LexCOMMISSIONER OF INCOME TAX (CENTRAL) DELHI versus HARPRASAD & CO. (P) LTD.
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696 COMMISSIONER OF INCOME TAX (CENTRAL) DELHI A \I. HARPRASAD & CO. (P) LTD. February 25, 1975 [Y. V. CHANDRACHUD, R. S. SARKARIA AND A. C. GUPTA, JJ.] Income-tax Act (ll of 1922) Sections 128, 22(2A), 24(2A) & (2B)- B Capital loss incurred in 1/te year when capital gains were not exigible to tax- lf could be set against capital gains in subsequent years. By the Income-tax and Excess Profit Tax (Amendment) Act, 1947 s. 12B was inserted in the Indian Income-tax Act, 1922 .. making capital gains which arise after March 31. 1946, taxable. The same A':t inserted sub-sections (2A) and (2B) in s. 2.4 of the Income-tax Act. As a result of the Indian Finance Act, 1949 which restricted the operation of s. 12B to capital gains ari.sing before April l, 1948, a.nd the Finance (No. 3) Act of 1956 which restored C tax on capital gains with effect from. April l, 1948 capital gains arisinll from 1-4-1948 to 31-3-1956 were not taxable. For the assessment vear J 955-56 which relates to the period when ce.pital gains were not taxable the assessee claimed a loss of Rs. 84,862/- arisini: from the 5a\e of certain sharc:s. The Income-tax Officer disallowed the loss on the ground that it was a los.s of capital nature. The Appellate Assistant Commis- sioner, .in appeal, held that the assessee's claim was exaggerated, that the. actual .lo!! wa, only Rs. 28,662/- and agreed with the Income-tax Officer that the IO!s D was not a revenue loss but a capital loss. Before the Tribunal the assessee con- tended that the amount of Rs. 28,662/. which had been held to be a capital IE>ss by the authorities ~ihould be allowed to be carried forward and set off agairat profits and gains under the head "Capital gains" earned in future as laid down in. s. 24(2A) and (2B). The Tribunal held in favour of the ass(:ssee. The High C0urt, in reference, confirmed the order of the Tribunal holding that the effe:t of sub-section:; (2A) and (28) of s. 24 read with sections 6 and 12B was that if a capital loss was incurred in a Year in which a. c~pital gain did not attract tax under section l 2B even then such loss would still be loss £ under the head 'capital i~ains' and if in a subsequent year the assessee had any profit under that head it would still be carried forward and set off against the taxable capital gain. Allowing the appeal to this Court, HELD : (1) From the charging provision of the Indian Income-tax Act it is discernible that the word5 'income' or 'profits and gains' should be understood as including losses, so that both must enter into computation, wherever it becomes material, of the taxable income of the assessee. Although s. 6 classifies F income under six heads the main charging provision is s. 3 which levies income- tax as only one tax on the 'total income' of the assessee a5 defined in s. 2(15). An income in order to come within the purview of that definition must satisfy two conditions, (a) it rnust comprise the 'total amount of income. profits. and gains refeued to in s. 4(1), and (b) it must be computed in the manner laid down in the Act. If either of these conditions fails the income will not be a part of the total income that can be brought tu charge. [702F-703BI (2) The concept of ~arry forward of loss does not stand in vacuo. Itf: sole G purpose is to set off the loss against the profits of a subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss a1~ainst prcfit tn reduce the tax demand. Tt follows that if such set off is not nermissible or possible owi11g to the income or profits of the subsequent year being from a non-.taxable source, then~ would be no point in allowing the loss to be carried forward. Also, if the Joss arising in the previouJ year was under a hea•i not chargeable to tax it covld not be allowed to be carried forward and absorbed ag<tinst income in a subsequent year from a taxabb source. [704C-E] (3) Capital gains would be covered bv the definition of income ins. 2(6C) II only if they were chargeable under s. l 2B. But s. 12B was not operative in the vears 1948 to 1956. Thus in the relevant previous year and the asses~;ment year· or even in he subsequent yeac, 'capital gains' or 'capital losses' did not A n c D F G H C.I.T. v. HARPARSAD & co. (Sarkaria, ].) 697 form par: of the total income of the assessee which could be brought to charge and were, therefore, not required to be computed under the
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