Commissioner of Income Tax Kerala v. Helen Rubber Industries Ltd .

HrnAYATULLAII, J.-The Commissioner of Inoome Tax, Kerala and Coimbatore, ha9 filed thi8 appeal against the judgment and order of the High Co111't of Kera.la dated October 31, 1958, by which th11 High Court answered in favour of the respon· dent (Helen Rubber Industrie1, Ltd., Kottayam) t.he following question : "Whether under the prov is ions of the Indian Inoome·tax Aot the petitioner is entitled to carry forward the loBB for a period of six years notwithstanding the faot that during the period when the 1088 had occurred, the law applicable w&& the Travancore Income-tRx Act ?" The High Court h&& granted a certificate under \I e. 66A(2) of the Income-tax Act. Two questions were referred to tho High Court in compliance with an earlier order of the High Court under s. 66(2) ; 1 2 s.c.R. . SUPREME COURT REPORTS 607 but with the other question, we are not concerned in this appeal. Messrs. Helen Rubber Industries,. Ltd. is a Company, which was incorporated in the former State of Travancore with its registered office at Kottayam. In the year 1941, the assessee Company granted a lease of the fao1 ory to certain persons for a period of 15 years. . From that year, the rent and royalty received from the lelisees were the only souroo of income. Disputes having .arisen, the lessees suspended payment Crom June 1946, Liti­ gation followed ; but the dispute was· settled by the assessee Company reOf'iving Rs. 23,000/- odd in full satisfaction. With the details of these disputes and their settlement, we are not concerned. The year of account of the assessee Company is the Calendar year. Before the extension of the Indian Income-tax Act, there was in force in Travancore State, thfl Travancore Income-tax Act, 1121 M. E. (Act XXIII of I 121 M. E.), which came into force on the first day of Ghingom 1122, M. E. (Augu,st 17, 1946). The assessment vear um1er t.he'\rravl\ncore Act . ' end('d on the le.st day of Karkadalcom, which corres- ponds to August 16, 1947. Thus for the account year, 1-1-1946 to 31-12-1946 of the firm the assess­ ment year was 1123 M. E. (17-8-1947 to 16-8-1948). The asseasee Company deC!ared losses in the account years, 1946, I 9!7 and 1948. These losses, together with the dates of the account years and the assessment years are tabulated below :- Year of account Year of assessment. Loss l946(i~IW6~-1123}i~l7-~~47~s.~031-10-0 31-12-1946) to 16·8-1948) l947(1-l-l947to llUM.E.(17-8-19±8 Rs.!6606.1- () 31-12-1947) to 16-8-1949) . · ' 1948 (1-1·1948to Jl25ltf.E. (17-8-1949 Rs. 2604-13-9 31-12-1948) to 16-8-1950) ------ Total Rs. 13241-9-3 196Z Commissioner o_f lnconu·'l'aJC Kerala v. Helen Rublnr Industriea Ltd. HiJv'Jiull11h I. Jg/;2 Co,,,,,.U1ion1r •f 1"""'11t·lax !\train •. Htltn Ruhbr.• lnrl11.1'1it' Lid. HiJa.ralullah J. 608 SUPREME COPRT REPORTS (1962] SUPP. The dispute in this case is about the right of the a!l.,essee Companv to rarry forward ihP loss of the y .. ar 19~6 under the prcrvisions of the Trava11eorc Act read with s. 2-l(2) of the Indian Incom•··tax Act and th<' Taxation Laws (Part B States) (Hemoval of Difficulties) Ord(•r, 1950 to the assessment. year, 19.il-52, in the ass"ssmnnt of the Compnnv for its year o( aecount, the C1tlendar Year, J!l:iO. ThP Incomr.tax Offic{:r hrld that the loss of the vear ]f)~6 ooulcl not bP carried forward to that ye~;, sinct> it had lapsed after two years under s. 32 of the Travancore Art, and R. :?-~(:?) was not appli­ cable, in view of paragraph 3 of the Orcler, mention­ ed above. The onkr of the Incomt1-tax Officer wa~ ronfirm,,d in appeal hy the A ppPllato AHsistant Commi•sioner and the Appellate Trihnnal. Tht' Trih•mal was mov••d for a case, but declirn•rl to state one; but tlrn Hig;h Court c1Lllnd for a state­ ment of the ca•o umle.r s. lifl(2) :mrl the ahovc­ mentionccl question w:is dMiried in favour of the aseeoSC<' Company. The only qn .. stinn argurd in this appeal is wheth1•r the High Court was right in the answer it gii.vc. Tho asscsseo Company W<L8 not rcpresc'lted at the hearing before this Court. The Indian Income-tax Act w11s extended to Trav&ncorc-Cochin hy s. 3 of the Indian Finance Act, lflpO. By s. 13(1) of the same Act, it wa8 prnvidrt} : "If immediately before the 1st 1lay (If A pri)j I!l50, there is i~ form; in any part B Statd: ..... an.v law rl'ljting to mcom•'-tnx ..... . that law shall' cease/to havt> efTcc~ except for the pnrpo~os of t)ie levy, ass"ssmont and collection of income.t:ix ...... in r<'s1wct of any p<'riod not included in tho prcviouH year for the purposcs of a.ssessmPnt un<lf'r the Indian Income.tax Act, J!):!:! (Xf ,,f Ifl!:!), for the year ending on tho 31st day of ~fareh, l fl:il, f ' . t ,, or or nny suJsrq11('n )'<'Ill ..... . .. ' • I .. r 28.C.R. . SUPREME COURT REPORTS 609 By this section a clear division was made between the operation of the prior law and the Indian Income­ tax Act. The a•sessment for the year, 1951-52, was thus mij,de on the assesiee Company under the Indian Income-tax Act. Under s. 24(2) of the Indian Income-tax Act, as it existed prior to its amendment by the Finance Act, 1955, it was provided: "Where any assesse& sustains a loss of profits or gains in any year, being a previous year not ear lier than the previous year for the assessment for the year ending on the 31st day of March l\140, under the head 'Profits ana gains of business, profession or vocation 1 and the loss cannot be wholly set off under sub-section(!), the portion not so set off shall be carried forward to the following year, and so on, but no loss sha 11 be ~o carried forward for more than six years, and a loss arising in the previous ye~rs fur the assess­ ment. for "I he year• ending on th~ 31st day C>f March, 1040, the 31st day of March, 1941, the 31st day of J\firch, 19+2, the 31st day of March. l!l43, and the 31st dav of March. 1944 respectively shall be carried ·forward only for one, two, three, four and five years respectively." Since we are concerned with the loss for the year, which does not correspond· to the years named in the latter part of the section above-quoted, that part of the section does not apply to the assessee Company'.s case. What was thus claimed was the benefit of· the earlier part., where the loss was allowed to be carried forward for six years. This position taken by the assessee Company can hardly be considered in view of the provisions of s. 32 of the Travancore Act, read with the Removal of Difficulties Order passed in 1950. Section 32 uf the Tm van core Act was a reproduc­ tion of the Indians. 24(2) except for a change of the 1962 Commis.dont• •f lncome·tax Ke,a·a v. Hellen Rubbtr Industries Ltd. Hida;•atu/lali J. IHI C-..W-o,f t_.ia lfrr"'4 •• H.i- ll""brr 1"""11"1 LU. HllqolWlu J. 610 SUPREME COURT REPORTS [19f2) SUPI dates mentioned therein, due obviouslv to the fact that the Travanoc>ro Act came into 0 forcl' 0n the firstda.y of Chingam, 1122 M.E. (August, Ii, 1946). It is enough to point out that instead of "31st March", whe1·evcr th"Y occurrecl, the wnrcls "the la~t day of Kv.rkoo.alrom" (August, 161 were substi­ tuted, and instead of the yrars, HJ.to, 1941, 1942, 1943 and l!J44, were substituted th1> llfalnvalnm years, 1122(17·8-1946to16-8-1947), 1123 (17-S-1947 to 16-8-1948), II24 (17-8-1948 to 16-8-1949), 1125 (17-8-1949 to 16-8-1950), and 1126 (17-8-1950 to 16-8-1951). These were the only diff'erenres betv.een the two eectionP, 81"d P. 24(2) of the frdi8n Income-tax Act, so modified, can be read as s. 32 of the Trava.noore Act. The existance of these two sections in the two Acts was likely to lead to somP clifficulty, and a question was likely to arise whhh law w11s to prevail. Section 12 of the Indian Fin11nN> Act. I 95\J, therefore, enabled the Central GovPmmPnt. to pasa a.n Order removiniz any sueh diffimlty. The T~xation Laws (Part B States) (Removal of Diffi­ culties) Order, rneo was thus passrd. Paragraph 3 of that order provided : "3. Carry· forward and set off of pre­ vious loascs.-wherc in any previous year prior to tho previous year for "the as~es~ment for the yea.r ending on the 31st d11y of March 19;;0, an assessee bas sustainecl a loss CJf profits or gains in any business, profession or V()('a­ tion carried on by him. and surh lc:ss would, bad tho State law continued to hi' in force, have brt'n set off against the profits and gainP, if any, from the same business chargeable tu tax in the said yea.r of aasespment or in any yca.r subaequent thereto, such loF.s wcu !cl be bO set off in the same manner, to the same extent, and up to the same year of assesPment tu1 it would have been set off hud the State law continued to be in foroe." '· ' 2 S.C.R. SUPREME COURT REPORTS 611 The critical words are those contained in the 1982 later part. namely, "in the same manner, to the same Commis<ioner ef extent, and up to the same year of assessment, as it Income-tax Kirola would have bcrn set off bad the State law continu- H,/en !lubber ed to be in force". They show that the law to Industries Ltd. apply to the loss of "any previous year prior to the Hida_,atullah J, previous year for the assessment for the year ending on the 31st day of March, 1950" was the law in force in a Part B State here, the Travancore Act. Now, taking the case of the assessee Company, we shall indicate which previous year or years would be governed by the Travancore Act. The previous year of the assessee Qompany for the assessment year ending 3ls't day of March, 1950 would be the Ca!er.dar year, 1-1-1949 to 31-12-1949. To that, the Indian Incom.,·tax Act would apply. The application of the Travancore Act by para 3 of the order was limited to the previous year before 1-1-1949 and other earlier previous years. The prev'ioue year, with which we are concerned, 1-\-19!6 to 31-12-1946, is so clearly a pre- vious year, to whi~h the Travancore Act applies. that it does not admit of any doubt or difference. The matter is thus governed by the Travancore Act. . The Travnncore Act laid down, inter aUa, that a loss arising in the previous year . for the assess­ ment for the year ending on the laPt day of Karka­ dak1YJn, 1123, could be <'arried forward for two years. The assessment year for 1123, M.E. covered the period, 17-8-1947 to 16-8-1948, and the previous year of the assessee Company relative to that assessment year was 1-1-1916 to 31-12-1946. The loss of the Calendar year, 1946 could be carried forward to the Calendar yea.rs, 1947 and 1948 and given effect to, till the assessment year, 1125 (17-8-1949 to 16·8-1950). The assessment year, 1-4-1951 to 31-3-1952, c'.lrresponded to the account year of the assessee Company, l-l-1950to 31-12-1950, and that is beyond two years, whether on~ takes IHI c-..;.,,. •f 1-Kn.Ja ... HM R"66n 1 ... trialld. Hr4.pt"'/all J. 612 SUPRElIE OOURT REPORTS [IH•2] SUPP. the account year or the assessment y<iar as th·· hRBis of tho calculation of two years. The High Court, with all due respt·ct. waA not. right in thinking thllt the Rem•wal of Diffil'ultii>s Order, 1950 was meant to enlarge the right• 0f t.l e new assessees lirought within the rearh of the Indian Income-t.Bx law. The intention of the law was to make a dividing linJJ between thoRe prrvintrn years to which tho provisions of tho rarlier law would apply, and those nrevious years to which the prov1s1onA of the Indian Income-tax Act woulrl apply. Tho rights were noith<>r <>nlarged nor curtailed. As pointe<l out by Chagla, C. J. in the lndort Afal1m United Mills, Ltd. v. Cammiasioner of l'TIAXJ'TM fax (1 '. "tho onlv right integrntion hns gin-n to an assP~ReP is t hP. right rontn int>d in chmsrs (sir) 3 of the I Removal nf Difficulties) Onln, 1950. and that right is that if th" law of J\is own State permitti>d him to carry forward th<' los.qes, then that right is preee1 ..-cd under the Indian Income-tax Aet." paragraph 3 of the Order clearly said that the right was available in the same manner, to thi> •amc ex­ tent and up to tho year of aesessm 0 nt., aA laid 1lown in the State law (hert>, the Trav1mcnre Act). i'iincP, in this case, the carrv·forward of the loss was for only two years, and· those years wern he fore the previous yflar from whirh the Inrlia.n Income-tax Act began to apply, thrre is no question of 1h•• application of the Indian Income-tax Act. The appeal thus sneccetl8, a.wi is allow<•<!. 'fhe a.ssessee Company shall pay the costs of the appt>al in the Hi1rh Court, bot there shall be no ordnr auout costa in this Court. A ppe.al allowed. (I) [1959)'51 T. R. 271.