ANGLO-FRENCH TEXTILE CO., LTD. vs. COMMISSIONER OF INCOME-TAX, MADRAS.

CIVIL APPEAL No. 13/1952Supreme Court[1953] 1 S.C.R. 44822 December 1952Bench: 4 JudgesAuthor: MEHR CHAND MAHAJAN, SUDHI RANJAN DAS, VIVIAN BOSE, NATWARLAL HARILAL BHAGWATI7 pages
AI SummaryDismissed

What were the facts?

The assessee, Anglo-French Textile Co., Ltd., a UK-incorporated company with mills in Pondicherry, was assessed for the year 1941-42. The company did not conduct business in British India during the relevant period. It submitted a "nil" return after being issued a notice under Section 23(1) of the Indian Income-tax Act, 1922. The Income-tax Officer accepted this return, declaring the income as "nil" and the company not liable to tax. Subsequently, a notice under Section 34(1)(b) was issued to assess income that had escaped assessment. In response, the assessee submitted the "nil" return again, along with a statement showing a loss of Rs. 3,92,357 on its total world income, claiming this loss should be determined and carried forward under Section 24(2). The Income-tax Officer accepted the "nil" return again, stating that as it was a non-resident company with no sales in British India, no profits were attributable to operations there, and the loss need not be carried forward under Section 24(2). The assessee's appeals to higher authorities and a reference to the High Court of Madras were unsuccessful.

What did the Supreme Court hold?

The Tribunal held that the assessee was not entitled to have the loss determined and carried forward for two primary reasons. Firstly, for a loss to be carried forward under Section 24(2), it must first be eligible for set-off under Section 24(1). Section 24(1) requires a loss under one head to be set off against income, profit, or gain under another head in the same year. Since the assessee had "nil" income under all heads, there was nothing against which the loss could be set off, and consequently, Section 24(2) did not come into play. Secondly, a set-off under Section 24(1) is only permissible when the loss arises under one head and the profit against which it is sought to be set off arises under a different head. In this case, the loss was computed by striking a balance in the profit and loss account of a single business, so the concept of different heads did not apply. The Tribunal noted that the High Court's reasoning regarding the limited scope of Section 34 proceedings was not definitively decided upon, but the core issue was the ineligibility of the loss for carry-forward based on the provisions of Section 24. The appeal was dismissed.

What were the issues?

1. Whether, when proceedings are initiated under Section 34 for the assessment of escaped income, the assessee is entitled to claim that the loss of profits and gains sustained in the previous year should be determined and carried forward. Assessee's contention: The assessee argued that the notice under Section 34, which allows the Income-tax Officer to assess or re-assess income and recompute loss or depreciation, attracts Section 24(2) of the Act, thereby entitling them to have their loss determined and carried forward. Revenue's contention: The revenue contended that the proceedings under Section 34 are limited to assessing the escaped income and do not permit the re-opening of the entire assessment. Furthermore, they argued that a loss cannot be carried forward unless it can be set off under Section 24(1) or arises under a different head than the profit against which it is to be set off. 2. Whether a non-resident company can claim to have a loss determined and carried forward under Section 24(2) when its return shows "nil" income and a loss, and no income has escaped assessment in British India. Assessee's contention: The assessee claimed entitlement to have the loss determined and carried forward. Revenue's contention: The revenue argued that Section 24(2) does not apply to non-residents and that a loss can only be carried forward if it cannot be wholly set off under Section 24(1), which requires income under a different head.

Which sections of the Income-tax Act were involved?

Section 24(2),Section 24(1),Section 34(1)(b),Section 23(1),Section 6,Section 10,Section 42(1),Section 42(3)

AI-generated summary — verify with the full judgment below

448 SUPREME COURT REPORTS [1953] 19°2 February 18, 1950, but, in view of the absence of any b d distinct provision in section 21 that the power of Straw oar d d d'fi · I Ma ufacturing amen ment an mo 1 catwn conferred on the State ~o., Ltd. · Gtvernment may be so exercised as to have retrospec- v. tive operation the order of April 26, 1950, viewed Gutta .~fill merely as an order of ainendment or modification, Workers' Union. cannot" by virtue of section 21, h:i.ve that effect.

If, - therefore, the amending order operates prospectively, Das J, d h 1952 Dec. 22. i.e., only as from the ate oft e order, it cannot valid- ate the award whic.h had been made after the expiry of the time specified in the original order and before the date of the amending order, during which period the adjudicator was functus officio and had no juri ic- tion to act at all. \Ve do not think the respondents can derive any support from section 21 of the U. P.

General Clauses Act. 0 The result, therefore, is that this appeal must be allowed and the award must be declared to be null and void and we order accordingly. In the circum- stances of this case we make no order as to co

The order continues below.

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