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I. T. As. Nos. 671/KB and 672/KB of 1975‑76, decided on 14th March, 1978.

‑--‑ S. 24(1), (2) read with Ss. 2(6‑A), 3, 4 & 10(2)(vi)‑Set‑off of loss Profits earned under one head of business in preceding year‑Can be set off against loss under another head‑Business loss‑Held, can be set off against dividend income of succeeding year under S. 24(1) [(1962) 44 1 T R 710 (S C); (1964) 51 1 T R 742 ; (1960) 39 1 T R 131; (1957) 31 I T R 427 not applicable.

(1962) 44 I T R 710 (S C) ; (1964) 51 I T R 742; (1960) 39 I T R 131 and (1957) 31 I T R 427 not applicable.

Anglo‑French Textile Companies Limited v. Commissioner of Income‑tax, Madras (1953) 23 I T R 82 (S C) ; Seth Jamna Das Daga and others v. Commissioner of Income‑tax 41 I T R 630 and C. I. T. v. Jaipuria China Clay Mines (Pvt.) Limited (1966) 59 I T R 555 (S C) ref.

----S. 24(1), (2) read, with S. 10(2) (vi)‑Set‑off‑Unabsorbed depr6ci ation of preceding year becomes depreciation allowance of succeeding year‑Such depreciation allowance, held, entitled to be set off under S. 24(1) and not S. 24(2).

Commissioner of Income‑tax v. Ravi Industries (1963) 49 I T R 145 rel.

---S. 24(31‑‑Set‑off‑Income‑tax Officer required to notify to assessee by order in writing amount of loss as computed by him for purpose of S. 24(3).

C. I. T. v. Tirlokchand Kalyanmal (1960) 39 Taxation 139 rel.

---‑Specific provision in taxing statutes‑General principle of equity, justice and good conscience cannot be invoked for interpreting such provision.

G. R. Ghayyur, D. R. for Appellant.

Ali Athar for Respondent.

In both these appeals the Department has challenged the order of the Appellate Assistant Commissioner on one ground only. The point for our consideration is, whether the Appellate Assistant Commissioner was justified in holding that business loss could not set be off against the dividend income of the year under section 24(1) of the Income‑tax Act. During the year 1969‑70 the assessee's total income from business was Rs. 69,534, which was set off against business loss of the preceding year before there maining loss was set off against income from dividends. The resultant business loss amounted to Rs. 6,14,583 and it was this amount which was set off against the dividend income of the year, amounting to Rs. 4.26,170. After the adjustment the depreciation loss carried forward was Rs. 1,88,413 for 1970‑71 the Depart ment's case was that section 24(1) of the Income‑tax Act was applicable to the case and it was that section which permitted the Department to set off losses under one head against income under any other head. The assessee's contention was that it was not the Department's right but that of the assessee's to set off the loss against income. The Departmental Representative argued that, unless total income is computed no rate or rates can be applied, and for computing the total income it was necessary to aggregate the plus (+) and minus (‑) figures. In other words, for computing the total income, under section 4 income and loss will halve to be taken into account. Section 4(1) lays down that subject to the provisions of the Income‑tax Act the total income, of any previous year, of any person includes all incomes, profit or gains from whatever sources derived. The word income includes dividends as defined in clause (E‑A) of section 2 of the Income‑tax .Act. Section 3 of the Income‑tax Act, inter alia lays down that income‑tax shall be charged for any year at any rate or rates and the tax at that rate for those rates shall be charged in respect of the total income of the previous year. From the above it was argued by the Department that although rates may differ for different incomes but they have to be charged in respect of the total income of an assessee. The Departmental Representative also referred to the heading of section 24 of the Income‑tax Act. The heading was :

"Set‑off of loss in computing aggregate income."

The assesses, on the other hand, contended, and the contention prevailed before the Appellate Assistant Commissioner, that section 24(1) only entitled the assessee to have the loss set off against his, income. Section 24(1) runs as follows:--

"Where any 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 of against his income, profits or gains under any other head in that year."

The Departmental Representative had also submitted that the assessee had himself deducted the dividend income from business loss in his return. To this, the learned Advocate of the assessee replied that in the profit or loss account and the return as total income was to be shown, dividend income had to be added or deducted, as the case was, for determining that total income. It was shown not for expressing our intention that business loss should be set off against income from dividend. The learned Advocate cited the following cases in support of his contention :‑

(1) (1962) 44 I T R 710 (S C (Ind.)).

(2) (1964) 51 I T R 74 2.

(3) (1960) 39 I T R 131.

(4) (1957) 31 I T R 427.

We shall take up each of the decisions cited by the assessee one by one. In the first case cited by the assessee (44 I T R 710) an individual who was ordinarily resident of India and carried on business in India and was also a partner of a firm carrying on business oLitside India claimed that he was entitled to set off the loss incurred by him as a partner of the foreign business against the profits and gains of the business carried on in India. It was held that section 24(1) was not applicable because loss in one business had to be deducted from profits in another business and this was to be done under section 10 and not under section 24(1). This case has no application to the instant case.

In the next case cited as (1964) 51 I T R 742, the question centered round setting off of loss in a speculation transaction against income derived from other businesses which were not of a speculative nature. The Court negative the assessee's claim. This case again is not applicable to the facts of the case under appeal.

The next case was cited as 39 1 T R 131. In this case also the point involved was not the same. The learned authorised Representative cited this case, perhaps on account of the arguments advanced by the assessee's counsel who thought that under section 24(1) it was the assessee alone who was entitled to claim a set‑off of loss. The Court answered the assessee's plea as follows:

"It is no doubt true that section 24(1) is for the benefit of the assessee and that the assessee has unqualified right under subsection (2) to carry forward the loss of the previous years for being set off against the profits of a subsequent year. But at the same time subsection (3) of section 24 casts a duty on the Income‑tax Officer to crystallise and compute the balance of loss which the assessee is entitled to have set off under section 24 against the profits of a subse quent year. It cannot, therefore, be maintained that in the present case the Department could not minimise the business loss of the assessee by setting off against the dividend income."

If anything, this case which is very much to the point involved in the instant appeal, goes against the assesses. In this very case their Lordships of the Madhya Pradesh High Court discussed the case cited as 1957 31 I T R 427 and after considering the decision and facts in that case repelled the appellant's contention in the appeals for the decision.

The last case cited by the assessee as (1957) 31 I T R 427 is also not in pari materia with the facts of the instant case. Therefore, the Income‑tax Officer had tried to adjust the loss suffered in the taxable territory against profits earned in the non‑taxable territory. As was very rightly pointed out by their Lordships of the Madhya Pradesh High Court in 39 1 T R 131, that under section 24(1) it is not permissible to adjust taxable profits against loss under a head which is not taxable. They further held that

"If a loss under a non‑taxable head cannot be adjusted for reducing the profits under taxable head, the non‑taxable loss cannot be added to the loss incurred under the taxable head so as to inflate the right of the assessee to carry forward the loss under section 24(2)."

The learned Representatives of the assessee were carried away, so we like think by what their Lordships of the Nagpur High Court had said in the case cited as (1957) 31 I T R 427. The lines which took hold of the imagina tion of the authorised representatives run as follows:

That section', (meaning section 24(l) entitled the assessee and not the Department to claim a set‑off of loss against profits to determine the marginal taxable income."

This remark must remain confined to the facts of that case in which the non‑taxable income was sought by the Department, to be adjusted against the loss incurred In the taxable territory.

Therefore none of the cases cited by the learned Authorised Representa tive of the assessee was apposite or applicable to the facts of the instant case. We have on the other hand a plethora of cases which run counter to the arguments advanced by the assessee. The first case was that of Anglo‑French Textile Companies Limited v. The Commissioner of Income‑tax, Madras (1). It was held as follows :‑

There is no provision in the Indian Income‑tax Act, 1922. which entitles an assessee to have a loss recorded or computed, unless something is to be done with the loss. Thus, under subsection (1) of section 24 a loss can be set off against an income, profit or gain and under subsection (2) the balance of a loss can be carried forward to a following year on the conditions set out there. 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. Where the loss is computed by striking t a balance in the profit and loss account of just one business no question of different heads arise. When there is no income under any head at all, mere is nothing against which the loss can be set off under subsection (1) of section 24 in that year and unless the loss can be set off under subsection (1) it cannot be carried forward under subsection (2). The question of its determi nation and computation becomes irrelevant.

The assessee's claim that they should be allowed to carry forward the entire business loss for set off against income of the succeeding year will have to be negatived in the light of the above‑cited case. Unless there is income under one head against which loss under another head can be set off section 24(2) of the Act will be inapplicable, because only so much of the loss as can be set off under subsection ((1953) 23 I T R 82 (S C)), alone can be carried forward.

In the case of Seth Jamna Das Daga and others v. Commissioner of Income‑tax (41 I T R 630) it was held that although the assessee's share of the profit of the unregistered firm was exempt from tax in his hand, it had to be included to ascertain his total income in order to determine the rate applicable to his other income. It was not difficult to see that an assessee can have only one total income although the total income may include income, from different heads. In order to have one indivisible total income profits earned under one head will have to be set off against loss under another head. Needless to say that the word "income" includes losses.

Although it was not argued but we would like to clarify here that the loss incurred by the assessee in business in the two years was due to the un absorbed depreciation brought forward from the preceding year. Under section 10(2)(vi) the unabsorbed depreciation of the preceding year becomes the depreciation allowance of the year under consideration, and two as entitled to be set off under section 24(1) and not 24(2) of the Income‑tax Act. For this we seek, succur from the case of Commissioner of Income‑tax v. Ravi Industries ((1963) 49 I T R 145). After going through the cases cited by the assessee and those cited by us we have not the least hesitation in concluding that the departmental appeal must succeed. We order accordingly. Before we depart with this case I would like to confess that in the first flush the assessee seemed to me, to have a good, case. But fortunately for the Department the cases cited by the assessee proved to be favourable to the Department, I must also confess that it was the Departmental Representative who drew our atten tion to the heading of section 24 and the definition and the ambit of the words total income".

I am in respectful agreement with the reasoning as well the order proposed to be passed by my learned brother, Mr. M. Karim, Accountant Member. I would, however, like to add a few words of my own. The fallacy in the argument of the learned counsel for the appellant, in my opinion, lies in the assumption that section 24(1) of the' Income‑tax Act, 1922 (hereinafter called "the Act.") vests a discretion in an assessee who sustains a loss of profits or gains under any of the heads mentioned in section 6, to claim or not to claim the set-off of the amount of loss against his income, profits or gains under any other head in that year. But, I think, no such presumption is warranted by the plan and clear language of section 24(1) of the Income‑tax Act. What is laid down in subsection (1) of section 24 is that where any 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 loss set off against his income, profits or gains under any other head in that year. It does not say that the assessee "shall be entitled to claim". There is, therefore no question of vesting of any discretion in an assessee to have or not to have the amount of loss set off against his income, profits or gains under any other head in the year in which he sustains a loss of profits or gains under any of the heads mentioned in section 6 of the Act. A reference to the provisions of section 23 further makes it explicitly clear and beyond any doubt that the law casts a duty on the income tax officer to assess the total income of the assessee and to determine the sure payable by him on the basic of such assessment, and in the normal process of computing the total income, profits or gains, in the manner laid down in the Act, it is he who is obliged to make allowances, deductions, perquisites and benefits to which an assessee is legally entitled to and also to make additions of all such sums which have the characteristics of either a real or fictional income and which are to be included in the total income of an assessee, in accordance with and subject to the pro visions of the Act, Likewise, subsection (3) of section 24 makes a provision to the effect that where it is established that a loss of profits or gains has taken place to which an assessee is entitled to have set off under the provi sions of this section, the Income‑tax Officer shall notify to the assessee by order in writing the amount of loss as computed by him for the purposes of this section, I am fortified in my view by the judgment of Madhya Pradesh High Court in C. I. T. v. Tirlokchand Kalyanmal ((1960) 39 Taxation 139), to which a reference has already been made by my learned brother.

Mr. Ali Athar also advanced the same argument before us which is mentioned in the above-noted Indian decision namely that provisions of section 24(1) are for the benefit of the assessee. But in his submission by setting off the business loss against the dividend income of the years under appeal, the Income‑tax Officer has acted prejudicially to the interest of the assessee inasmuch as, thereby taxed the dividend income at the rate of 30 % as against 15 to which it is otherwise chargeable. I do not feel hesitant to agree with the first limb of his contention as it has been held by the Indian High Court as well that the provisions of section 24(1) are for the benefit of the assessee. But I find it difficult to persuade myself to see eye to eye with him in his assertion that the setting off of business loss to the extent to which it remained unabsorbed by the profits and gains of business against the dividend income chargeable under section 12 of the Act, was prejudicial to the interest of the assessee. This contention of Mr. Ali Athar manifestly overlooks the provisions of subsection (2) of section 24 which in quite unambiguous terms lay down that where as assessee sustains a loss of profits or gains in any year-------------------- under the head" profits and gains of business, profession or vocation" and the loss cannot be wholly set‑off under subsec tion (1). So much of the loss as is not so set off or whole of the loss where the assessee has no income under any other head, shall be carried forward to the following years (underlining* is mine). It is thus evident that in the instant case, whole of the business loss could not be carried forward to the following year for the simple reason that dividend income chargeable under section 12 of the Act, under the head "income from other sources", was available to the assessee in each of the two years in question. Now it is clearly provided in section 24(2) that only so much of the business loss, including the depreciation allowance, as remains unabsorbed against the profits and gains chargeable against any other head can be carried forward to the next year. Therefore, if the contention of the learned counsel for the appellant that the amount of dividend income could not be utilized for absorbing the business loss, is accepted then it would mean that the dividend income will, on the one hand, be charged to income‑tax at the speci fied rate ; whereas the unabsorbed business loss or depreciation allow ance shall be carried forward to the next year only to the extent to which it could not be set off against income, profits or gains under any other head in these wars. To put it more precisely the unabsorb ed business loss would be carried forward only in the sum of Rs. 6,84,117 (Rs. 11,16,106 (‑) Rs. 4,31,989) in 1969‑70 and Rs. 1,88,413 (Rs. 6,14,583) (‑) Rs. 4,26,170) in 1970‑71. It would thus be seen that if this course is adopted then it would be definitely prejudicial to the interest of, the assessee inasmuch as it will, on the one hand be required to pay tax on the dividend income amounting to Rs. 4,31,989 and Rs. 4,26,170, respec tively, and shall also be deprived of the benefit to carry forward the business losses to the extent of the aforesaid dividend incomes. The whole amount of business loss cannot therefore, be carried forward to the respective following year without doing violences to the provisions of subsection (2) of section 24 which, as already stated, authorise the whole of the loss to be carried forward to the following year only and only where the assessee has no income under any other head. Here, I would, even at the cost of repetition, like to emphasise that no other conclusion is arrived at if one examines the proposition with reference to the proviso (h) to clause (vi) of subsection (2) of section 10 which lays down that where, in the assessment of an assessee, full effect cannot be given to any such allowance in any year, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains charge able being less than the allowance or part of the allowance to which effect has not been given as the case may be shall be added to the amount of the allowance for depreciation for the following year in respect of the same asset or assets and deemed to be par. of that allowance, or if there is no allowance for that year, be deemed to be the allowances for that year, and so on for succeeding years. Now the words no profit or gains chargeable for the year' appearing in proviso (b) to clause (v) of subsection f2) have been held by the Supreme Court of India in the case of C. I. T. v. Jaipuria China Clay Mines (P.) Limited ((1966) 59 I T R 555 (S C)), to be not confined to profit and gains deducted from the business whose income is being assessed under section 10, but they refer to the totality of the profits or gains computed under the various heads and chargeable to tax. I am, with great respect, in agreement with this view as what I find is that the admissibility of the various allowances under sec tion 10(2) of the Act has been specifically made "subject to the provisions of the Act". Hence the effect to the depreciation allowance shall first be given against the profits or gains of the particular business whose income is being computed under section 10 but if the profits of that business are insufficient to fully absorb the depreciation allowance, the allowance to the extent to, which it remains unabsorbed would be set off against the profits of any other business and still if a part of it remains unabsorbed, it would be liable to be set off against the profits, or gains chargeable under any other head as laid down by section 24 and if some part thereof is still left unabsorbed it can be carried forward to the next succeeding assessment year.

No doubt apparently it seems to be against the principle of equity to set off the business loss which is chargeable at a higher rate against the dividend income which is chargeable comparatively at a lower rate, but in view of the clear provisions of law, the principle of equity does‑ not come into play. Even otherwise, it is a well established principle of interpretation of law that where a specific provision exists in a taxing statute there is no room for invoking the aid of general principle of equity, justice and good conscience.

Appeal accepted.

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