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PETITIONER: ANGLO-FRENCH TEXTILE CO., LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, MADRAS.

DATE OF JUDGMENT: 22/12/1952

BENCH: MAHAJAN, MEHR CHAND BENCH: MAHAJAN, MEHR CHAND DAS, SUDHI RANJAN BOSE, VIVIAN BHAGWATI, NATWARLAL H.

CITATION:  1953 AIR  105            1953 SCR  454  CITATOR INFO :  C          1954 SC 198  (10,10A)  R          1958 SC 269  (14)  R          1958 SC 861  (15)  RF         1965 SC1526  (15)

ACT: Indian  Income-tax Act (XI of 1922), ss. 24  (2),  34-Return showing  loss-Whether  loss  can  be  recorded  and  carried forward--Proceedings    for   re-assessment-Whether    whole assessment can be reopened.

HEADNOTE: An  assessee submitted a return showing the income as  "nil" and  this return was accepted by the Income-tax Officer,  In the                                     449 next  year  the  Income-tax Officer sent  a  notice  to  the assessee  under s. 34 (1) (b) calling for a fresh  return,., The assesses submitted a return showing the income as nil  " and a loss of Rs. 3,92,357 and claimed that the loss  should be  recorded  and  carried forward under s. 24  (2)  of  the Income-tax  Act.   The  loss was arrived at  by  striking  a balance in the profit and loss account of just one business: Held,  that the assessee was not entitled to ’have the  loss determined  and   carried forward for  two  reasons,  first, because when there is no income under any head at all  there is  nothing  against which the loss can be set off  in  that year under s. 24 (1) and unless that can be done sub-s.  (2) of s. 24 does not come into play ; secondly, a set-off under s. 24 (2) can only be claimed when the loss arises under one head and the profit against which it is sought to be set off under a different head.  Quaere: Whether when proceedings are taken under s. 34  for the  assessment of income which has escaped assessment,  the assesses is entitled to re-open the whole proceedings.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 13 of  1952.

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Appeal from the Judgment and Order dated 18th January, 1950, of the High Court of Judicature at Madras (Satyanarayana Rao and Viswanaths Sastri JJ.) in Case Referred No. 28 of 1947. O.  T.  G.  Nambiar (S.  N. Mukherjee, with  him)  for  the appellant. M.   C.  Setalvad,  Attorney-General  of  India,  and   C.K. Daphtary,  Solicitor-General for India (G.  N. Joshi and  P. A. Mehta, with them) for the respondent. 1952.  December 22.  The Judgment of the Court was delivered by BOSE  J.-The  following question was referred  to  the  High Court  of Madras by the Income-tax Appellate Tribunal  under section 66 (1) of the Indian Income-tax Act, 1922 Whether  on the facts and in the circumstances of  the  case when an assessment has been made under section 23 (1) of the Indian  Income-tax Act, determining the  assessee  company’s income  as ’nil’ and when proceedings under section 34  were subsequently started to assess the income which the 450 Income-tax  Officer believed to have escaped assessment  the assessee  company  is  entitled to claim that  the  loss  of profits   and  gains  (including   depreciation   allowance) sustained by it in the previous year should be determined in the course of such proceedings." We  are  concerned in this case with  the-  assessment  year 1941-42.  The assessee is the Anglo-French Textile  Company, a  company which is incorporated in the United Kingdom.   It owns  spinning  and weaving mills at Pondicherry  in  French India  and  manufactures  yarn and  cloth  there.   The  raw materials necessary for the manufacture, or at any rate much of it, such as cotton, used to be purchased in what was then the British India, through its agents Best & Company Ltd. of Madras.  The bulk of its manufactured goods ’was’ also  sold in British India, the rest being sold elsewhere.  But in the year  material  to this case it did no business  in  British India and accordingly it submitted no return to the  Income- tax authorities. On 26th April, 1941, the Income-tax Officer issued a  notice to  the  assessee  and called for a  return.   The  assessee replied  on  9th  June, 1941, that it  had  ",at  all  times material to the assessment year no business in British India "  and  consequently  no profits arose or  accrued  or  were received  in British India and therefore the  assessee  "was not  liable  to comply with the provisions  of  the  Indian. Income-tax Act." The assessee added. In  the  Circumstances the company is not liable to  make  a return but with a view to preserve the right of the  company to  appeal against any order that may be passed by  you,  if necessary, we submit herewith without prejudice a nil return receipt of which kindly acknowledge." Appended  to the letter was a piece of paper which has  been called  a  " nil" return.  It is the usual printed  form  in which  returns are, normally made but the only entry.in  the whole  form is the word " nil The following declaration  was also added: 451 "I  further  declare that the company was  not  resident  in British India during the previous year etc..." On  25th  March,  1942,  the  Income-tax  Officer  made  the following order which he called an Assessment Order: "The  company made a nil return of income obviously for  the reason  that it is not carrying on any business  in  British India ... I accept the return of income filed by the company and declare it is not liable to tax for the year 1941-42."

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A  year  later, namely, on 9th March, 1943,  the  Income-tax Officer sent the assessee a notice under section 34 (1)  (b) in the following terms: Whereas in consequence of the definite information which has come into my possession I have discovered    that       your income assessable to income-tax for the year   ending   31st March, 1942 has (a)  escaped assessment. I therefore propose to assess the said income that has (a) escaped assessment. I  hereby require you to deliver to me not later than ...  a return  in the attached form of your total income and  total world income assessable for the said year..." In  reply to this the assessee again submitted the  same  CC nil  "  return and filed a statement showing a loss  of  Rs. 3,92,357  on its total world income.  This was on 31st  May, 1944.. The  Income-tax Officer passed orders on this on  2nd  June, 1944.   He  stated  that the  assessee  was  a  non-resident company  and that during the year no sales were effected  in British India and concluded as follows: As  the  net result for the world business is only  a  loss, there can be no question of profits attributable 452 co-operations  in British India under section 42 (1) and  42 (3)  in respect of cotton purchases.  The nil’ return  filed is therefore accepted, Hence there is no assessment for 1941-42.  As this is a non- resident company, the loss need not be carried forward under section  24 (2) as that section in terms does not  apply  to non-residents." The last portion of the order is the one which occasions the assessee’B grievance.  It claims that the Income tax Officer having accepted its statement of loss was bound to record it and carry it forward. Appeals followed to the Appellate Assistant Commissioner  of Income-tax   and  the  Income-tax  Appellate  Tribunal   and ultimately  there  was a reference to the High  Court.   The assessee has failed throughout.and now appeals here. The   assessee’s  contention  is  based  on  the   following provision of section 34.  The first sub-section states  that when  a notice is issued under that section  the  Income-tax Officer  may  proceed to assess or  re-assess  such  income, profits  or  gains  or recompute the  loss  or  depreciation allowance and that " the provisions of this Act shall, so far as may be, apply, accordingly  as  if the notice were a  notice  issued  under [sub-section (2) of section 22]." This it is said attracts section 24 (2). We need not decide whether this contention is well  founded, namely,  whether  the  assessee  can  claim  to  reopen  the proceedings, because, even if he can, we are of opinion that he  cannot get what he asks for.  There is no  provision  in the Act which entitles the assesses to have a loss  recorded or  computed, unless something is to be done with the  loss. Thus, under section 24 (1) a loss can be set off against  an income, profit or gain and under sub-section (2) the balance of a loss can be carried forward to a following year on  the conditions set out there.  Except for this there is  nothing else that can be called in aid.  But under’ sub-section  (2) the loss can be carried forward when 453 "the loss cannot be wholly set. off under subsection (1) and in that event only the "portion not so set off " can  be carried  forward.   We  are therefore. thrown  back  o  sub-

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section (1). Sub  section (1) provides that where an 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." Therefore,  before any question of set-off can arise,  there must be (1) a loss under one or more of the heads  mentioned in  section 6, and (2) an income, profit or gain under  some other  head.  It follows that when there is no income  under any head at all, there is nothing against which the loss can be  set  off in that year and unless that can be  done  sub- section (2) does not come into play. Next,  a  set-off Under section 24 (1) can only  be  claimed when  the loss arises under one head and the profit  against which  it is sought to be set off arises under  a  different head.  When the two arise under the same head, of course the loss  can be deducted but that is done under section 10  and not  under  section 24 (1).  See the decision of  the  Privy Council  in  Rm.  Ar.  Ar.   Rm.   Arunachalam  Chettiar  v. Commissioner  of  Income-tax, Madras (1).   In  the  present case,  the  loss is computed by striking a  balance  in  the profit  and loss account of just the one business  and  con- sequently  no question of different heads arises.   On  both these  grounds,  therefore, the assessee’s  contention  must fail  because,  unless the loss can be set  off  under  sub- section  (1)  of section 24, it cannot  be  carried  forward under  sub-section (2) and if it cannot be  carried  forward the  question of its determination and  computation  becomes irrelevant. The High Court proceeds on the ground that when  proceedings are taken under section 34 the assesses (1)  [1936] 4 I.T.R. 173 at 178 and 179. 454 is  not  entitled  to reopen the whole  proceedings  as  the further proceedings are limited to assessing that portion of the income which has escaped assessment. We  need not express any opinion on this.  The  question  we have to answer is confined to the facts and circumstances of this case and those circumstances are (1) that no return was filed  at  any  stage of the  case  disclosing  any  income, profits  or  gains at all, (2) that proceedings  were  later taken  under  section  34, and (3) in the  course  of  these proceedings the assessee claimed that a certain loss  should be  determined and recorded.  Our answer is that  cannot  be done for the reasons we have given and that consequently the question  referred was rightly answered in the  negative  by the High Court. The appeal fails and is dismissed with costs. Appeal dismissed. Agent  for  the appellant: P. H. Mukherji. Agent for the respondent: G. H. Rajadhyaksha.