Orissa High Court
Commissioner Of Income-Tax vs Orissa Metal Industries Pvt. Ltd. on 20 December, 1991
Equivalent citations: [1992]196ITR803(ORISSA)
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT A. Pasayat, J.
1. By this application under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Revenue has sought for a direction to the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack (in short "the Tribunal"), to refer the following question:
" Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law to direct the Income-tax Officer to carry forward the loss ?"
2. The background facts are that M/s Orissa Metal Industries (P) Ltd., a private limited company (hereinafter referred to as "the assessee"), filed its return for the assessment year 1980-81 on August 30, 1980, indicating a total loss of Rs. 3,87,500. After assessment by the Income-tax Officer, Ward-A, Bhubaneswar, the net loss arrived at was Rs. 96,585. The Assessing Officer was of the view that the assessee was not entitled to carry forward the loss as the return was not filed within the time prescribed in Section 139(1) read with Section 139(3) of the Act. In appeal, the Commissioner of Income-tax (Appeals), Orissa, relying on a decision of the Madhya Pradesh High Court in Co-operative Marketing Society Ltd. v. CIT [19831 143 ITR 99, held that even where the return was filed late in terms of Section 139(4) of the Act, the loss determined was to be carried forward and set off against future profits, if any. This view of the Commissioner of Income-tax (Appeals) was assailed before the Tribunal by the Revenue. The Tribunal, in addition to the aforesaid decision of the Madhya Pradesh High Court, relied on a decision of the Calcutta High Court in Presidency Medical Centre (P) Ltd. v. CIT [1977] 108 ITR 838, and held that the point has been rightly decided against the Revenue. Accordingly, the appeal was dismissed. The Revenue made an application under Section 256(1) of the Act and sought for a reference to this court of the question quoted above. The Tribunal found that the Central Board of Direct Taxes had issued a circular to the effect that the decision in the case of Presidency Medical Centre (P.) Ltd. [1977] 108 ITR 838 (Cal) was not to be challenged before the higher authorities because of the subsequent amendment taking away the effect of the said decision from the assessment year 1985-86. The Tribunal felt that the assessment year in question being earlier to the amendment, the case was covered by the circular of the Board. It felt that since the Board had accepted the decision in the case of Presidency Medical Centre (P.) Ltd. [1977] 108 ITR 838 (Cal), there was no necessity for making a reference.
3. Learned standing counsel for the Department submits that the question is one of law and the Tribunal was not justified in refusing the reference and the Commissioner of Income-tax (Appeals) and the Tribunal were not justified in their conclusion that filing of return under Section 139(4) of the Act enables an assessee to get the benefit of carry forward loss.
4. At this juncture, it is relevant to refer to Section 139(3) which deals with carry forward of losses. It enables an assessee, even where he has not been served with a notice under Section 139(2) to furnish within the time allowed under Section 139(1) or the extended time, if any, a return of his loss. If such a return is filed, sub-section (3) provides that it shall be accepted as a return filed under Section 139(1) and all the provisions of the Act shall apply to such a return. The assessee may file a voluntary return of loss beyond the date prescribed under Section 139(1). Such a return is to be taken to have been filed under Section 139(4). The question is whether the filing of such a return entitles an assessee to carry forward of loss.
5. The pivotal decision, relying on which several High Courts have decided that an assessee filing a return under Section 139(4) is entitled to benefit of carry forward of loss was rendered by the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518. The said decision was rendered with reference to the provisions of Section 22 of the Indian Income-tax Act, 1922 (hereinafter referred to as "the 1922 Act"). Section 22 of the 1922 Act, provided for filing of return of income. Sub-section (1) of that section provided for issue of a general notice by publication in the prescribed manner requiring every person whose total income during the previous year exceeded the maximum amount which was not chargeable to income-tax to furnish within such period, not being less than sixty days, as might be specified in the notice mentioned in Sub-section (1) of Section 22, along with certain particulars, as may be required by the notice, of his total income. Sub-section (1) of Section 22 contained a proviso to the following effect :
" Provided that the Income-tax Officer may in his discretion extend the date for the delivery of the return in the case of any person or class of persons."
6. Sub-section (2) of the said section dealt with what was loosely described as individual notice which provided that, in the case of any person whose total income was, in the opinion of the Income-tax Officer, of such an amount as to render that person liable to income-tax, the Income-tax Officer might serve a notice upon him requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form of his total income during the previous year. In this sub-section, there is also a similar proviso giving discretion to the Income-tax Officer to extend the date for the delivery of the return. By Section 14 of the Income-tax (Amendment) Act, 1953, Sub-section (2A) was introduced with effect from April 1, 1952. The same read as follows :
" If any person who has not been served with a notice under subsection (2) has sustained a loss of profits or gains in any year under the head ' Profits and gains of business, profession or vocation', and such loss or any part thereof would ordinarily have been carried forward under Sub-section (2) of Section 24, he shall, if he is to be entitled to the benefit of the carry forward of loss in any subsequent assessment, furnish within the time specified in the general notice given under Sub-section (1) or within such further time as the Income-tax Officer in any case may allow, all the particulars required under the prescribed form of return of total income and total world income in the same manner as he would have furnished a return under Sub-section (1) had his income exceeded the maximum amount not liable to income-tax in his case, and all the provisions of this Act shall apply as if it were a return under Sub-section (1). "
7. Sub-section (3) of Section 22 provided that, if any person had not furnished a return within the time allowed by Sub-section (1) or subsection (2) or having furnished a return under either of those sub-sections, discovered any omission or wrong statement therein, he might furnish a return or a revised return at any time before the assessment was made. The return of income aspect has been prescribed in Section 139 of the Act. In the Act, the first significant change introduced was that there was no provision made for issue of a general notice in the press as was contemplated under Sub-section (1) of Section 22 of the 1922 Act. Sub-section (2) of Section 139 provided for the issue of individual notice which was covered by Section 22(2) of the 1922 Act. Section 139(1) provided that every person, if his total income in respect of which he was assessable under the Act during the previous year exceeded the maximum amount which was not chargeable to income-tax, should furnish a return of his income or the income of such other person during the previous year, in the prescribed form setting out the particulars as might be prescribed. The time for filing of the return was altered. The proviso to Section 139(i) provided as follows :
"Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return -
(i) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any person referred to in Clause (b), up to a period not extending beyond the 30th day of September of the assessment year without charging any interest ;
(ii) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, up to the 31st day of December of the assessment year without charging any interest ; and
(iii) up to any period falling beyond the dates mentioned in clauses (i) and (ii), in which case, interest at six per cent, per annum shall be payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of the furnishing of the return --
(a) in the case of a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183, on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm ; and
(b) in any other case, on the amount of tax payable on the total income, reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be."
8. The Supreme Court by a majority judgment in Kulu Valley Transport's case [1970] 77 1TR 518, held that Section 24(2) of the 1922 Act conferred the benefit of losses being set off and carried forward and there was no provision in Section 22 under which losses had to be determined for the purpose of Section 24(2). Section 22(2A) simply stated that, in order to get the benefit of Section 24(2), the assessee should submit his loss return within the time specified in Section 22(1). The provision had to be read with Section 22(3) for the purpose of determining the time within which a return had to be submitted. The Supreme Court observed that Section 22(3) was merely a proviso to Section 22(1), and a return submitted at any time before assessment was made was a valid return. When the return filed was within such time, Sub-section (1) of Section 22 must be read along with Sub-section (3) of that section. A return of income, whether of profits or gains or of losses, must be considered as having been made within the time prescribed, if it was made within the time specified in Section 22(3). In other words, it was observed that, if Section 22(3) was complied with, Section 22(1) must be held to have been complied with. If compliance had been made with the latter provision, the requirements of Section 22(2A) of the 1922 Act would stand satisfied. The Supreme Court further observed that, even if two views were possible, the view which was favourable to the assessee must be accepted while construing the provisions of a taxing statute. The history of introduction of Section 22(2A) was analysed by the Supreme Court.
9. Changes brought in by the Act have already been highlighted by us. The ratio in Kulu Valley Transport's case [1970] 77 ITR 518 (SC) can be applied to a case that may fall under Section 139(4). The main significant change seems to be that the discretion that was given to the Income-tax Officer to extend the time for filing the return under the 1922 Act has been taken away. But the right of the assessee to file the return before the period of assessment, and before the period mentioned in Sub-section (4) of Section 139, if it is made within the period stipulated in Sub-section (1) thereof, which is similar to the time mentioned in Sub-sections (1) and (2) of Section 22 of the 1922 Act, is not in any way affected. That being the position, the return can be filed within the time specified in subsection (4) of Section 139 and once that return is filed, it would be deemed to be in accordance with law and the loss had to be determined under the relevant provisions of the Act which embodies principles similar to Section 24(2) of the 1922 Act. The alteration in the Act by which there has been curtailment of the right of the Income-tax Officer to extend the time, does not materially affect the situation so far as the carry forward of loss is concerned.
10. It may be indicated here that Section 139(3) has undergone several changes. During the period with which we are concerned, in our view, if any person who had not been served with a notice under Sub-section (2), had sustained a loss in any previous year under the head "Profits and gains of business or profession" or under the head "Capital gains", and claimed that the loss or any part thereof should be carried forward under Section 72(1) or 73(2) or 74(1) or 74A(3), he may furnish within the time allowed under Sub-section (1) or within such further lime which, on an application made in the prescribed manner, the Income-tax Officer, in his discretion, allow, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of the Act shall apply as if it were a return under Section 139(1). We are in agreement with the view expressed by the Madhya Pradesh High Court in Co-operative Marketing Society's case [1983] 143 ITR 99, by the Calcutta High Court in Presidency Medical Centre's case [1977] 108 ITR 838 and the Bombay High Court in Telster Advertising Pvt. Ltd. v. CIT [1979] 116 ITR 610.
11. In that view of the matter, there is no necessity to direct the Tribunal to refer the question to this court. The application is, accordingly, disposed of. No costs.
S.K. Mohanty, J.
12. I agree.