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PETITIONER: COMMISSIONER OF INCOME-TAX KERALA

       Vs.

RESPONDENT: HELEN RUBBER INDUSTRIES LTD.

DATE OF JUDGMENT: 16/01/1962

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L. SHAH, J.C. MUDHOLKAR, J.R.

CITATION:  1962 AIR  974            1962 SCR  Supl. (2) 605  CITATOR INFO :  D          1980 SC 251  (8)

ACT:      Income Tax-Loss  incurred in Travancore State in 1946-Application  of India  laws to  the State- Assessee, if entitled to carry forward the loss to six years once the right lapsed under, State laws- Travancore Income-tax  Act, 1121  M.E. (Travancore XXIII of  1121 M. E.) s. 32-Indian Income-tax Act, 1922 (11  of 1922), s. 24-Indian Finance Act, 1950 (25 of  1950), s. 12-Taxation laws (Part B States) (Removal of Difficulties) Order, 1950, para 3.

HEADNOTE:      The respondent  company was  incorporated  in the former  State of  Travancore. The  dispute was about the right of the respondent assessee company to carry  forward the loss of the years 1946 under the provisions  of the Travancore Act read with s. 24 (2)  of  the  Indian  Income-tax  Act  and  the Taxation   laws   (Part   B   States)(Removal   of Difficulties) Order,  1950, to the assessment year 1951-52 in  the assessment  of the company for its year of  account. The Income-tax Officer held that the loss  of the  year 1946  could not  be carried forward to  that year,  since it  had lapsed after two years under s. 32 of the Travancore Act and s. 24 (2)  was not  applicable, in  view of para 3 of the order. ^      Held, that  the Taxation  laws (Part B State) (Removal  of  Difficulties)  Order,  1950,  passed under s. 12 of the Indian 606 Finance Act,  1950, was  not intended  to  make  a dividing line  between  those  previous  years  to which the  provisions of  the  earlier  law  would apply, and  those  previous  years  to  which  the provisions of  the Income-tax Act would apply. The

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rights were  neither enlarged or curtailed by para 3 of the order. That paragraph said that the right was available  in the  same manner,  to  the  same extent and  upto the  same year  of assessment  as laid down  in the  State law. The law to apply was thus the  State law  and the  carry forward  could only be for two years.      Indore   Malwa    United   Mills    Ltd.   v. Commissioner of  Income-tax, (1959)  35 I.  T.  R. 271, approved.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION:  Civil  Appeal No. 466 of 1960.      Appeal from  the  judgment  and  order  dated October 31, 1958 of the Kerala High Court in I. T. R. No. 2 of 1956 (K).      K. N.  Rajagopal Sastri  and P. D. Menon, for appellant. The respondent did not appear.      1962. January  16.-The Judgment  of the Court was delivered by      HIDAYATULLAH, J.-The  Commissioner of  Income Tax, Kerala  and Coimbatore, has filed this appeal against the  judgment and  order of the High Court of Kerala  dated October  31, 1958,  by which  the High Court  answered in  favour of  the respondent (Helen  Rubber  Industries,  Ltd.,  Kottayam)  the following question:           "Whether under  the  provisions  of  the      Indian  Income-tax   Act  the  petitioner  is      entitled to  carry forward  the  loss  for  a      period of  six years notwithstanding the fact      that during  the period  when  the  loss  had      occurred,  the   law   applicable   was   the      Travancore Income-tax Act ?" The High  Court has granted a certificate under s. 66A(2) of  the Income-tax  Act. Two questions were referred to  the High  Court in compliance with an earlier order of the High Court under s. 66(2); 607 but with  the other question, we are not concerned in this appeal.      Messrs. Helen  Rubber Industries,  Ltd. is  a Company, which  was  incorporated  in  the  former State of  Travancore with its registered office at Kottayam. In  the year  1941, the assessee Company granted a  lease of the factory to certain persons for a period of 15 years. From that year, the rent and royalty  received from  the lessees  were  the only source of income. Disputes having arisen, the lessees  suspended   payment   from   June   1946. Litigation followed;  but the  dispute was settled by the assessee Company receiving Rs. 23,000/- odd in full  satisfaction. With  the details  of these disputes  and   their  settlement,   we  are   not concerned. The  year of  account of  the  assessee Company is the Calendar year. Before the extension of the  Indian Income-tax  Act, there was in force in Travancore  State,  the  Travancore  Income-tax Act, 1121  M. E.  (Act XXIII of 1121 M. E.), which came into  force on  the first day of Chingom 1122 M. E. (August 17, 1946). The assessment year under the Travancore  Act  ended  on  the  last  day  of

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Karkadakom, which  corresponds to August 16, 1947. Thus for  the account year, 1-1-1946 to 31-12-1946 of the  firm the  assessment year  was 1123  M. E. (17-8-1947 to 16-8-1948).      The assessee  Company declared  losses in the account years,  1946, 1947 and 1948. These losses, together with  the dates  of the account years and the assessment years are tabulated below:- Year of account     Year      of       assessment. Loss -------------------------------------------------- -- 1946(1-1-1946 to    1123  M.   E.  (17-8-1947  Rs. 4031-10-0     31-12-1946)     to 16-8-1948) 1947(1-1-1947 to    1124 M.  E.(17-8-1948      Rs. 6605-1- 6     31-12-1947)     to 16-8-1949) 1948 (1-1-1948  to    1125  M. E.  (17-8-1949  Rs. 2604-13-9     31-12-1948)     to 16-8-1950)         -------- ------                                    Total       Rs. 13241-9-3                                           -------- ------- 608      The dispute  in this  case is about the right of the  assessee Company to carry forward the loss of the  year 1946  under  the  provisions  of  the Travancore Act  read with  s. 24(2)  of the Indian Income-tax Act  and  the  Taxation  Laws  (Part  B States) (Removal  of Difficulties)  Order, 1950 to the assessment year, 1951-52, in the assessment of the Company  for its year of account, the Calendar Year, 1950.  The Income-tax  Officer held that the loss of the year 1946 could not be carried forward to that  year, since it had lapsed after two years under s.  32 of  the Travancore  Act, and s. 24(2) was not  applicable, in view of paragraph 3 of the Order, mentioned  above. The  order of the Income- tax  Officer   was  confirmed  in  appeal  by  the Appellate Assistant Commissioner and the Appellate Tribunal. The  Tribunal was  moved for a case, but declined to  state one;  but the High Court called for a statement of the case under s. 66(2) and the above mentioned  question was decided in favour of the assessee  Company. The only question argued in this appeal is whether the High Court was right in the answer  it gave.  The assessee Company was not represented at the hearing before this Court.      The Indian  Income-tax Act  was  extended  to Travancore-Cochin by  s. 3  of the  Indian Finance Act, 1950.  By s.  13(1) of  the same  Act, it was provided:           "If immediately  before the  1st day  of      April, 1950,  there is in force in any part B      State.. any  law relating  to income-tax that      law shall cease to have effect except for the      purposes  of   the   levy,   assessment   and      collection of  income-tax..... in  respect of      any period  not included in the previous year      for the  purposes  of  assessment  under  the      Indian Income-tax Act, 1922 (XI of 1922), for      the year  ending on  the 31st  day of  March,

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    1951, or for any subsequent year...." 609 By this  section a clear division was made between the operation  of the  prior law  and  the  Indian Income-tax Act. The assessment for the year, 1951- 52, was  thus made  on the  assessee Company under the Indian  Income-tax Act.  Under s. 24(2) of the Indian Income-tax  Act, as it existed prior to its amendment  by   the  Finance  Act,  1955,  it  was provided:           "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, under the head      ’Profits and gains of business, profession or      vocation’ and  the loss  cannot be wholly set      off under  sub-section(1), the portion not so      set off  shall  be  carried  forward  to  the      following year,  and so on, but no loss shall      be so  carried  forward  for  more  than  six      years, and  a loss  arising in  the  previous      years  for  the  assessment  for  "the  years      ending on  the 31st  day of  March, 1940, the      31st day  of March,  1941, the  31st  day  of      March, 1942, the 31st day of March, 1943, and      the 31st day of March 1944 respectively shall      be 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 in the latter  part of the section above-quoted, that part of the section does not apply to the assessee Company’s case.  What was  thus  claimed  was  the benefit of  the earlier  part, where  the loss was allowed to be carried forward for six years.      This position  taken by  the assessee Company can hardly be considered in view of the provisions of s.  32 of  the Travancore  Act, read  with  the Removal of  Difficulties  Order  passed  in  1950. Section  32   of  the   Travancore   Act   was   a reproduction of  the Indian  s. 24(2) except for a change of the 610 dates mentioned therein, due obviously to the fact that the  Travancore Act  came into  force on  the first 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)  were substituted, and instead of the years, 1940, 1941, 1942,  1943   and  1944,   were  substituted   the Malayalam years,  1122 (17-8-1946  to  16-8-1947), 1123 (17-8-1947  to 16-8-1948), 1124 (17-8-1948 to 16-8-1949), 1125  (17-8-1949  to  16-8-1950),  and 1126 (17-8-1950 to 16-8-1951). These were the only differences between the two sections, and s. 24(2) of the  Indian Income-tax Act, so modified, can be read as s. 32 of the Travancore Act.      The existance  of these  two sections  in the two Acts  was likely  to lead  to some difficulty, and a  question was  likely to arise which law was to prevail.  Section 12 of the Indian Finance Act, 1950, therefore, enabled the Central Government to pass an  Order removing  any such  difficulty. The

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Taxation  Laws   (Part  B   States)  (Removal   of Difficulties)  Order,   1950  was   thus   passed. Paragraph 3 of that order provided:           "3.  Carry-forward   and  set   off   of      previous losses-where  in any  previous  year      prior  to   the  previous   year   for   "the      assessment for  the year  ending on  the 31st      day of  March 1950, an assessee has sustained      a loss  of profits  or gains in any business,      profession or vocation carried on by him, and      such loss  would, had the State law continued      to be in force, have been set off against the      profits and  gains, if  any,  from  the  same      business chargeable  to tax  in the said year      of  assessment  or  in  any  year  subsequent      thereto, such loss would be so set off in the      same manner,  to the  same extent,  and up to      the same  year of assessment as it would have      been set  off had  the State law continued to      be in force." 611      The critical words are those contained in the later part,  namely, "in  the same  manner, to the same  extent,   and  up   to  the   same  year  of assessment, as  it would have been set off had the State law  continued to  be in  force". They  show that the law to apply to the loss of "any previous year prior to the previous year for the assessment for 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 the assessee Company, we shall indicate which previous year or  years would be governed by the Travancore Act. The previous year of the assessee Company for the assessment  year ending 31st day of March 1950 would be  the Calendar  year, 1-1-1949  to  31-12- 1949. To  that, the  Indian Income-tax  Act  would apply. The  application of  the Travancore  Act by para 3  of the  order was  limited to the previous year before  1-1-1949 and  other earlier  previous years.  The  previous  year,  with  which  we  are concerned, 1-1-1946 to 31-12-1946, is so clearly a previous  year,   to  which   the  Travancore  Act applies. that  it does  not admit  of any doubt or difference. The  matter is  thus governed  by  the Travancore Act.      The Travancore  Act laid  down,  inter  alia, that a  loss arising  in the previous year for the assessment for  the year ending on the last day of Karkadakom, 1123, could be carried forward for two years. The  assessment year for 1123, M.E. covered the  period,   17-8-1947  to  16-8-1948,  and  the previous year  of the assessee Company relative to that assessment  year was  1-1-1946 to 31-12-1946. The loss  of the  Calendar  year,  1946  could  be carried forward  to the  Calendar years,  1947 and 1948 and  given effect  to,  till  the  assessment year,   1125   (17-8-1949   to   16-8-1950).   The assessment   year,    1-4-1951    to    31-3-1952, corresponded to  the account  year of the assessee Company,  1-1-1950  to  31-12-1950,  and  that  is beyond two years, whether one takes 612 the account  year or  the assessment  year as  the basis of the calculation of two years.

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    The High Court, with all due respect, was not right in thinking that the Removal of Difficulties Order, 1950 was meant to enlarge the rights of the new assessees  brought within  the  reach  of  the Indian Income-tax  law. The  intention of  the law was to make a dividing line between those previous years to  which the  provisions of the earlier law would apply, and those previous years to which the provisions of  the  Indian  Income-tax  Act  would apply.  The   rights  were  neither  enlarged  nor curtailed. As  pointed out  by Chagla, C.J. in the Indore Malwa  United Mills Ltd. v. Commissioner of Income tax (1).           "the only right integration has given to      an assessee is the right contained in clauses      (sic) 3  of  the  (Removal  of  Difficulties)      Order, 1950 and that right is that if the law      of his  own  State  permitted  him  to  carry      forward  the   losses,  then  that  right  is      preserved under the Indian Income-tax Act." paragraph 3  of the  Order clearly  said that  the right was  available in  the same  manner, to  the same extent  and up  to the year of assessment, as laid down  in the  State law (here, the Travancore Act). Since in this case, the carry-forward of the loss was  for only  two years and those years were before the  previous year  from which  the  Indian Income-tax  Act   began  to  apply,  there  is  no question of  the application of the Indian Income- tax Act.      The appeal thus succeeds, and is allowed. The assessee Company shall pay the costs of the appeal in the  High Court,  but there  shall be  no order about costs in this Court.                                    Appeal allowed. 613