http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: COMMISSIONER OF INCOME TAX, U.P.

       Vs.

RESPONDENT: SHAH SADIQ AND SONS.

DATE OF JUDGMENT14/04/1987

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) NATRAJAN, S. (J)

CITATION:  1987 AIR 1217            1987 SCR  (2) 942  1987 SCC  (3) 516        JT 1987 (2)   157  1987 SCALE  (1)816  CITATOR INFO :  F          1989 SC1614  (13)

ACT:     Income  Tax  Act, 1922/Income Tax  Act,  1961--S.  24/s. 297-Losses--Right  to  carry  forward  ’Accrued  under  1922 Act--Whether a vested right---Whether saved by 1961 Act. General  Clauses  Act, 1897--s. 6(c)--Effect  of--On  vested rights.     Statutory Interpretation--’Saving provision’ of statute- --Construction of--Rights which are accrued are saved unless they are expressly taken away.

HEADNOTE:     The assessee, a partnership firm, enjoyed the status  of a registered firm for the assessment years 1960-61,  1961-62 and  1962-63.  In the assessment proceedings  for  the  year 1962-63  the assessee claimed that a loss of Rs.60,054  suf- fered  in  the speculation business in the  assessment  year 1960-61 and the loss of Rs.6,839 suffered in the  assessment year  1961-62  should  be set off  against  the  speculation profit  of  Rs.58,102 for the assessment year  1962-63.  The Income  Tax  Officer rejected the assessee’s  claim  holding that as the assessee was a registered firm, the losses could be carried forward and set off only by the partners and  not by the firm. The appeal by the assessee before the Assistant Appellate Commissioner was dismissed.     In  the appeal to the Tribunal, the Tribunal  held  that the  right to carry forward the losses relating to  the  as- sessment  years  1960-61  and 1961-62 was  governed  by  the Indian Income Tax Act, 1922 and that s. 75(2) of the  Income Tax  Act, 1961 which was applicable to the  assessment  year 1960-61  had no application in the facts of this case;  that when  an Act was passed repealing an earlier  enactment,  it could  not  be said to supersede any right  already  accrued under  the repealed enactment unless there was something  in the  repealing Act to indicate that clearly and,  therefore, the assessee was entitled to have the losses brought forward from the preceding two years and set off against the profits earned for the year 1962-63. In the Reference, the High Court held: (1) that a right had 943

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

accrued to the assessee by virtue of 1922 Act which entitled him to have the losses from speculation business in  respect of  the  assessment year 1960-61 and 1961-62 to  be  carried forward  and  set  off against the  profits  in  speculation business  of  future years; (2) that was a right  which  had accrued  to it before the 1961 Act was brought  into  force; (3)  that by virtue of s. 6 of the General Clauses Act  that right  continued  to subsist and (4) that the  Tribunal  was right  in holding that the assessee was entitled to set  off the  speculation  losses suffered in  the  assessment  years 1960-61  and 1961-62 against the speculation profits of  the assessment year 1962-63. Dismissing the Appeal of the Revenue,     HELD:  1. The Allahabad High Court was in error  in  the view it took in the decision in Commissioner of Income  Tax, Kanpur  v.  Mangi Ram Gopichand, (111 ITR 807)  but  it  was right  in  the judgment under appeal and  the  question  was properly answered. [951 G-H]     2.  The  right created by the operation of s.  24(2)  of 1922 Act is a vested right. [951 A-B]     Gujarat Electricity Board v. Shantilal R. Desai,  [1969] 1  S.C.R.  580 at 587 and Isha Valimohamad &  Anr.  v.  Haji Gulam Mohamad & Haji Dada Trust, [1975] 1 S.C.R. 720 at 723, referred to.     3.  Under the Income Tax Act of 1922, the  assessee  was entitled  to  carry forward the losses  of  the  speculation business  and set off such losses against profits made  from that business in future years. The right of carrying forward and set off accrued to the assessee under the Act of 1922. A right  which had accrued and had become vested continued  to be  capable of being enforced notwithstanding the repeal  of the  statute under which that right accrued unless  the  re- pealing statute took away such right expressly or by  neces- sary implication. This is the effect of s. 6 of the  General Clauses Act, 1897. [951B-D]     4. Whatever rights are expressly saved by the  ’savings’ provision  stand saved. But, that does not mean that  rights which  are  not saved by the ’saving’ provision  are  extin- guished or stand ipso facto terminated by the mere fact that a  new statute repealing the old statute is enacted.  Rights which  have  accrued are saved unless they  are  taken  away expressly.  This  is  the principle behind s.  6(c)  of  the General Clauses Act, 1897. [951E-F] 944       5.    The right to carry forward losses which had  ac- crued under the repealed Income Tax Act of 1922 is not saved expressly  by s. 297 of the Income Tax Act, 1961. But it  is not necessary to save a right expressly in order to keep  it alive after the repeal of the Old Act of 1922. Section  6(c) of the General Clauses Act, 1897 saves accrued rights unless they are taken away by the repealing statute. Taking away of any such rights by s. 297 either expressly or by implication is not found. [951 F]     Commissioner  of  Income-tax  Kanpur  v.  Mangiram  Gopi Chand, 111 ITR 807, overruled.     State  of  Punjab v. Mohar Singh, A.I.R. 1955  S.C.  84; Reliance Jute Mills Co. Ltd. v. Commissioner of  Income-tax, 86 I.T.R. 570; Helen Rubber Industries Ltd. v.  Commissioner of  Income-Tax,  Mysore  Travancore-Cochin  and  Coorg.,  36 I.T.R.  544  and Karimtharuvi Tea Estate Ltd.  v.  State  of Kerala, 60 I.T.R. 262, referred to.     T.S.  Baliah  v.T.S.  Rangachari,  Income-tax   Officer, Central Circle VI. Madras, 72 I.T.R. 787 and Commissioner of Income-tax  (Central),  Calcutta v.B.P.  (India)  Ltd.,  116 I.T.R. 440, followed.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1598 (NT) of 1974.     From  the  Judgment  and Order dated  26.2.1971  of  the Allahabad High Court in I.T. Reference No. 92 of 1966.     C.M.  Lodha, N.M. Tandon and Miss A. Subhashini for  the Appellant. Dhananjoy Chandrachud (Amicus Curiae) for the Respondents. The Judgment of the Court was delivered by     SABYASACHI  MUKHARJI,  J.  This is an  appeal  from  the judgment and order of the High Court of Allahabad dated 26th February, 1971. The assessee is a partnership firm which  at the  relevant time enjoyed the status of a  registered  firm for  the assessment years 1960-61, 1961-62 and  1962-63.  In the assessment proceedings for the assessment year  1960-61, the assessee suffered a loss of Rs.60,054 in the speculation business  which  was to be carried  forward  for  adjustment against speculation profits of future years. For the assess- ment  year  1961-62 also, the assessee had suffered  a  loss amounting to Rs.6,839 in 945 speculation business and this was also to be carried forward for adjustment against speculation profits of future  years. For the assessment year 1962-63 which is the year with which this  appeal  is concerned, the assessee made  a  profit  of Rs.58,102  from  speculation  business.  In  the  assessment proceedings  for that year the assessee claimed that a  loss of  Rs.60,054  suffered in respect of  the  assessment  year 1960-61 and the loss of Rs.6,839 suffered in respect 0"  the assessment  year  1961-62  should be set  off  against  this speculation  profit of Rs.59,102 for this year. If that  had been done, the speculation profits of the year under consid- eration  would have been absorbed completely by  the  losses brought forward from the preceding years.     The Income-tax Officer, however, rejected the assessee’s claim.  He held that as the assessee was a registered  firm, the losses could be carried forward and set off only by  the partners  and  not by the firm. The appeal by  the  assessee before  the Assistant Appellate Commissioner was  dismissed. The assessee went up in appeal to the Tribunal. The Tribunal held that the right to carry forward the losses relating  to the assessment years 1960-61 and 1961-62 was governed by the Indian  Income-tax Act, 1922 (hereinafter called  the  ’1922 Act’)  and  the section 75(2) of the  Income-tax  Act,  1961 which  was applicable to the assessment year 1960-61 had  no application  in the facts of this case. The Tribunal was  of the  view that when an Act was passed repealing  an  earlier enactment,  it  could  not be said to  supersede  any  right already  accrued under the repealed enactment  unless  there was something in the repealing Act to indicate that clearly. The Tribunal, therefore, held that the assessee was entitled to  have the losses brought forward from the  preceding  two years  and set off against the profits earned for  the  year 1962-63 and accordingly allowed the appeal.     The  revenue sought for reference to the High  Court  of Allahabad on the following question:                         "Whether,  the assessee is, in  law,               entitled to set off of the speculation  losses               suffered  in the assessment years 1960-61  and               1961-62 against the speculation profits of the               previous year?"     The High Court considering the provisions of section  75

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

of 1961 Act came to the conclusion that a right had  accrued to the assessee by virtue of 1922 Act which entitled him  to have the losses from speculation business in respect of  the assessment  year 1960-61 and 1961-62 to be  carried  forward and set off against the profits in speculation busi- 946 ness  of future years. The High Court was of the  view  that that  was  a right which had accrued to it before  the  1961 Act  was  brought  into force. The High Court  came  to  the conclusion  that  by  virtue of section  6  of  the  General Clauses Act that right continued to subsist. The High Court, therefore,  was of the view that the Tribunal was  fight  in holding that the assessee was entitled to set off the specu- lation  losses suffered in the assessment years 1960-61  and 1961-62 against the speculation profits of the previous year 1962-63.     In  appeal  on behalf of the revenue before us,  it  was contended  that the High Court was in error.  Our  attention was  drawn  to the provisions of section 24(2) of  1922  Act which,  inter  alia, provided that where any  assessee  sus- tained  any  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 31st day of March, 1940,  in any business, profession or vocation, and the loss could not be wholly set off under sub-section (1) of section 24 of the said  Act, so much of the loss as was not so set off or  the whole  loss where the assessee had no other head  of  income would  have  been carried forward in  the  manner  indicated therein.  So, therefore, the 1922 Act ’gave a right  to  set off  speculation losses against speculation profits  and  to the  extent it was unabsorbed, it had a fight to carry  for- ward  the losses for the future years to be set off  against speculation profits for future years. It was submitted  that in  a way it was vested right--a fight on assessment to  set off  the losses against the profits of the year in  question and  if  not fully absorbed to carry forward to be  set  off against  the  profits of future years. It was  submitted  on behalf of the revenue that it therefore continued so long as the  Act permitted the setting off in that manner.  It  was, however, urged that in view of the coming into operation  of 1961  Act which came into operation on 1st of  April,  1962, that fight no longer was there with the assessee. Section 75 of  1961  Act  provided an entirely new scheme.  It  was  as follows:                        "75.     Losses     of     registered               firms.---(1)  Where the assessee is  a  regis-               tered  firm, any loss which cannot be set  off               against any other income of the firm shall  be               apportioned between the partners of the  firm,               and  they alone shall be entitled to have  the               amount of the loss set off and carried forward               for set off under sections 70, 71, 72, 73,  74               and 74A.                        (2) Nothing contained in  sub-section               (1) of section 72, sub-section (2) of  section               73, sub-section (1) of section               947               74  or  sub-section (3) of section  74A  shall               entitle any assessee, being a registered firm,               to  have its loss carried forward and set  off               under  the  provisions of the  aforesaid  sec-               tions."     As a result of sub-section (2) of section 75 of the said Act,  there is prohibition, according to the revenue,  enti- tling  the assessee being registered firm to have  its  loss

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

carried  forward and set off under the provisions except  in the manner indicated in sub-section (2) of section 75 of the Act.     It  was  submitted that as the assessment for  the  year 1962-63 had to be made under the provisions of 1961 Act, the assessee  could not have the benefit of set off of the  car- ried  forward loss. In support of this  contention  reliance was  placed on the decision of the Allahabad High  Court  in Commissioner  of Income-tax, Kanpur v. Mangiram Gopi  Chand, 111  I.T.R.  807 where it was held that  a  registered  firm could,  so long as the 1922 Act was in force, carry  forward speculation loss, if it could not be set off against  specu- lation  income of the year in question. However,  the  Court observed  after  coming  into force of  1961  Act,  specific provisions had been made in respect of losses of  registered firms and such right of set off of speculation losses was no longer  available. The High Court was of the view  that  the right  of  a registered firm to set off  and  carry  forward losses under section 24(2) of the 1922 Act was a substantive right.  However, where a repealing provision  indicated  the effect  of the repeal on previous matters and  provided  for the operation of the previous law in part as also the opera- tion of the new law in the other part in positive terms, the repealing  and  saving provision could be said to  be  self- contained  and  excluded  the applicability  of  section  6, according  to  the  Allahabad High  Court,  of  the  General Clauses  Act. Section 297(2) of 1961 Act, according  to  the Allahabad  High Court, must be taken to be a  self-contained code in respect of the operation of 1922 Act and the  rights which might have been created under it. Inasmuch as  section 297(2) of the 1961 Act did not save, said the Allahabad High Court,  the right, if any, of a registered firm to  set  off its  speculation  losses, which have been  carried  forward, against  the speculation profits of the firm, the right,  if any,  created by section 24(2) could not be said  to  remain intact after the repeal of the 1922 Act. Speculation  losses of  years anterior to 1962-63 could not, therefore, be  car- ried  forward and set off against speculation profits  of  a registered  firm. The Allahabad High Court  considering  the decision  of this Court in State of Punjab v.  Mohar  Singh, A.I.R. 1955 S.C. 84 observed that the principle laid down by this Court was that where the repealing provision  indicated the effect of repeal on previ- 948 ous  matters and provided for the operation of the  previous law in part and in negative terms as also for the  operation of the new law in other part in positive terms, the  repeal- ing  and the saving provision could be said to be  self-con- tained  Act. While we respectfully agree with the  principle applicable  in interpreting the application of the  Act,  we are  of  the opinion that the Allahabad High Court  was  not fight  in the application of that principle in the light  of section 297(2) of 1961 Act in the aforesaid decision.  There is  nothing in any of the clauses of subsection (2) of  sec- tion  297  of the Act which indicates  that  accrued  rights under  1922  Act lapsed in respect of the assessment  to  be made  after coming into operation of 1961 Act. According  to the Allahabad High Court in that decision, section 297(2)(a) provided for completion of assessment in accordance with the old  Act where the return was filed before the  commencement of  the 1961 Act but section 297(2)(b) of the  Act  provided for  completion of assessment in accordance with the  provi- sion  of  the  new Act where the return was  filed  even  in respect of years covered by the 1922 Act, after 31st  March, 1962. Reading section 297 in the manner it did, the  Allaha-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

bad High Court was of the view that where the provisions  of the  previous  Act  stood repealed, the set  off  cannot  be given. The Allahabad High Court had, it appears, no occasion to notice the judgment under appeal.     On behalf of the revenue, reliance was also placed on  a decision of the Calcutta High Court in the case of  Reliance Jute  Mills  Co. Ltd. v. Commissioner  of  Income-tax,  West Bengal 1, 86 I.T.R. 570 on the question of carry forward  of the loss after the coming into operation of the Finance Act, 1955. The principle enunciated therein, in our opinion, will have no application to the controversy in the present  case. Our attention was also drawn by the revenue to the  decision of the Kerala High Court in the case of Helen Rubber  Indus- tries Ltd. v. Commissioner  of Income-Tax,  Mysore,  Travan- core-Cochin and Coorg, 36 I.T.R. 544. The Kerala High  Court observed  that the loss incurred in Travancore (in a Part  B State)  by  the assessee during M.E. 1123 which  could  only have  been carried forward for two years in accordance  with the provisions of section 32(2) of the Travancore Income-tax Act,  1121, could be carried forward beyond those two  years for a period of six years in accordance with sections  24(2) of  the Indian Income-tax Act, 1922 for the assessment  year 195 1-52, as the Indian Income-tax Act, 1922 was  applicable for  that assessment year and the assessee had the right  to carry  forward losses in accordance with the  provisions  of that  Act. The High Court had to construe section 3  of  the Taxation  Laws  (Part B States)  (Removal  of  Difficulties) Order, 1950. This case must also be understood in the  back- ground of 949 the facts of that case which are different from the  instant case  with the provisions with which we are concerned.  That was  not  a case of deciding whether the  vested  right  was curtailed and if so to what extent.     This  Court in Karimtharuvi Tea Estate Ltd. v. State  of Kerala, 60 I.T.R. 262 observed that it was well-settled that the Income-tax Act as it stands amended on the first day  of April of any financial year must apply to the assessment  of the  year. Any amendments in that Act which came into  force after the first day of April of a financial year, would  not apply  to the assessment for that year, even if the  assess- ment was actually made after the amendments came into force. There, the Kerala Surcharge on Taxes Act, 1957, having  come into force on 1st September, 1957, being the date  appointed by the Kerala Government under section 1(3) of the Act,  and not being retrospective in operation, by express  intendment or necessary implication, could not be made applicable  from 1st  April, 1957. Since the Act was not the law in force  on 1st  April,  1957, no surcharge on  agricultural  income-tax could be levied under that Act in respect of the  assessment year  1957-58.  That decision had also not  dealt  with  the question of affecting vested rights.     In  our opinion the right given to the assessee for  the assessment year 1961-62 under section 24(2) of 1922 Act  was an  accrued  right and a vested right. It  could  have  been taken away expressly or by necessary implication. It has not been  so done. Neither section 297(2)(b) nor any other  sub- clauses of sub-section (2) of section 297 indicates contrary intention  of the legislature regarding any vested right  of the  assessee  under the 1922 Act. On the  contrary  section 6(c) of the General Clauses Act indicates that right  should be preserved.     Reliance may be placed on the observations of this Court in  T.S. Baliah v.T.S. Rangachari, Income-tax Officer,  Cen- tral  Circle VI, Madras, 72 I.T.R. 787. This Court  observed

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

that  the provisions of section 52 of the Indian  Income-tax Act, 1922, do not alter the nature or quality of the offence enacted in section 177 of the Indian Penal Code, 1860.  They merely  provide a new course of procedure for what  was  al- ready  an offence. There is no repugnancy or  inconsistency; the  two  enactments  can stand together and  they  must  be treated  as cumulative in effect. This Court,  however,  ob- served  that  in enacting section 297(2) of  the  Income-tax Act,  1961,  it was not the intention of the  Parliament  to take  away the right of instituting prosecutions in  respect of proceedings which were pending at the commencement of the Act. Parliament had not made any detailed provision for the 950 institution of prosecutions in respect of offences under the 1922  Act.  Section 6(e) of the General  Clauses  Act,  1987 applied  for the continuation of such proceedings after  the repeal  of  the  Indian Income-tax Act, 1922,  and  a  legal proceeding in respect of an offence committed under the 1922 Act  may be instituted after the repeal of the 1922  Act  by the 1961 Act. The Court reiterated that before coming to the conclusion that there is a repeal of an earlier enactment by a  later enactment by implication, the court must be  satis- fied  that the two enactments are so inconsistent or  repug- nant  that these could not stand together and the repeal  of the express prior enactment must flow from necessary  impli- cation of the language of the later enactment.     In Commissioner of Income-Tax (Central), Calcutta v.B.P. (India)  Ltd.,  116 I.T.R. 440 the Calcutta High  Court  was concerned  with  section 25(3) of the 1922 Act.  It  is  not necessary  to set out in extenso the facts of that case.  It suffices  to say that the discontinuance of  the  assessee’s business in that case took place on 28th February, 1962.  It could not be disputed that if the 1961 Act had not come into effect,  the  assessee would have been entitled to  get  the relief  as  granted by virtue of section 25(3) of  the  1922 Act.  It was observed that on a reading of section 6 of  the General  Clauses Act, 1897, it was clear that unless a  con- trary  intention  appears,  the repeal of an  Act  does  not affect any existing right, privilege, obligation or liabili- ty. It is, therefore, necessary to find out from the  provi- sions of section 297 of the 1961 Act which.repeals the  1922 Act,  whether the old rights and liabilities have  been  in- tended to be destroyed. There was no corresponding provision under the 1961 Act dealing with the type of claims mentioned in sub-section (3) or (4) of section 25 of the 1922 Act.  It was  contended  by the revenue that what was  not  said  was destroyed and such intention would be apparent in that  case from  section  297(2)(h)  of the 1961 Act.  The  High  Court referred  to  the  12th Report of the  Law  Commission,  and Speaking  for the Court, one of us (Sabyasachi  Mukharji,J.) said  that it was not possible to accept the submission  for the  revenue that whatever was not said was  destroyed.  The Court reiterated that there must be a manifest intention  of Parliament  to  destroy a right or privilege under  the  old Act.  There  is  no such provision in the new  Act.  In  the instant  case  also, section 75(2) dealt  with  a  different scheme  of carrying forward of loss but it did not speak  of any  accrued  right. It did not destroy  either  by  express words or by necessary implication the vested right given  to an assessee under section 24 (2) of the Act of 1922.  There- fore,  unless one finds in section 297 or within  the  four- corners of the General Clauses Act any intendment express or implied of destroying the rights created by section 24(2) of 951 carrying  forward the losses to set off in subsequent  years

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

in case of speculation business that right cannot be said to be destroyed.     The  fact  that the fight created by  the  operation  of section  24(2)  is a vested right cannot in our  opinion  be disputed.  See in this connection the observations  of  this Court  in Gujarat Electricity Board v. Shantilal  R.  Desai, [1969]  1 S.C.R. 580 at 587 and Isha Valimohamad &  Anr.  v. Haji Gulam Mohamad & Haii Dada Trust, [1975] 1 S.C.R. 720 at 723.     Under  the  Income  Tax Act of 1922,  the  assessee  was entitled  to  carry forward the losses  of  the  speculation business  and set off such losses against profits made  from that business in future years. The fight of carrying forward and set off accrued to the assessee under the Act of 1922. A right  which had accrued and had become vested continued  to be  capable of being enforced notwithstanding the repeal  of the  statute under which that fight accrued unless  the  re- pealing statute took away such right expressly or by  neces- sary  implication.  This is the effect of section 6  of  the General Clauses Act, 1897.     In  this case the ’savings’ provision in  the  repealing statute  is not exhaustive of the rights which are saved  or which  survive  the repeal of the statute under  which  such rights  had  accrued. In other words,  whatever  fights  are expressly saved by the ’savings’ provision stand saved. But, that  does not mean that fights which are not saved  by  the ’savings’  provision  are extinguished or stand  ipso  facto terminated by the mere fact that a new statute repealing the old statute is enacted. Rights which have accrued are  saved unless they are taken away expressly. This is the  principle behind  section 6(c) of the General Clauses Act,  1897.  The right  to carry forward losses which had accrued  under  the repealed  Income-tax Act of 1922 is not saved  expressly  by section  297  of the Income-tax Act, 1961. But,  it  is  not necessary  to  save a right expressly in order  to  keep  it alive after the repeal of the Old Act of 1922. Section  6(c) saves  accrued  rights  unless they are taken  away  by  the repealing  statute. We do not find any such taking  away  of the  rights by section 297 either expressly or  by  implica- tion.     We  are,  therefore, of the opinion that  the  Allahabad High Court was in error in the view it took in the  decision in Commissioner of Income-tax, Kanpur v. Mangiram Gopi Chand (supra)  but  the High Court of Allahabad was fight  in  the judgment  under  appeal and the question  was  properly  an- swered. The  assessee  in person did not appear at the time  of  the heating 952 of  this appeal. We requested Shri Chandrachud to assist  us as  amicus curiae. We record that Shri Chandrachud has  ren- dered  very able assistance to us in disposing of  this  ap- peal.  This Court records its appreciation of the help  ren- dered by him.     The  appeal in the premises fails and is dismissed  with costs  assessed at Rs.2,500 which amount should be  paid  to the amicus curiae. A.P.J.                                         Appeal   dis- missed. 993