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PETITIONER: COMMISSIONER OF INCOME TAX (CENTRAL) DELHI

       Vs.

RESPONDENT: HARPRASAD & CO. (P) LTD.

DATE OF JUDGMENT25/02/1975

BENCH: SARKARIA, RANJIT SINGH BENCH: SARKARIA, RANJIT SINGH CHANDRACHUD, Y.V. GUPTA, A.C.

CITATION:  1975 AIR 1282            1975 SCC  (3) 868

ACT: Income-tax  Act (11 of 1922) Sections 12B, 22(2A), 24(2A)  & (2B)--Capital  loss incurred in the year when capital  gains were  not exigible to tax--If could be set  against  capital gains in subsequent years.

HEADNOTE: By  the  Income-tax and Excess Profit Tax  (Amendment)  Act, 1947 s. 12B was inserted in the Indian Income-tax Act, 1922, making  capital  gains  which arise after  March  31,  1946, taxable.   The same Act inserted sub-sections (2A) and  (2B) in  s. 24 of the Income-tax Act.  As a result of the  Indian Finance  Act, 1949 which restricted the operation of s.  12B to  capital  gains  arising before April 1,  1948,  and  the Finance  (No. 3) Act, of 1956 which restored tax on  capital gains  with effect from April 1, 1948 capital gains  arising from 1-4-1949 to 31-3-1956 were not taxable. For the assessment year 1955-56 which relates to the  period when  capital gains were not taxable the assessee claimed  a loss  of  Rs.  84,862/- arising from  the  sale  of  certain shares.   The Income-tax Officer disallowed the loss on  the ground that it was a loss of capital nature.  The  Appellate Assistant Commissioner, in appeal, held that the  assessee’s claim  was  exaggerated, that the actual loss was  only  Rs. 28,662/-  and  agreed with the Income-tax Officer  that  the loss was not a revenue loss but a capital loss.  Before  the Tribunal  the  assessee  contended that the  amount  of  Rs. 28,662,/-  which had been held to be a capital less  by  the authorities should be allowed to be carried forward and  set off against profits and gains under the head "Capital gains" earned  in future as laid down in s. 24(2A) and  (2B).   The Tribunal held in favour of the assessee.  The High Court. in reference, confirmed the order of the Tribunal holding  that the effect of sub-sections (2A) and (2B) of s. 24 read  with sections  6 and 12B was that if a capital loss was  incurred in a year in which a capital gain did not attract tax  under section  12B even then such loss would still be  loss  under the  head  ’capital gains’ and if in a subsequent  year  the assessee  had any profit under that head it would  still  be carried  forward  and set off against  the  taxable  capital gain. Allowing the appeal to this Court,

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HELD : (1) From the charging provision of the Indian Income- tax  Act  it  is  discernible that  the  words  ’income’  or ’profits  and  gains,  should  be  understood  as  including losses,  so that both must enter into computation,  wherever it becomes material, of the taxable income of the  assessee. Although  s.  6 classifies income under six heads  the  main charging  provision is s. 3 which levies income-tax as  only one tax on the ’total income’ of the assessee as defined  in s. 2(15).  An income in order to come within the purview  of that  definition  must satisfy two conditions. (a)  it  must comprise  the  ’total amount of income,  profits  and  gains referred  to in s. 4(1), and (b) it must be computed in  the manner laid down in the Act.  If either of these  conditions fails the income will not be a part of the total income that can be brought to charge. [702F-703B] (2)The concept of carry forward of loss does not stand  in vacuo.  Its sole purposeis to set off the loss against  the profits of a subsequent year.  Set off impliesthat   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.  Also, 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. [704C-E] (3)  Capital  gains would be covered by  the  definition  of income  in  s. 2(6C) only if they were chargeable  under  s’ 12B.   But  s. 12B was not operative in the  years  1948  to 1956.  Thus in the relevant previous year and the assessment year  or  even  in  he subsequent  year  capital  gains’  or ’capital losses’ did not 697 form part of the total income of the assessee which could be brought  to charge and were, therefore, not required  to  be computed under the Act.  That is condition (b) which  ’total income’  must satisfy is not satisfied in the present  case. [703B-D] (4) Under s. 22(2A) it is a condition precedent to the carry forward and set off of the loss that the assessee must  file a  return either in response to a general notice,  under  s. 22(1)  or voluntarily, without any individual  notice  under subsection (2).  If he does not file the return for the year in which the loss was incurred and get the loss computed  by the Income-tax Officer, the right to carry forward the  loss will also be lost.  But if the loss is from a source or head of  income not liable to tax or exempt from tax neither  the assessee is required to show the same in the. return nor  is the  Income-tax Officer under any obligation to  compute  or assess  it,  much  less for the  purpose  of  carry-farward. [703D-F] (5) In the instant case. the, assessee in his return had not shown  any ,capital loss’ but claimed the loss as a  revenue loss.   The  Income-tax  Officer should  have  rejected  the assessee’s  claim  to carry forward the loss merely  on  the ground  that it was not a revenue loss and he need not  have given a finding that it was a capital loss, because ’capital gains were not taxable during the year. [703F-G] (6)  Section  24(2)  expressly  refers  to  loss,-  ’in  any business,  profession  or vocation’.  It does  not  cover  a capital  loss  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.  Therefore,

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under a. 24(1) and (2) the assessee had no 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 in the immediate subsequent years. [704B-C] (7) Assuming, therefore, that the assessee in the subsequent years  1955-56 and 1956-57 when the capital gains  were  not taxable  made huge capital gains he would not be obliged  to show those capital gains in his return.  Therefore, the loss suffered  by  him  in the relevant assessment  year  in  the instant  case could not be absorbed or set off against  such capital gains. [704F]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 494 of 1970. From the judgment and order dated the 24th January, 1969  of the Delhi High Court in Income Tax Ref.  No. 51 of 1966. V.  C.  Desai,  J. Ramamurthy and R. N.  Sachthey,  for  the appellant. A . K. Sen and H. K. Puri, for the respondent. The Judgment of the Court was delivered by SARKARIA,  J.-This appeal is directed against the  Judgment, dated 24-1-1969, of the High Court of Delhi answering in the affirmative  the following question referred to it under  s. 66(1)  of  the Indian Income-tax Act, 1922 (for  short,  the Act) by the Commissioner of Income-tax-.               "Whether on the facts and in the circumstances               of  the case the capital loss of Rs.  28,662/-               could  be  determined and carried  forward  in               accordance  with the provisions of Section  24               of  the Indian Income-tax Act, 1922, when  the               provisions  of section 12B of  the  Income-tax               Act,  1922 itself were not applicable  in  the               assessment year 1955-56." 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 pur- 698 chased  1124 shares of M/s.  Intercontinent Travancore  Pvt. Ltd.  at a cost of Rs. 1,12,400/- from M/s.   Escorts  (A&M) Ltd.   In the relevant accounting year ending on  30-4-195-3 the  assessee  received  562  bonus  shares  from  the  same company.   It thus acquired a total number of  1686  shares. On  3-9-53,  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 Rs. 84,862 on  the ground that it was a loss of a capital nature. 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  assessee’s claim  was exaggerated and that the actual lose 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. 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 assessee’s  Counsel  did not press these grounds of appeal but took up the plea  that

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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) & (2B) of s. 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. 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  s. 66(1) of the 1922 Act. It  was  contended before the High Court on  behalf  of  the Revenue  that the expression "capital gains" in  sub-section (2A) of s. 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-section (2A) of s. 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 bead               "capital gains".  This obviously has reference               to the VIth head in section 6. The effect of 699               sub-section  (2A) and (2B) of section 24  read               with section 6 and 12B, 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. Capital  Gains Tax for the first time was introduced by  the Income-tax and Excess Profit Tax (Amendment) Act, 1947  (No. 22  of  1947) which inserted section 12B in the  Act.   This section made taxable "capital gains" which arose after March 31,  1946  The  same  Act of 1947 added  as  the  VIth  head "capital  gains" in s. 6 of the Act.  It also inserted  sub- sections (2A) and (2B) in s. 24 of the Act. The  Indian Finance Act, 1949 virtually abolished  the  levy and  restricted the operation of s. 12B to  "capital  gains" arising  before  the ’ 1st April, 1948.  But s. 12B  in  its restricted form, and the VIth head, capital gains’ in s.  6, and sub-sections (2A) and (2B) of s. 24 were not deleted and continued to form part of the Act.  The Finance (No. 3) Act, 1956 reintroduced the "capital gains’, tax with effect  from the  31st  March, 1956.  It substantially  altered  the  old section  12B  and brought it into its present  form.   As  a result  of  Finance Act (3) of 1956  "capital  gains"  again

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became taxable in the assessment year 1957-58. The  position that  emerges is that "capital gains" arising, between  1-4- 1948  and 31-3-1956, were not taxable.  The capital loss  in question relates to this period. Mr. V. S. Desai, learned Counsel for the appellant  contends that  according to the scheme of the Act, a  "capital  loss" occurring in a previous year, could be allowed to be carried forward  and  set  off  against  the  capital  gains  of   a subsequent  year,  only if the income under  that  head  was taxable  in  the  relevant previous  and  subsequent  years. Since during the period from 1-4-1948 to 31-3-1956,  capital gains  (plus)  or capital gains (minus) did not  enter  into computation of the, total income of the assessee  chargeable to tax under s. 3 read with s. 12B of the Act, the  question of carrying forward inch loss did not arise, much less could such a loss be set off against the profits of any subsequent year. As  against  this, Shri Ashok Sen, learned Counsel  for  the assessee  maintains  that a, right to carry forward  a  loss under any of the heads enumerated in s. 6, is not  dependent upon  the  taxability  of  income  under  that  head  it  is sufficient if at the relevant time "capital gains" is one of the heads of income recognized by the charging s. 6 and  the loss  is  adjustable  against "capital gains",  if  any,  in future  under s. 24.  The argument proceeds, that  s.  6(vi) was not lying inert on the, statute book but was  operative, throughout, for the purpose of calculating the losses  under that head.  Shri Sen compared the non-taxability of 700 capital gains during the period from 1-4-1948 to  31-3-1956, to  a  tax holiday for those  years.   Another  illustration given  by  the learned Counsel is of a  person  whose  total income  falls  entirely on the negative side on  account  of losses  suffered  by him under any of the  heads  of  income given  in s. 6. Such a person notwithstanding the fact  that he had no assessable income has a right to file a return and get his losses computed by the Income-tax Officer merely for the  purpose of carrying forward the loss.   The  Income-tax Officer, it is added, cannot ignore the return filed by  the assessee,  voluntarily,  showing losses even though  such  a return  is filed beyond time.  In this connection, Shri  Sen has  referred to Commissioner of Income-tax, Punjab v.  Kulu Valley Transport Co. Ltd. (1), Jaikishan Gopikishan and Sons v. Commissioner of Income-tax, M.P. (2) and Commissioner  of Income-tax, Madhya Pradesh v. Khushat Chand Daga(3). Before  dealing with the contentions canvassed, it  will  be appropriate  to  have a clear idea of  the  terms  ’income’, ’total  income’,  ’computation of total  income’,  ’carrying forward’  of a loss and its purpose, in the context  of  the scheme of the Act. Section  2  Cl. (15) defines "total income"  to  mean  total amount  of  income, profits and gains referred  to  in  sub- section (1) of section 4 computed in the manner laid down in this  Act. Section 3, captioned as "Charge  of  Income-tax", emphasises  that the income-tax shall be charged in  respect of the total income of the previous year of every  assessee. Section 4 defines the ambit of that total income.Section 6 enumerates six heads of income, profits and gains chargeable to income-ax. They are : " (i) Salaries. (ii) Interest on securities. (iii) Income from property. (iv)Profits and gains of business, profession or vocation. (v)  Income from other sources. (vi) Capital gains."

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Sections7,  8, 9, 10, 12 and 12B relate to payability  and computation of taxunder the various heads of income.   The material part of s. 12B at the relevant time was as follows:               "12B  (1)  The  tax shall be,  payable  by  an               assessee  under  the head "Capital  gains"  in               respect  of any profits or gains arising  from               the  sale, exchange or transfer of  a  capital               asset  effected  after the 31st day  of  March               1946  and before the, 1st day of  April,  1948               and such profits and gains shall be deemed  to               be  income of the previous year in  which  the               sale, exchange or transfer took place." (1) 7 7, I. T. R. 518 (S.C.). (3) 42, I. T. R. 177 (S.C.). (2) 84, I. T. R. 645. 701 Section  22(1)  requires a general notice  to  be  published requiring  every  person  whose  total  income  during   the previous year exceeds the maximum non-taxable limit to Me  a return.  Sub-section (2) of this section enables the Income- tax Officer to issue notice to any such person requiring him to furnish a return.  Sub-section (2A)-which was inserted by the  Income-tax  Amendment Act 25 of 1953 with  effect  from 1-4-1952-provides               "If any person who has not been served with  a               notice  under sub-section (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  sub-s. (2) of section 24, he shall,  if               he  is  to be entitled to the benefit  of  the               carry  forward  of  loss  in  any   subsequent               assssment,  furnish within the time  specified               in  the general notice given under sub-s.  (1)               all   the  particulars  required   under   the               prescribed form of return."               The material part of s. 24 runs thus :               "24.(1) 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                             *       *      *      *     *               Provided  that  in computing the  profits  and               gains  chargeable under the head "Profits  and               Gains  of business, profession  or  vocation",               any loss sustained in speculative  transaction               which  are in the nature of a  business  shall               not be taken into account except to the extent               of the amount of profits and gains, if any, in               any  other business consisting of  speculative               transactions                               *     *      *      *     *               (2)  Where  any assessee sustains  a  loss  of               profits or gains in any year, being a previous               year  not earlier than the previous  year  for               the assessment for the year ending on the 31st               day of March 1940, in any business, profession               or vocation, and the loss cannot be wholly set               off under sub-section (1), so much of the loss               as  is not so set off or the whole loss  where               the assessee bad no other head of income shall               be carried forward to the following year, and

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             (i)  where the loss was sustained by him in  a               business     consisting     of     speculative               transactions, it shall be set off only against               the profits and gains, if any, of any business               in  speculative transaction carried on by  him               in that year;               (ii)  where the loss was sustained by  him  in               any other business, profession or vocation, it               shall  be  set  off against  the  profits  and               gains, if any, of any business, profession  or               vocation carried on by him in that year pro- 702               vided   that  the  business,   profession   or               vocation  in  which the  loss  was  originally               sustained continued to be carried on by him in               that year; and               (iii)  if  the loss in either case  cannot  be               wholly  so set off, the amount of loss not  so               set  off  shall  be  carried  forward  to  the               following year and so on......                           *     *     *     *      *     *               2A. Notwithstanding anything contained in sub-               section  (1),  where the loss sustained  is  a               loss  falling under the head "Capital  gains".               such loss shall not be set off except  against               any profits and gains failing under that head.               2B.  Where an assessee sustains a loss such as               is  referred  to in sub-section (2A)  and  the               loss  cannot be wholly set off  in  accordance               with  the provisions of that sub-section,  the               portion  not  so  set  off  shall  be  carried               forward  to  the following year  and  set  off               against capital gains for that year, and if it               cannot  be so set off, the amount thereof  not               so  set  off shall be carried forward  to  the               following year and so on, so however, that  no               such loss shall be so carried forward for more               than six years :               Provided that where the loss sustained in  any               previous year does not exceed fifteen thousand               rupees, it shall not be carried forward.               (3)  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,."               Section 2(6C) provides that ’income’  includes               (among  other things)-"(vi) any  capital  gain               chargeable under Section 128." From  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  ’minus  income’(1).   In  other  words,  loss  is negative profit.  Both positive and negative profits are  of a  revenue  character.  Both must  enter  into  computation, wherever  it  becomes  material, in the  game  mode  of  the taxable  income of the assessee.  Although S.  6  classifies income under six heads, the main charging provision is s.  3 which  levies  income-tax, as only one tax,  on  the  ’total income’  of the assessee as defined in S. 2(15).  An  income

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in order to come within the purview of that definition  must satisfy  two  conditions.   Firstly, it  must  comprise  the "total amount of income, (1)  CIT  v. Karamchand Prem Chand 40 ITR 106 (SC);  CIT  V. Elphinston Spinning & Weaving Mills; 40 ITR 142(SC). 703 profits and gains referred to in s: 4(1)." Secondly, it must be "computed in the manner laid down in die Act".  If either of these conditions fails, the income will not be a part  of the "total income" that can be brought to charge. Now,  capital  gains would be covered by the  definition  of ’income’  in  sub-section (6C) of s. 2, only  if  they  were chargeable  under  s.  12B.  As noticed  already,  s.12B  as modified  by  the  Finance Act, 1949,  did  not  charge  any ’capital   gains’  arising  between  1-4-1948  to   14-1957. Indeed,  s. 12B was not operative in these years  (1948-57). During this period, "capital gains", whether on the positive or  the  negative side, could not be  computed  and  charged under  s.  12B or any other provisions of the Act.   In  the instant  case, the second condition, namely, "the manner  of computation laid down in the Act" which-to use the words  of Stone  C.J.(1)-"f  an  integral part of  the  definition  of ’total  income"’  was not satisfied.  Thus in  the  relevant previous  year  and  the assessment year,  or  even  in  the subsequent  year, capital gains or "capital losses" did  not form part of the "total income" of the assessee which  could be  brought to charge, and were, therefore, not required  to be computed under the Act. Before  the  insertion of sub-section (2A) in s. 22  by  the amendment  of  1-4-1952, an assessee was entitled  to  carry forward  a loss even if he had submitted no return  for  the year  in which the loss was sustained.  After the  enactment of sub-section (2A), it is a condition precent to the carry- forward  and  set off of, the loss, that the  assessee  must file  a return either in response to a general notice  under sub-section  (1)  of  s.  22  or  voluntarily,  without  any individual  notice under sub section  (2) of  that  section. If he does not Me the return for the year in which the  loss was  incurred  and get the loss computed by  the  Income-tax Officer,  the right to carry forward the loss will  also  be lost.   But if the loss is from a source or head  of  income not  liable to tax or congenitally exempt  from  income-tax, neither  the  assessee is required to show the same  in  the return,  nor is the Income-tax Officer under any  obligation to compute or assess it, much less for the purpose of "carry forward".   It is noteworthy that in the instant  ease,  the assessee  in his return had not shown any "capital  losses". He had claimed this loss as a revenue loss.  The  Income-tax Officer  could,  therefore, reject the assessee’s  claim  to carry forward the loss, merely on the ground that it was not a  "revenue  loss".   His  further finding  that  it  wag  a "capital  loss"  was only incidental and, in fact,  was  not necessary. From  what  has been said above, it follows as  a  necessary corollary, that during the period s. 12B did not make income under the he-ad, ,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 s. 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 (1) In re Kamdar [1946] I.T.R. 10, 21.

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704 have  been carried forward under sub-section (2) of  s.  24, and  (ii) to "income" which falls within the  definition  of ’total  income’.   Both these conditions necessary  for  the application  of the sub-section are lacking in  the  present case. Nor  do we find any substance in the contention  that  under sub-section  (2)  read  with subsection (1) of  s.  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-taxibility of capital gains, against future profits,  it any, in the immediate subsequent years.  Sub-section (2)  of s. 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. 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 nontaxable  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. 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 1953, 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 ill  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. 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. 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. In the result, the appeal is accepted with costs.                                   Appeal allowed. V.P.S. 705