Calcutta High Court
Krishna Chandra Dutta (Cookme) Pvt. ... vs Commissioner Of Income-Tax on 31 March, 1993
Equivalent citations: [1993]204ITR23(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1983-84, the Tribunal has referred the following questions :
"1. Whether the Tribunal was justified in concluding that the loss arising out of premature encashment of cash certificates with U. B. I. to reduce the quantum of overdraft from them in the usual course of business was not revenue loss but capital loss ?
2. Whether the Tribunal was right in holding that the return for the assessment year 1983-84 having been filed on July 2, 1985, the amended provision of Section 80 effective from April 1, 1985, was applicable and hence the loss determined was not to be carried forward ?"
2. The statement of facts as made out by the Tribunal shows that the assessee-company filed its return voluntarily for the assessment year 1983-84 on July 2, 1985. It claimed a loss of Rs. 11,21,210. According to the assessee-company, no notice was issued either under Section 139(2) or Section 148 of the Income-tax Act, 1961, calling for a return. The assessment was completed under Section 143(3) of the Act, the loss being computed at Rs. 3,69,623 in place of Rs. 11,21,210 as claimed by the assessee in the return. Upon determination of the loss, the Income-tax Officer did not, however, allow the loss to be carried forward because, according to him, the return was not filed within time. Upon appeal, the Commissioner of Income-tax (Appeals) found no merit in the case of the assessee-company that the return was filed voluntarily on July 2, 1985, for assessment year 1983-84 and the assessee was, therefore, entitled to carry forward the loss for set-off against income of the subsequent year or years. The Commissioner of Income-tax (Appeals) held that the provisions of Section 80 of the Act as amended from April 1, 1985, conclusively require the return of loss to be submitted within the time allowed under Section 139(1). Therefore, the return in the case being filed under Section 139(4), the assessee cannot claim the benefit of the loss being carried forward.
3. The assessee-company also claimed that the loss incurred by it in encashment of cash certificate with the United Bank of India prematurely for paying off of its debt to the said bank in order to reduce the quantum of bank interest was a revenue loss. The Commissioner of Income-tax (Appeals), however, held that the loss incurred by the assessee-company was capital in nature. The assessee took the matter to the Tribunal in second appeal. It urged before the Tribunal that the loss due to premature encashment of the cash certificates was business loss and was revenue in nature and was allowable. The Tribunal negatived the claim for the loss, concluding that any loss arising out of encashment of investments should be treated as capital loss and in regard to the claim for carry forward of loss as determined by the Income-tax Officer, the Tribunal concluded that, since the return was filed by the applicant-company after April 1, 1985, though it relates to the assessment year 1983-84, the amended provision of Section 80 as effective from April 1, 1985, hits the assessee's case. It disentitled the assessee from the benefit of the carry forward because the return of loss had been filed though voluntarily, yet belatedly, on July 2, 1985.
4. The first question arises from the assessee's claim that the loss incurred by it in encashment of the cash certificates with the United Bank of India prior to the date of maturity for paying off to the said bank its borrowings from the same in order to reduce the quantum of bank interest should be treated as revenue loss. The Commissioner of Income-tax (Appeals) dealt with this point in paragraph 5 of his order and held the opinion that the loss sustained in this behalf amounting to Rs. 19,619 by the assessee-company was in the nature of capital. Both these findings were contested by the assessee-company before the Tribunal.
5. It was submitted on behalf of the assessee-company that the loss on account of premature encashment of the cash certificates should be allowed as business loss being revenue in nature and the revenue loss determined by the Income-tax Officer as per the assessment order should have been allowed to be carried forward. The Tribunal negatived the claim of loss arising out of premature encashment of the cash certificates as a revenue loss and concluded that any loss arising out of encashment of investments should be treated as a capital loss.
6. The plea urged before the Tribunal was reiterated before us. It was contended that the conversion of the fixed deposits into liquid fund by premature encashment enabled the assessee to pay off its borrowings bearing higher interest. Thereby the assessee achieved conservation of profit and, therefore, the part of the investment lost to it in premature encashment should be allowed as loss on its revenue account. This line of argument is ex facie far-fetched and contrived. After all, what is lost to the assessee is part of its capital asset being the fixed deposit. It is not the case of the assessee that its fixed deposit is not its capital asset, what is pleaded is that the loss has an indirect impact on its profit earning. A capital loss may affect or benefit the course of trading by chain effect, but that will not determine the character of a loss as between capital and revenue. The question is what kind of asset the loss directly relates to or results from. If it is loss of capital, it has to be on capital account. The final impact of the loss is not the determinative criterion. Conversely, a revenue loss may have a remote effect on capital by way of its erosion. On that score, a revenue loss shall not cease to be a revenue loss.
7. Reference may be made to the decision of the Supreme Court in CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649. There, the Supreme Court laid down the tests to be applied in cases like the one before us. The questions to be considered in this connection, according to the Supreme Court, are (at page 653) : "for what was the money laid out ? Was it to acquire an asset of an enduring nature for the benefit of the business, or was it an outgoing in the doing of the business. If money be lost in the first circumstance, it is a loss of capital, but if lost in the second circumstance, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses".
8. In the instant case, the loss is of a part of an investment, in the shape of fixed deposit. Its character cannot but be loss of capital.
9. We, therefore, answer the first question in the affirmative and in favour of the Revenue and against the assessee.
10. As regards the second question, it may be said that the amendment in Section 80 is effective from April 1, 1985, requiring a return of loss to be filed under Section 139(1) as a prerequisite for determination of loss for the purpose of carry forward and set off. The amendment cannot apply retrospectively. It is the admitted position that, in this case, the assessment year involved is 1983-84. Therefore, the return filed under Section 139(4) is not governed by the amended Section 80. It is the unamended Section 80 that should govern the assessee's case for the instant assessment year being a year earlier than the assessment year 1985-86. It cannot be disputed that the decision of this court in Presidency Medical Centre (P.) Ltd. v. CIT [1977] 108 ITR 838, shall squarely apply to this case and, accordingly, the loss determined on the basis of a return under Section 139 is entitled to the benefit of the carry forward and set off. The amendment has not affected the position of law as declared by the said decision in respect of loss arising from assessment year earlier than the assessment year 1985-86. Our attention was brought to an instruction of the Board (Instruction No. 1607 (F. No. 225/240/78-II/A-II) dated March 14, 1985), wherein the Board has directed that the disqualification for carry forward and set-off of loss determined in pursuance of a belated return shall be effective in respect of the assessment year subsequent to the assessment year 1984-85. Our attention has also been drawn to paragraphs 14.1, 14.2 and 14.3 of Circular No. 397 ([1985] 152 ITR (St.) 29) dated October 16, 1984. The extract of the relevant portion of the said Circular is set out below (see 152 ITR (St.) 36) :
SUBMISSION OF RETURN FOR LOSSES--SECTION 80 "14.1 Under the existing provisions of Section 80 relating to submission of return for losses, no loss is allowed to be carried forward and set off under Section 72(1), 73(2), 74(1) or 74A(3) unless such loss has been determined in pursuance of a return filed under Section 139.
14.2 The Amending Act has amended Section 80 of the Act to provide that such loss shall not be allowed to be carried forward and set off unless such loss is determined in pursuance of a return filed within the time allowed under Section 139(1) for furnishing a voluntary return of income or within such further time as may be allowed by the Income-tax Officer.
14.3 The amendment takes effect from April 1, 1985, and will, accordingly, apply in relation to any loss for assessment year 1985-86 and subsequent years, (Section 18 of the Amending Act)."
11. We find that the position as clarified by the Board is based on the correct construction of the provisions. We also share the view that the amendment shall apply to loss arising in assessment year 1985-86 and not in the earlier years.
12. In the premises, the second question is answered in the negative and in favour of the assessee.
13. There will be no order as to costs.
Shyamal Kumar Sen, J.
14. I agree.