The Judgment of the Court was delivered by

Sankar Prasad Mitra, J.:— This is a reference under section 66(1) of the Indian Income-tax Act, 1922. The statement of the case relates to the assessment year 1960-61. The relevant accounting period is the financial year ending March 31, 1960. The assessee is a company which has been carrying on business, inter alia, in the manufacture of jute goods. The assessee's business income was finally determined by the Tribunal's order of October 27, 1964, at Rs. 23,93,166. While giving effect to the Tribunal's order the Income-tax Officer set off the unabsorbed losses of 1956-57 and 1957-58 of Rs. 3,24,849 and Rs. 20,68,317, respectively against: the aforesaid business income.

2. To the Appellate Assistant Commissioner the assessee pointed out that the total loss determined for the assessment year 1956-57 was Rs. 10,54,686 and not Rs. 3,24,849 as taken by the Income-tax Officer.. The Appellate Assistant Commissioner, after verifying the figures, directed the Income-tax Officer to modify the assessment and the Income-tax Officer did so accordingly. The next point raised before the Appellate Assistant Commissioner was regarding the set-off of losses. On behalf of the assessee it was submitted that, in the assessment year 1950-51, the total loss was Rs. 21,21,141, out of which in the assessment order dated April 26, 1960, for the assess ment year 1959-60, the Income-tax Officer had set off unabsorbed loss of Rs. 1,58,845 for 1949-50 and Rs. 5,70,952 for 1950-51 against the business income of that year. It was urged that in this order the Income-tax Officer had directed that the balance of unabsorbed loss for 1950-51 amounting to Rs. 15,50,187 should be carried forward for the subsequent year. On the basis of the said order, which, according to the assessee, had become final, these losses which have been directed to be carried forward by the Income-tax Officer in respect of the assessment year 1950-51 should also have been set off against the current year's business income. The Appellate Assistant Commissioner held that the losses could not be carried forward for more than 8 years.

3. Before we proceed any further it would be convenient to set out some of the provisions of the relevant statutes. Section 24(2) of the Indian Income-tax Act, 1922, prior to its amendment by the Finance Act of 1955, was as follows:

“(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 subsection (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year; and if it 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; but no loss shall be so carried forward for more than six years, and a loss arising in the previous years for the assesssment for the year 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.”

4. Later on, the following amendment was made in the aforesaid subsection by section 16 of the Finance Act, 1955:

“16. Amendment of section 24, Act XI of 1922.—In sub-section (2) of section 24 of the Income-tax Act,—

(1) for the words beginning with ‘where any assessee sustains a loss of profits’ and ending with ‘three, four and five years, respectively’, the following shall be substituted, namely:—

‘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 subsection (1), so much of the loss as is not sb set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and

(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 transactions 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: provided that the business, profession of 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:’;

(2) after clause (e) of the proviso, the following clause shall be inserted, namely:—

‘(f) a loss arising in the previous years for the assessment for the years ending on the 31st day of March of the years 1940, 1941, 1942, 1943 and 1944 shall be carried forward for one, two, three, four and five years respectively, and a loss arising in the previous years for the assessment for the years ending on the 31st day of March of the years 1945, 1946, 1947, 1948 and 1949 shall be carried forward for six years, and such loss shall be set off only against the profits and gains, if any, of the assessee from the same business, profession or vocation’.”

5. Yet another amendment came to section 24(2)(iii) as per Finance Act, 1957,* which reads as follows:

“8. Amendment of section 24.— In section 24 of the Income-tax Act,—

(a) in clause (iii) of sub-section (2), after the words ‘following year and so on’, the words ‘but no loss shall be so carried forward for more than eight years’ shall be inserted.”

6. In this case, before the Tribunal, it was submitted that by reason of the change introduced in section 24(2) of the Income-tax Act by the Finance Act of 1955, the loss suffered in any year could be carried forward indefinitely subject to the restrictions in proviso (f). It was urged that loss in the years from 1949-50 onwards could be carried forward indefinitely whereas the loss sustained in the earlier years could only be carried forward for a specific number of years. According to the assessee's submissions, a right which had vested in the taxpayer to carry forward loss sustained in 1949-50 and subsequent years without any period of limitation under the Finance Act, 1955, must be held to subsist unless there was a specific provision in the later amendment withdrawing such privilege; and even if the amendment in 1957 which stipulated loss to be carried forward only for a period of 8 years, the loss sustained from 1949-50 onwards could be carried forward indefinitely without any restriction to the period to which it might be carried forward.

7. It was urged that the Income-tax Officer's order for 1959-60 directing the said loss for 1950-51 to be carried forward for subsequent years had become final and the subsequent Income-tax Officer had no option but to give effect to the previous order and, as such, the sum of Rs. 15,50,189 for the assessment year 1950-51 should have been set off against the profits from the net amount determined in the present appeal.

8. The Tribunal considered the above provisions of section 24(2) of the Income-tax Act prior to its amendment by the Finance Act, 1955, as also the subsequent amendments made from time to time. The Tribunal was of opinion that the facts in the present case were governed by the provisions of the Income-tax Act prior to its amendment by the Finance Act, 1955. The Tribunal did not agree with the assessee's submissions that a right had accrued to the assessee to carry forward and set off the loss for an unlimited period by the Act of 1955. The Tribunal has stated that the legislature had the right to amend the law and in the absence of any express direction to the effect that the amendment was meant to have retrospective effect, the law had to be interpreted as it stood at the relevant period and no other meaning than what was olearly apparent from the plain reading of the Act itself could be imported. The Tribunal held that the Finance Act, 1957, which restricted the assessee's right to carry forward losses for not more than 8 years, was valid and supported the decision of the authorities below who had refused to set off the unabsorbed losses sustained in 1950-51 against the assessee's business income for the assessment year 1960-61.

9. The following question of law has been referred to this court:

“Whether, on the facts and circumstances of the case, the assessee was entitled in law to set off unabsorbed loss of Rs. 15,50,187 of the assessment year 1950-51 against the business income of the assessment year 1960-61?”

10. We should observe at the outset that the law applicable to a particular assessment year is the law as it stands on the 1st of April of that assessment year. The Kerala High Court in Helen Rubber Industries Ltd v. Commissioner of Income-tax [1959] 36 I.T.R 544 Ker.. has, if we may say so with respect, rightly observed, at page 556, that the carry forward of losses of previous years and their set-off against the profits and income of the assessment year is only a process for arriving at or fixing the assessable income and is a part of the assessment itself. And, as the assessment has to be made according to the law as it is in the year of assessment, and not as it was at the time the profits or income sought to be assessed accrued, the carry forward of losses of previous years and their set-off agai???t the profits and income of the assessment years also has to be determined, in the absence of any express provision to the contrary, according to the law as it is in the assessment year and not as it was at the time the losses o???urred.

11. In these premises, the amendments introduced by the Finance Act of 1957 into the relevant provisions of section 24(2) of the Income-tax Act, 1922, had to be invoked when the Income-tax Officer made the assessment for the assessment year 1960-61. These are not cases of retrospective operation of statutes affecting vested or substantive rights but only matters of construction of relevant legislative provisions.

“It has been said that the word “retrospective” is somewhat ambiguous and that a good deal of confusion has been caused by the fact that it is used in more senses than one. In general, however, the courts regard as retrospective any statute which operates on cases or facts coming into existence before its commencement in the sense that it affects, even if for the future only, the character or consequences of transactions previously entered into or of other past conduct. Thus a statute is not retrospective merely because it affects existing rights nor is it retrospective merely because a part of the requisites for its action is drawn from a time antecedent to its passing “—vide Halsbury's Laws of England, 3rd edition, volume 36, page 423, article 643.

12. We may note, in this connection, a few observations of Lord God???ard C.J in In re A Solicitor's Clerk2. In 1953, the appellant, an unadmitted solicitor's clerk, was convicted of larceny. The property stolen was not property of the solicitor by whom the appellant was employed or of any client of the solicitor. On April 23, 1957, application was made, under section 16 of the Solicitors Act, 1941, by virtue of an amendment thereto effected by section 11 of the Solicitors (Amendment) Act, 1956, to the disciplinary committee appointed from the members of the Council of the Law Society for an order directing that no solicitor should employ the appellant without the written permission of the Law Society. By order dated September 20, 1957, the disciplinary committee made such a direction as from that date. Before the amendment made by the Act of 1956, which was not expressed to be retroactive, there had been no jurisdiction under section 16 of the Act of 1941 to make such an order where the property stolen was not that of the solicitor-employer or his clients' the amendment extended the jurisdiction to such circumstances. The appellant appealed against the order on the ground that the amendment effected by the Act of 1956 was not retroactive and that the committee had no jurisdiction.

13. It was held that the disciplinary committee had jurisdiction under the amended section 16 of the Solicitors Act, 1941, to make an order disqualifying the appellant for the future, although the cause for making the order was something that happened before the jurisdiction was extended by the Act of 1956. Lord Goddard C.J observes at page 619:

“In all editions of Maxwell on the Interpretation of Statutes it is stated that it is a fundamental rule of English law ‘that no statute should be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by a necessary or distinct implication, and this passage has received judicial approval by the Court of Appeal (see West v. Gwynne, per Kennedy L.J). In my opinion, however, this Act is not in truth retrospective. It enables an order to be made disqualifying a person from acting as a solicitor's clerk in the future and what happened in the past is the cause or reason for the making of the order; but the order has no retrospective effect. It would be retrospective if the Act provided that anything done before the Act came into force or before the order was made should be void or voidable or if a penalty were inflicted for having acted in this or any other capacity before the Act came into force or before the order was made. This Act simply enables a disqualification to be imposed for the future which in no way affects anything done by the appellant in the past. Accordingly in our opinion the disciplinary committee had jurisdiction to make the order complained of and the appeal fails.”

14. It seems to us that the principles discussed by Lord Goddard C.J are also applicable to the amended provisions of the Finance Act of 1957 which we are considering in the present reference. The effect of these amendments is that unabsorbed losses, if any, would be governed by the new provisions introduced by the amendment, and any order which the Income-tax Officer may have made in the past regarding unabsorbed losses would not prevail over the express provisions of the existing law which the Income-tax Officer had to construe for the assessment year 1960-61.

15. Our answer to the question in this reference is, therefore, in the negative and in favour of the department. The assessee will pay the costs of this reference.

A.N Sen, J.:— I agree.