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Bonai Industrial Co. Ltd. v. Commissioner of Income-tax
Factual and Procedural Background
This reference arises under section 66(1) of the Indian Income-tax Act, 1922, made by the Income-tax Appellate Tribunal, Madras Bench, concerning whether the assessee, Bonai Industrial Company Limited, is entitled to determine and set off a loss incurred in the 1948-49 assessment year against profits of the 1949-50 assessment year.
The assessee, a public limited company incorporated in 1939, operated solely in mineral and forest resource business within the former Indian State of Bonai. No mining operations occurred in the years ending 31 March 1947 and 31 March 1948. The Bonai State adopted the Indian Income-tax Act, 1922, from 1 April 1944. For the assessment year 1948-49, the assessee filed a nil return stating a gross loss, but the Bonai State Income-tax Officer found no profit accrued and accepted the return as filed.
In the subsequent assessment year 1949-50 (accounting year ending 31 March 1949), after Bonai State merged into Orissa, the Indian Income-tax Act, 1922, was extended to the merged territories. The Income-tax Officer at Jharsuguda issued a notice to the assessee, who declared a loss of Rs. 48,091. However, the authorities found the loss unproven and rejected the assessee's contention for set-off of earlier losses under section 24(2) of the Act.
Legal Issues Presented
- Whether the assessee is entitled under section 24(2) of the Indian Income-tax Act, 1922, to determine the loss incurred in the 1948-49 assessment year and set it off against the profits of the 1949-50 assessment year.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax, Madras [1953] 23 ITR 82 | Interpretation of sub-sections (1) and (2) of section 24 of the Income-tax Act regarding set-off of losses. | The Supreme Court held that sub-section (2) must be read subject to sub-section (1), requiring that losses and profits be under different heads for set-off; since the assessee had only one head of income, set-off was not permissible. |
| Rm. Ar. Ar. Rm. Arunachalam Chettiar v. Commissioner of Income-tax, Madras [1936] 4 ITR 173 | Distinction between set-off under section 24(1) and deduction under section 10 when losses and profits arise under the same head. | Supported the principle that losses under the same head are deductible under section 10 and not set off under section 24(1), reinforcing the Supreme Court's interpretation. |
Court's Reasoning and Analysis
The court examined the question of entitlement to set off losses under section 24(2) of the Income-tax Act, 1922, in light of the Supreme Court's authoritative interpretation in Anglo-French Textile Co. Ltd. The Supreme Court clarified that sub-section (2) allowing carry forward and set-off of losses is contingent upon the loss first being eligible for set-off under sub-section (1), which requires losses and profits to arise under different heads as enumerated in section 6.
Since the assessee had only one head of income—profits and gains of business—and the alleged loss was from the same head, the loss could not be set off under section 24(1) and consequently could not be carried forward or set off under section 24(2). The court further noted that although Parliament later amended section 24(2) to counteract this ruling, the amendment was not retrospective and thus did not apply to the case at hand.
Additionally, the court observed that the assessee had failed to prove the loss despite ample opportunity, rendering the question academic. Nevertheless, relying on the binding Supreme Court precedent, the court answered the reference negatively.
Holding and Implications
Holding: The court held that the assessee is not entitled to the determination of the loss incurred in the 1948-49 assessment year nor to its set-off against the profits of the 1949-50 assessment year.
Implications: This decision directly affects the parties by denying the assessee the benefit of loss set-off under the law as it stood prior to the non-retrospective amendment of section 24(2). No new precedent was established beyond reaffirming the binding Supreme Court interpretation.
Mohapatra, J.—This is a reference under section 66(1) of the Indian Income-tax Act, 1922, made by the Income-tax Appellate Tribunal, Madras Bench, in their order dated 16th July, 1954, referring the point of law which runs as follows:
"Whether in the facts and circumstances of the case, the assessee is entitled to the determination of the loss incurred in 1948-49 assessment year and to its set-off against the profits of the assessment year 1949-50".
2. The assessee is Bonai Industrial Company Limited, a public limited company incorporated in 1939, with its registered office at Bonai-garh in the former Indian State of Bonai. The assessee-company was constituted with the main object of exploring and prospecting the mineral and forest resources of Bonai State. It is to be noted here that the company had only one source of income, that is to say, by carrying on business in the mineral and the forest resources. There were no mining operations in the account years ending on 31st March, 1947, and 31st March, 1948. The Income-tax Act of 1922 was adopted however by the Bonai State with effect from 1st April, 1944, by a notification of the Durbar of Bonai. In respect of the assessment year 1948-49, the State Income-tax Authorities issued a notice under section 22(2) of the Act, and the assessee-company filed a 'nil' return with a covering letter stating that it suffered a gross loss of Rs. 2,985-3-0 during the previous year. The Bonai State Income-tax Officer however passed the following order:
"On examining the books of account produced by him in support of the return filed by him, it is found that no profit was accrued to the Bonai Industrial Co., Ltd. in 1947-48. Hence, filed".
3. It is to be mentioned here that the present assessment year is 1949-50, the accounting year ending on 31st March, 1949. The Bonai State merged in the present State of Orissa under the States' Merger (Governors' Provinces) Order, 1949. By virtue of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (Act No. LXVII of 1949) the Indian Income-tax Act, 1922, was made applicable to all the merged territories with effect from 1st April, 1949. The Income-tax Officer, Jharsuguda, who had jurisdiction over the area formerly known as Bonai State, issued a notice under section 22(2) of the Act on the assessee. The assessee filed a return declaring a loss of Rs. 48,091 for the "previous year" ending on 31st March, 1949. The authorities how ever found as a matter of fact that the loss was never proved. The contention on behalf of the assessee before the Tribunal that the Income-tax authorities should set off against the profits of the previous year the loss of earlier years under the provisions of section 24(2) of the Act was there fore negatived.
4. The simple question therefore which arises for determination in the present case and is referred to us is "whether under section 24(2) of the Indian Income-tax Act, the assessee is entitled to set-off of the loss of the previous years as against the income of the year in question". The point seems to have been completely set at rest by a decision of their Lordships of the Supreme Court in the case of Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax, Madras [1953] 23 ITR 82. Interpretation of the provisions of sub-sections (1) and (2) of section 24 of the Act arose very pertinently and directly before their Lordships of the Supreme Court who finally decided the point. It is the definite view of their Lordships that sub-section (2) must be read subject to the provisions of sub-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 'setoff 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".
Their Lordships further observed :
"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 [1936] 4 ITR 173. In the present case, the loss is computed by striking a balance in the profit and loss account of just the one business and consequently 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".
Section 6 enumerates the following heads of income :
(i)Salaries.
(ii)Interest on securities.
(iii)Income from property.
(iv)Profits and gains of business, profession or vocation.
(v)Income from other sources.
In the present case before us, the assessee has only one source of income, that is, profits and gains of business. The alleged loss also is in respect of the same business, and, as such, the decision of their Lordships of the Supreme Court fully answers the point which arises in the present case, that is to say, that the assessee is not entitled to a set-off of the loss, if any, in the previous years against the profits of the assessment year. Indeed, the provisions of section 24(2) has been subsequently amended by the Parliament to counteract the aforesaid decision of their Lordships of the Supreme Court; but it is conceded by the counsel of both parties that the said amendment is not retrospective and the present case is governed by the provisions of section 24 of the Act which were for interpretation by their Lordships of the Supreme Court.
5. I will further add that in view of the consistent finding of the Income-tax authorities and the Tribunal that the assessee has not been able to prove any loss during the previous years even though sufficient opportunities were given to him, the determination of the question becomes academic. But as we have discussed above relying on the decision of their Lordships of the Supreme Court which is absolutely binding on us, we would answer the question in the negative, that is,
"The assessee is not entitled to the determination of the loss incurred in 1948-49 assessment year and to its set-off against the profits of the assessment year 1949-50".
6. The reference is accordingly answered.
Rao, J.—I agree.
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