.
aN
310 SUPREME COURT REPORTS [1962] SUPP. " S
1962. the Court or Tribunal is founded. The Legislature M/s, Soorajmult has expressly entrusted the power of appraisal of Nagarrault evidence to the Taxing authorities, and the decision v
Commission of Of those authoritiés would ordinarily be regarded
Income-tax, Caleutty ag final. This is not to say that in a proper case
Shah J. this Court may not, in the interest of justice when occasion demands it, review the evidence. “THe ~ power of this Court under Art. 136 is not restricted;
but it is only in very exceptional cases that this
Court enters upon appraisal of evidence in appeals a filed with special leave and this case does not dis- close any such exceptional circumstances.
, On this ground the appeals Nos. 238 and 239 of 1961 filed by the assessees and the Commissioner against the order of the Tribunal must fail and are dismissed with costs. One hearing fee.
‘ Appeals dismissed.
1962 INDORE MALWA UNITED MILLS LTD. February 19 ° ; v. .
THE COMMISSIONER OF INCOME-TAX (CENTRAL) BOMBAY
(S. K. Das, M. HipayaruLuan and J.C. Suag, JJ.) a
Income Taz—Proceedings under s. 24 of the Indian Income-tax Act,—Scope and effect of section and its proviso— | Set-off of loss—Indian Income-taz Act, 1922 (11 of 1922). ss 24(1), (2), 14(2) (c), 4(1) (a), (eds . .
The assessce company carried on a business of manufacture and sale of textile goods. The manufacture was made at its mills in Indore which was an Indian State before integration and had its own Jaw as to income-tax known as the Indore Industrial Tax Rules, 1927, The sales of textile goods so manufactured were made‘at various places, some inside and some outside the taxable territories of the then British India. For and upto assessment year 1949-50 the assessee company was treated as a non-resident. Indore became a part of the taxable territories within the meaning of the Indian
.3 SCR. SUPREME, COURT REPORTS 311
Income-tax Act, 1922 in the two assessment years 1950-51 and 1951-52 and the assessee company was held to be “resident and ordinarily resident” within the meaning of that Act. Upto the assessment, year 1949-50 that part of its profits which was received by the-assessee company in British India was subjected to tax together with its other income which accrued in British India. In making the calculation of busi-. nes¢ profits oF los$ received or arising in the taxable territories, a proportion was struck between the total turnover and its sales the proceeds whereof were received in the taxable territories. The assessee company faised two questions in the course of the assessment proceedings, one of which with regard to the entire loss of Rs. 5,19,590/- of the year 1948-49 which it claimed to set-off against the profits made in its business in the two assessment years. The aSsessee company contended that the business was one and under s. 24 it was entitled to set off the losses which it had sustained in. 1948-497 The High Gourt decided this question against the assessee company, but gave a certificate under s. 66A of the Act.
Held, on appeal), that the High Gourt,correctly answered: the question. The provisions of s. 24 of the Act read with the provisions in s- 4(1) (a) and (c) and s. 14(2)(c) make it clear that sub-s(1) of s. 24 when it talks of profits or gains has reference to, taxable profits or taxable gains ; it has no reference to income accruing or arising without the taxable territories which were not liable to be assessed in the case of non-residents. In determining the nature of the Josses under consideration in these appeals the relevant year was 1948.49, the year int whic: the losses occurred, andthe High Gourt rightly took the view that for the application of sub-s (2) of s. 24, the losses must be such losses as could have been set-off under sub-s.(1) of s. 24.
Crvip APPELLATE JURISDICTION: Civil Appeals Nos. 149 and 150 of 1961. ° o
Appeals from the judgment and order dated September 23, 1958, of the Bombay High Court in I.T.R. No. 86 of the 1957. " ‘
R. J. Kolah, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the appellants.
» &
K.N. Rajagopala Sastriand D. Gupta, for the respondent. ;
Indore Malwa United ils Lid
Income-tax (Central) . Bombay
Jadore Malwa United Mills Lei, ve The Commissioner of Income -tux (Central, Bombay
1962. February 19. The Judgment of the Court was delivered by. -
S. kK. Das, J.—These are two appeals ona certificate of fitness granted by the High Couré of Judicature at Bombay under s. 66A(2) of the Indian Income-tax Act, 1922. The relevant facts which have given rise to them are shortly stated below.
The Indore Malwa United Mills, a limited liability company, is the appellant before us and will be referred to in this judgment as the assessee company. The respondent is the Commissioner of Income-tax(Central), Bombay. The assessee company carried on a@ business of manufacture and sale of textile goods. The manufacture was made at its mills in Indore which was Indian State before integration and had its own law as to income-tax known as the Indore Industrial Tax Rules, 1927. Tho sales of textile goods. were made at various places, some inside and some outside the taxable territories of British India. For and upto the assessment. year 1949-50 the assessee company was treated as a non-resident within the meaning of s.4A of the Indian Income-tax Act, 1922. For the assessment years 1950-51, and 1951-52 which are two assessment years under consideration, the account years were the calendar years 1946 and 1950 raspectively. Indore became a part of the taxable territories within the meaning of the Indian Income. tax Act is the two assessment years and the assesseo company was held to be ‘resident and ordinarily resident” with the meaning of that Act. Upto the assessment year 1949-50 that part of its profits which was received in British India was subjected to tax together with its other income which accrued in British India, namely, interest on securities and interest on bank accounts. Inu the assessments nade for the assessment years 1948-49 and 1949-50 the
3 $.C.R: SUPREME COURT REPORTS 318 position of the assessee company was stated to be as follows:
1948-49 Tncome under the head ‘Interest on 7 securities’ ... Rs. 1,032 Income under the head ‘Other sources’ interest from banks .. Rs. 281 Rs. 1,263
Business loss Rs. 1,992/-. Balance of loss Rs. 729/carried forward.
1949-50 Interest on securities oe Rs. 1,028 Bank interest wee Rs. 213 Rs. 1,236 Less : loss of 1948-49 set off —... Rs. 729 Total income tes Rs. 507
—
In making the calculation of business profits or loss received or arising in the taxable territories, a proportion was struck between the total turn-over of the assessee company and its sales the proceeds whereof were received in the taxable territories. The following table, which is part of the order of assessment of 1950-51, shows clearly how the calculation was made.
Indore M alwa United Mills Ltt,
Income-tax {Centrat) Bombay px >" a> sa aS aa pe Ae bony, S wes ER] a fe] s*%ecFwe1s | See nF] 8 wlefe gs Re TG ws ) Sa F Ee
Net profit Deprecia- Busi- Total Sales for Business profit Other Total inof the tion as per ness turnover which considered as income come for Assess« company the Indian income of the proceeds having been accruing the purpose ment before al- Income- of the company were received in the inthe of assessyear lowance tax Act com- received taxable terri- taxable ment under of depre- pany in the tories(by appor-terri- the Indian ciation (Col. 2 taxable tioning the tories Income-tax minus territories amount in Act.(Col.7 col.3) col. 4 in the plus col. 8) proportion of col 5 : col. 6) ] 2 3 4 5 6 7 8 9 Rs. Rs. Re. Rs. Rs. Rs. Rs. Rs. 1946-47 — — — 1,81,71,152 52,68,048 5,05,296 1,854 5,07,150 1947-48 —_ — — 1,45,22,377 5,46,322 21,028 1,467 22,495 1948-49 Loss — -—— — 1,57,82,905 60,000 1,992 1,263 729
(loss) (loss)
PIE
U
Td LYN00 AWaudas r ry
‘dds 2961] SLuod
39.C.R. SUPREME COURT REPORTS 315
During the course of the assessment proceedings for 1950-51 the aysessee company claimed that it was entitled to a set off of the entire losses of the assessment year 1948-49 which, it was common ground before the Tribunal, came to Rs, 5,19,590/-, and not merely the proportionate loss. The asses- see company also claimed that the depreciation.
allowances of the two years 1948-49 and 1949-50 to which effect could not be given in those years and which had, therefore, to be carried forward should be added to the depreciation allowance of 1950-51 and be set off against the profits and gains of the assessee company liable to assessment in the assessment years in question. It is to be noted that the assessment of the assessee compan: for the assessment years 1948-49 and 1949-50 was made both under the Indian Income-tax Act and under the Indore Industrial Tax Rules, 1927. Now the assesses company made two claims in the course of the assessment proceedings for 1950-51. One was with regard to the loss of Rs. 5,19,590/- and the assessee company’s contention was that it was entitled to set off this loss against the profits made in its business in that year and it also contended that it was entitled to carry forward the unabsorbed depreciation into that year. The first contention of the assessee company was rejected by the Tribunal but the second was allowed. Two questions were then raised, one at the instance of the assessee company aud the other at the instance of the Commissioner, dealing with the aforesaid two claims of the asseessee company.- These two questions were:
“J, Whether the loss of Rs. 5,19,590/- of the year 1948-49 is liable to be set off against the assessee’s business income for the assessment years 1950-51 and 1951-52 ?
2. Whether the unabsorbed depreciation of the years 1948-49 and 1949-50 is liable to
» 1962 Indore Malwa United Mfills Lid. v. The Commissioner of Income-tax (Centrul) Bombay
Indore M alwa United Aftlls Lid.
ve income -tex (Central) Bombay be set’ off against the income of the assessee for the assessment years 1950-5] and 1951-52.”
On being satisfied that aforesaid two questions arose out of its order, the income-tax Appellate Tribunal, Bombay Bench A, referred them to the High Court of Bombay under s, 66(1) of the Indian Income-tax Act. The High Court answered the first question against the assesseo company andthe second question in ita favour by its judgmont and order dated September 23, 1958. The assessee company then moved the High Court for acertificate under s. 66A(2) of the Indian Income-tax Act with regard to the answer given by the High Court to the first question and having obtained a certificate of fitness has preferred the two appeals to this Court. We are concerned in these two appeals with the correctness or otherwise of the answer given by tae High Court to the first question; the second question does not fall for our consideration.
On behalf of the assessee company s. 24(2) of the Indian Income-tax Act has been relied on in support of the claim that the assessee company is entitled to carry forward and set off the entire loss of Rs. 5,19,590/- incurred in the year 1948-49 against the assessee company’s business income for tho asseysment years 1950-51 and 1951-52. Mr. Kolah appearing on behalf of the assessee company has put his argument in the following way. — First of all, he has submitted that the Income-tax Officer wrongly proceeded on the footing as though the assessee company was carrying on two separate businesses, one within the taxable territories and the other outside them. Mr. Kolah has contended that the business was one business within the mcaning of 8. 10 of the Indian Income-tax Act and in the two assessment years in question Indore having become a part of the taxable territories, the provisions in sub-s. (2) of s.24 came into operation; therefore, the losses which the aasessee
=<
8 §.0.R. SUPREME COURT REPORTS 317 company sustained in 1948-49, being a previous year not earlier than the previous year mentioned in the sub-section and the losses not having been set off under sub-s.(1) of s. 24, the assessee company was entitled to carry forward the losses and set them off against the profits and gains of the assessee company from the same business under any other head, as the time limit of six years had not expired. As against this argument, the contention on behalf of the respondent has been that s.24 has no application in the facts of the present case inasmuch as in the year 1948-49 in which year the losses had occurred, the assessee company was treated as a nonresident. On behalf of the respondent it has been submitted that the provisions of s. 24 are applicable only to profits and gains which are assessable under the Indian Income-tax Act and in the case of nonresidents who were assessees in British India or in the taxable territories. The claim to set off is only allowable in respect of loss of profits or gains incurred by the non-residents under any of the heads mentioned in s.6, and 8. 24 is applicable only to such loss of profits and gains whichif they had been profits and gains would have been assessable in British India or the taxable territories. It is contended that in the case of non-residents, income accruing or arising without British India or without taxable territories is not liable to be assessed and the loss of such profits and gains is not contemplated to be set off within the provisions of sub-ss. (1) and (2) of s. 24 of the Indian Incometax Act.
_ Before we consider these contentions it is necessary to set out the material provisions of the
Indian Income-tax Act as they stood at the relevant time.
“4, (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived
Indore Maiwa United Mills Lid, v. The Commissioner of Lncome-Tax (Central) Bombay
————
Indore Malwa United Mitls Ltd.
Vv. The Commissioner of Income=Taa (Central) Bombay
318 SUPREME COURT REPORTS (1962) SUPP.
which— (a) aro received or deemed to be received in British India in such year by or on behalf of such person, or
(b) x x x x
(c) if such person is not resident in British India during such year, accrue or arise or are deemed to accrue or arise to him in British India during such year: x x x 14, ()) x x x (2) The tax shall not be payable by an assessee— (a) x x x (b) x x x
(c) in respect of any income, profits or gains accruing or arising to him within an Indian State, unless such income, profits or gains are received or deemed to be received in orare brought into British India in the previous year by or on behalf of the assessee, or are assessable under section 12B orsection 42.
24. (1) Where any assessee sustains loss of profits or gainsin 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 :
Provided that, where the Joss sustained isa loss of profits or gains which would but for the loss have accrued or arisen within an Indian State and would, under the provisions of clause (c) of eubsection (2) of section 14, have been exempted from tax, such loss shall not be set off except against profits or gains accruing or arising within an Indian
89.0.R. SUPREMECOURT REPORTS 319
State and exempt from tax under the said provisions.
x x x
(2) Where any assessee sustains a loss of profit or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 3lst day of March, 1940, under the head “Profits and gains of business, profession or vocation”, and the loss cannot be wholly set off under sub-section (1) the portion not so set off 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 Joss shall be so carried forward for more than six years:
Provided that—
(a) Where the loss sustained is a loss of profits and gains of a business, profession or vocation to which the first proviso to sub-section (1) is applicable and the profits and gains of that business, profession or vocation are, under the provisions of clause (c) of sub-section (2) of section 14, exempt from tax, such loss shall not be set off except against profits and gains accruing or arising inan Indian State from the same business, profession cr vocation and exempt from tax under the said provisions;
(b}) Where depreciation allowance is, under _¢lause (b) of proviso to clause (vi) of sub-section (2) of section 10, alsoto be carried forward, effect shall be given to the provisions of this sub-section;
x x x, It may perhaps be stated here that Mr. Kolah has placed no reliance on the provisions of the Taxation Laws (Part B States) (Removal of a3
3£62
Indore Matwa United Mills Lid | Ve The Commissioner of Income-Tax (Central) ombay
Indore Malwa United Mills Lid. v. The Commt ssioner of Incomes Tax (Central) Bombay
Difficulties) Order, 1950. Clause 3 of the said Order provides that losses suffered in Indian States can be carried forward and set off only if under the State law they could beso carried forward or set off. Admittedly, under the Indore Industrial Tax Rules, 1927 there was no provision for the carrying forward of losses; therefore, cl. 3 of the Taxation Laws (Part B States)(Removal of Difficulties) Order, 1950 was of no assistance to the agsessee company. This view of the High Court has not been contested before us and we need, therefore, make no further reference to this aspect of the case.
The answer to the question which we have to consider depends on the true scope and effect of
8. 24 of the Indian Income-tax Act. Under the Indian Jncome-tax Act, 1922, assessees are divided into three categories: (a) resident and ordinarily resident, (b) resident but not ordinarily resident, and (c) not resident. We are concerned in the present case with an assessee who inthe year in which the loss which is sought to be carried forward occurred, was @ non-resident. Sub-section (1) of s. 4, the material portion of which we have quoted earlier, states that persuns who are not resident in India are liable to charge under cl. (a) or cl.(c) of the said sub-section. They may be taxed under cl. (a) on income received or deemed to be received in India even if it accrues elsewhere, or under cl.(c) on income which accrues or arises or is deemed to acoruo or arise in India even ifit is received elsewhere. The liability to tax in respect of income received in India is common to both residents and non-residents and is imposed by the general clause (a) A non-resident, unlike a resident, is not chargeable in respect of income accruing or arising without India and not received in India. Section 14(2) (c), which is now deleted, bad great importance when British India was distinct from Indian States, because it exempted income which accrued
3 $.0.R. SUPREME COURT REPORTS 32 or was received in the Indian States but was not brought into British India. The deletion of this clause became inevitable upon the merger of the Indian States. This clause which was inserted in 1941 exempted income accruing or arising within the Indian States; but the exemption did not apply if the income was received or deemed to be received in or was brought into the taxable territories in the previous year by or on behalf of the assessee or if the income was assessable under s. 128 ors. 42. The position, therefore, was that losses made in British India could not be reduced by adjusting against them the profits in the Indian States which were exempted under the clause, but the income exempted from the clause had, howeycr, to be included in the assessee’s total income for the purpose of determining the rate applicable to his _ taxable income. But so far asa non-resident was concerned the clause had no application, because a non-resident was not chargeable in respect of income accruing or arising without India and not received in India. Now, we come to s. 24, subss.(1) and (2) with the provisos appended thereto which we have.quoted earlier in this judgment. It appears that prior to 1950 profits accruing in the Indian States, later called Part B States, were exempt from tax under s. 14(2)(c), unless they were received in or brought into the territories then referred to as British India or were assessable under
8. 128 or 8. 42. The first proviso to sub-s.{1) as it stood at the relevant time dealt with losses accruing in the quondam Indian States and provided that losses incurred inthe Indian States should be set off only against profits accruing in the Indian States. This was a reasonable provision, because an assessee who was not liable to tax in respect of his profits arising in the Indian States could not be allowed to set off his losses incurred in the Indian States against his profits arising in British India. Similarly, cl.(a) of the proviso to sub-s. (2) enacted that losses incurred in an Indian State could be
Indsre Malwa Uni e Mills Ltd,
Ve The Commissioner of Income-Toax (Centr at) Bombay
Lasd.
indore Matwa United Mills Lid,
Ve The Commissioner of - Encomes Tox (Central; Bombay carried forward and set off only against profits accruing in an Indian State from the same business in a subsequent year. ‘The argument on behalf of the respondent is that so far asa non-resident is concerned, he is not chargeable in respect of income accruing or arising without India and not received in India. ‘Therefore, in his case it is unnecessary to go to the provisos, but 5. 24 itself has no application because sub-s. (1) of 8. 24 when it refers to loss of profits or gains, has reference to taxable profits cr taxable gains and sub-s.(2) of s. 24 can only be applied in a case where the loss cannot be set off under sub-s.(1) because of the absence or inadequacy of profits etc. In other words, the argument is thats. 24 is applicable only to such loss of profits and gains which if they had been profits and gains would have been assessable in British India or the taxable territories; but in the case of non-residents, income accruing or arising without British India or without the taxable territories not being liable to be assessed, the loss of such profits and gains is not contemplated to be set off within the provisions of s. 24, sub-ss. (1) and (2) |
Mr. Kolah has pointed out that sub-s.(2) of g. 24 as also sub-s.(1) talk of “any assessee” and he bas argued that there is no reason why the provisions of sub-s.(2) of s. 24 should not be applicable to a non-resident assessee. He has further argued that whatever might have been the effect of the provisos in 1948-49, in 1950-51 Indore became part of the taxablo.territories and the assessee company became entitled to carry forward the losses up to six years and there is nothing in 8. 24(2) to prevent. him from making the claim. We are unable to accept this argument as correct. Reading the provisions in 8. 24 with the provisions in s.4(1)(a) and 8. 14(2)(c) it seems clear to us thats. (24)(4) when it talks of profits or gains has reference to
3$.GR. SUPREME COURT REPORTS 323 taxable profits or taxable gains; in other words, it has reference to such profits and gains as would have been assessable in British India or the taxable territories. it has no reference to income accruing or arising without British India or without the taxable territories which were not lable to be assessed in the case of non-residents. We are further of the view that for determining the nature of the losses under consideration in the present appeals, the relevant year was 1948-49, the year in which the losses occurred and the High Court rightly took the view that for the application of sub-s. (2) of s. 24, the losses must be such losses as could have been set off under sub-sl) of 8, 24. We agree with the view expressed by the High Court that the loss amounting to Rs. 5,19,590/- was not such a lossas could have been set off either under sub-s. (1) or sub-s. (2) of s. 24.
We have, therefore, come to the conclusion .
that the High Court correctly answered the question which was referred to it. Accordingly, the app2als fail and are dismissed with costs, one hearing fee.
Appeals dismissed.
Indore Malwa United Mills Lid.
The Gommisstoner of
Income-tax (Central) Bombay