HIDAYATULLAH, J.: - (1.) THE Judgment of the court was delivered by
(2.) THE Commissioner of IncomeTax, Kerala and Coimbatore, has filed this appealagainst the judgment and order of the High courtof Kerala dated 31/10/1958, by which theHigh court answered in favour of the respondent(Helen Rubber Industries, Ltd., Kottayam) thefollowing question:`Whether under the provisions of theIndian Income-tax Act the petitioner isentitled to carry forward the loss for aperiod of six years notwithstanding the factthat during the period when the loss hadoccurred, the law applicable was theTravancore Income-tax Act ?`THE High court has granted a certificate under s.66A(2) of the Income-tax Act. Two questions werereferred to the High court in compliance with anearlier order of the High court under s. 66(2);but with the other question, we are not concernedin this appeal. Messrs. Helen Rubber Industries, Ltd. is aCompany, which was incorporated in the formerState of Travancore with its registered office atKottayam. In the year 1941, the assessee Companygranted a lease of the factory to certain personsfor a period of 15 years. From that year, the rentand royalty received from the lessees were theonly source of income. Disputes having arisen, thelessees suspended payment from June 1946.Litigation followed; but the dispute was settledby the assessee Company receiving Rs. 23,000.00 oddin full satisfaction. With the details of thesedisputes and their settlement, we are notconcerned. The year of account of the assesseeCompany is the Calendar year. Before the extensionof the Indian Income-tax Act, there was in forcein Travancore State, the Travancore Income-taxAct, 1121 M. E. (Act XXIII of 1121 M. E.), whichcame into force on the first day of Chingom 1122M. E. ( 17/08/1946). The assessment year underthe Travancore Act ended on the last day ofKarkadakom, which corresponds to 16/08/1947.Thus for the account year, 1/1/1946 to 31/12/1946of the firm the assessment year was 1123 M. E.(17/8/1947 to 16/8/1948). The assessee Company declared losses in theaccount years, 1946, 1947 and 1948. These losses,together with the dates of the account years andthe assessment years are tabulated below:- JUDGEMENT_974_AIR(SC)_1962Html1.htm The dispute in this case is about the rightof the assessee Company to carry forward the lossof the year 1946 under the provisions of theTravancore Act read with s. 24(2) of the IndianIncome-tax Act and the Taxation Laws (Part BStates) (Removal of Difficulties) Order, 1950 tothe assessment year, 1951-52, in the assessment ofthe Company for its year of account, the CalendarYear, 1950. The Income-tax Officer held that theloss of the year 1946 could not be carried forwardto that year, since it had lapsed after two yearsunder s. 32 of the Travancore Act, and s. 24(2)was not applicable, in view of paragraph 3 of theOrder, mentioned above. The order of the Income-tax Officer was confirmed in appeal by theAppellate Assistant Commissioner and the AppellateTribunal. The tribunal was moved for a case, butdeclined to state one; but the High court calledfor a statement of the case under s. 66(2) and theabove mentioned question was decided in favour ofthe assessee Company. The only question argued inthis appeal is whether the High court was right inthe answer it gave. The assessee Company was notrepresented at the hearing before this court. The Indian Income-tax Act was extended toTravancore-Cochin by s. 3 of the Indian FinanceAct, 1950. By s. 13(1) of the same Act, it wasprovided:`If immediately before the 1st day ofApril, 1950, there is in force in any part BState.. any law relating to income-tax thatlaw shall cease to have effect except for thepurposes of the levy, assessment andcollection of income-tax..... in respect ofany period not included in the previous yearfor the purposes of assessment under theIndian Income-tax Act, 1922 (XI of 1922), forthe year ending on the 31st day of March,1951, or for any subsequent year....`By this section a clear division was made betweenthe operation of the prior law and the IndianIncome-tax Act. The assessment for the year, 1951-52, was thus made on the assessee Company underthe Indian Income-tax Act. Under s. 24(2) of theIndian Income-tax Act, as it existed prior to itsamendment by the Finance Act, 1955, it wasprovided:`Where any assessee sustains a loss ofprofits or gains in any year, being aprevious year not earlier than the previousyear for the assessment for the year endingon the 31st day of March 1940, under the head'Profits and gains of business, profession orvocation' and the loss cannot be wholly setoff under sub-section(1), the portion not soset off shall be carried forward to thefollowing year, and so on, but no loss shallbe so carried forward for more than sixyears, and a loss arising in the previousyears for the assessment for `the yearsending on the 31st day of March, 1940, the31st day of March, 1941, the 31st day ofMarch, 1942, the 31st day of March, 1943, andthe 31st day of March 1944 respectively shallbe carried forward only for one, two, three,four and five years respectively.`Since we are concerned with the loss for the year,which does not correspond to the years named inthe latter part of the section above-quoted, thatpart of the section does not apply to the assesseeCompany's case. What was thus claimed was thebenefit of the earlier part, where the loss wasallowed to be carried forward for six years.
(3.) THIS position taken by the assessee Companycan hardly be considered in view of the provisionsof s. 32 of the Travancore Act, read with theRemoval of Difficulties Order passed in 1950.Section 32 of the Travancore Act was areproduction of the Indian s. 24(2) except for achange of thedates mentioned therein, due obviously to the factthat the Travancore Act came into force on thefirst day of Chingom, 1122 M. E. (August, 17,1946). It is enough to point out that instead of`31st March`, wherever they occurred, the words`the last day of Karkadakom` (August, 16) weresubstituted, and instead of the years, 1940, 1941,1942, 1943 and 1944, were substituted theMalayalam years, 1122 (17/8/1946 to 16/8/1947),1123 (17/8/1947 to 16/8/1948), 1124 (17/8/1948 to16/8/1949), 1125 (17/8/1949 to 16/8/1950), and1126 (17/8/1950 to 16/8/1951). These were the onlydifferences between the two sections, and s. 24(2)of the Indian Income-tax Act, so modified, can beread as s. 32 of the Travancore Act. The existance of these two S. in thetwo Acts was likely to lead to some difficulty,and a question was likely to arise which law wasto prevail. Section 12 of the Indian Finance Act,1950, therefore, enabled the central government topass an Order removing any such difficulty. TheTaxation Laws (Part B States) (Removal ofDifficulties) Order, 1950 was thus passed.Paragraph 3 of that order provided:`3. Carry-forward and set off ofprevious losses-where in any previous yearprior to the previous year for `theassessment for the year ending on the 31stday of March 1950, an assessee has sustaineda loss of profits or gains in any business,profession or vocation carried on by him, andsuch loss would, had the State law continuedto be in force, have been set off against theprofits and gains, if any, from the samebusiness chargeable to tax in the said yearof assessment or in any year subsequentthereto, such loss would be so set off in thesame manner, to the same extent, and up tothe same year of assessment as it would havebeen set off had the State law continued tobe in force.` The critical words are those contained in thelater part, namely, `in the same manner, to thesame extent, and up to the same year ofassessment, as it would have been set off had theState law continued to be in force`. They showthat the law to apply to the loss of `any previousyear prior to the previous year for the assessmentfor the year ending on the 31st day of March,1950` was the law in force in a Part B State here,the Travancore Act. Now, taking the case of theassessee Company, we shall indicate which previousyear or years would be governed by the TravancoreAct. The previous year of the assessee Company forthe assessment year ending 31st day of March 1950would be the Calendar year, 1/1/1949 to 31-12-1949. To that, the Indian Income-tax Act wouldapply. The application of the Travancore Act bypara 3 of the order was limited to the previousyear before 1/1/1949 and other earlier previousyears. The previous year, with which we areconcerned, 1/1/1946 to 31/12/1946, is so clearly aprevious year, to which the Travancore Actapplies. that it does not admit of any doubt ordifference. The matter is thus governed by theTravancore Act. ;