to us must therefore be answered in the negative and against the assessee. As the assessee has failed, he must pay the costs of the Commissioner which we fix at Rs. 250.;