Anglo-French Textile Co., Ltd. Vs.
Commissioner of Income-Tax, Madras  INSC 83 (22 December 1952)
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)
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
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.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 13 of 1952.
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 Incometax 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
"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." 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)
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,
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
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 nonresident 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 re-compute 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 subsection (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 subsection (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 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 subsection
(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
The High Court proceeds on the ground that
when proceedings are taken under section 34 the assesses (1)  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
The appeal fails and is dismissed with costs.
Agent for the appellant: P. H. Mukherji.
Agent for the respondent: G. H. Rajadhyaksha.