I. T. A. NO. 107/KB OF 1987-88 VS I. T. A. NO. 107/KB OF 1987-88
1997 P T D (Trib.) 85
[Income Tax Appellate Tribunal Pakistan]
Present: Muhammad Mujibullah Siddiqui, Chairman, Syed Kabirul Hasan;
Judicial Member and Abdul Malik, Accountant Member
I.T.A. No. 107/KB of 1987-88, decided on 19/08/1993.
Per Syed Kabirul Hassan, Judicial Member; Abdul Malik, Accountant Member, Contra; Muhammad Mujibullah Siddiqui, Chairman agreeing.---
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.34 & 35---Set-off of loss---Carrying forward of loss ---Principles-- Assessee, under S.34 of Income Tax Ordinance, 1979 is entitled to have set off amount of the loss incurred under any head of income specified in S.15 of the said Ordinance against his income under any head assessable for that year---Such is the position for current year---Any loss which cannot be set-off against the income of the assessee in that assessment year under any other head, then the portion which was not set-off, can be carried forward for six assessment years and can be set-off against income of such business or profession which is carried on in those years.
Under section 34, Income Tax Ordinance, 1979 as assessee is entitled to have set-off amount of the loss incurred under any head of income specified in section 15 against his income under any other head assessable for that year. This is the position for the current year. In section 35 it is also mentioned that any loss which cannot be set-off against the income of the assessee in that assessment year under any other head then the portion which was not set-off can be carried forward for six assessment years and can be set-off against income of such business or profession which is carried on in those years. Therefore, more appropriately the position emerging from section 35 is as follows:--
(i) loss must be in a business or a profession;
(ii) carried forward loss is to be set-off against the income under the same head;
(iii) the business in which loss was incurred should be carried on; and
(iv) it should be set-off against the income of the assessee who incurred the loss.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.156---Rectification of mistake---Essentials---If the Income-tax Officer investigates the matters, re-assesses the evidence or takes into consideration additional evidence and on that basis interprets the provisions of law and forms an opinion different from the order, the same will not amount to "rectification" of the order.
Section 156 of the Income Tax Ordinance, 1979 confers a power to rectify any mistake in the order which is apparent from the record. Such power can be exercised suo motu or if it is brought to the notice by an assessee. Therefore, essential condition of exercise of such power is that mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading of the order it may immediately strike on the face of it. Where an officer exercising power under the section enters into the controversy, investigates into the matter, reassesses the evidence or takes into consideration additional evidence and on that basis interprets the provisions of law and forms an opinion different from the order, then it will not amount to a rectification of the order. Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 156 of the Ordinance.
The I.T.O. would have no jurisdiction under section 156 of the Ordinance if he investigates the matter, re-assessees the evidence or takes into consideration additional evidence and on that basis interprets the provisions of law and forms an opinion different from the order because it will not amount to "rectification" of the order.
(1971) 82 ITR 50; (1978) 37 Tax 45 (H.C.) and 1992 PTD 572 ref.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss.156, 34 & 35---Rectification of mistake---Set-off of loss---Carry forward of loss---Originally the assessment order was passed by the Income tax Officer without allowing the set-off of carry forward loss but later on when the assessee himself pointed out this mistake, the order was rectified under S.156, Income Tax Ordinance, 1979---Assessee; on the one hand, himself took advantage of S.156 of the Ordinance but on the other hand contended in appeal that S.156 was not applicable meaning thereby that when on similar facts the Income-tax Officer tried to rectify the mistake under the same section, then assessee came forward with the objection---Held, rule of "estoppel", "approbate and reprobate" would apply in the case of assessee because if it is made applicable at one stage cannot be treated inapplicable at later stage for no one would be allowed to take advantage of misinterpretation of law.
1992 PTD 572 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss.35 & 36---Carry forward of loss---Speculation loss---Words "income from business or profession" used in S.35 of the Income Tax Ordinance, 1979 mean any other business than the business mentioned in S.36 of the said Ordinance---Losses incurred in speculation business shall be set-off against the profits or gain of another speculation business carried out by the assessee---Income from business or profession other than speculation business thus would be set-off against such business if it is carried out by the assessee.
The words used "income from business or profession" in section 35 of the Income Tax Ordinance, 1979 would mean any other business than the business mentioned in section 36. In section 36 of the said Ordinance it is clearly mentioned that losses incurred in speculation business shall be set-off against the profits or gains of another speculation business carried out by the assessee. The proper interpretation of section 35 would be that income from business or profession other than speculation business would be set-off against such business if it is carried out by the assessee.
PLD 1975 BJ 6; 1981 PTD 129 and 1987 PTD (Trib.) 523 ref.
(e) Income Tax Ordinance (XXXI of 1979)---
----S.35---Carry forward of business loss---Words "such business" used twice in S.35, Income Tax Ordinance, 1979---Connotation---Words "such business" used in S.35 of the Ordinance would not be restricted to mean losing business, but would include any activity or line of business, if they are carried out under the same management and same control---Income of business or profession would not mean income from losing business, but it would mean income from business or profession as a whole other than speculation business.
Restricted meaning of "such business" twice used in section 35 would not be restricted to same losing business and can neither be so widely interpreted to include any business. If business can be interpreted to include many lines of business then such lines of businesses may constitute the same business only if they are done under common management and common control. Therefore, any business activity would not definitely constitute entire business of an assessee. The income from business or profession would mean the general activity carried on by an assessee which are permissible by Articles and Memorandum of Association in case of company and business prescribed in deed of partnership in case of firm and any other related business activities by an individual which are carried on under common management and common control.
Expression "business" has a very vast meaning and includes every kind of business activities. Restrictive definition of words 'such business' to mean as same line of business is not the intention of the Legislature. There are cases where two different businesses of different nature can be treated same business if it is proved to the satisfaction of the assessing authority that there is common management, common heads of expenses, unity of trading organisation, common employees, common administration, common funds and common place of business.
The plausible interpretation of section 35 would be that business carried on by the assessee would be the business as a whole but not any activity or any particular line of business as in one case the Legislature is so liberal that it is permitting the assessee to set-off his loss incurred under one head from the income accrued to him under any other heads but for future set-off of carried forward loss the Legislature is so harsh that it would only allow it if the same losing business is carried on. Even logically an assessee would be unwise if he continues the same losing business for another six years. It is always the choice of the assessee to change the line of business or activity which is not profitable. In case any activity is changed to earn more profits, then the department is not losing anything if the set-off is allowed. But in case the losing business is carried on then if loss is again incurred then it would be carried forward and neither the department nor the assessee would earn anything out of it.
Words "such business" used in section 35 of the Ordinance would not be restricted to mean losing business, but would include any activity or line of business, if they are carried out under the same management and same control because income of business or profession would not mean income from losing business, but it would mean income from business or profession as a whole other than speculation business.
B.R. Ltd. v. CIT, Bombay (1978) 113 ITR 654 and M/s. Sanrapt & ET Brice, Karachi v. CIT (West) PLD 1979 Kar. 91 ref.
Per Abdul Malik, Accountant Member (Minority view)---
CIT v. International Industries Ltd. (1952) 22 ITR 44; B.R. Ltd. v. V.P. Gupta, CIT (1978) 113 ITR 647; J.K. Woollen Manufacturers Private Ltd. v. CIT (1975) 100 ITR 136; (1946) 14 ITR 10; Raees Ghazi M. Khan v. CIT 1981 PTD 129 and Maxwell on the Interpretation of Statutes, 1969, Twelfth Edn., p.282 ref.
Per Muhammad Mujeebullah Siddiqui, Chairman; agreeing with Syed Kabirul Hassan, Judicial Member---
(f) Interpretation of statutes---
---- Intention of Legislature---Determination---Intention of Legislature is not o be inferred by reading of one single word but it has to be inferred by reading entire sentence.
Mahmood A. Hashmi, A.R. for Appellant.
Khalid Siddiqui, D.R. for Respondent.
Date of hearing: 26th July, 1993.
ORDER
SYED KABIRUL HASSAN (JUDICIAL MEMBER).---In this appeal relating to Assessment year 1984-85, the appellant is aggrieved by the order of the learned Commissioner of Income Tax (Appeals), Zone-1, Karachi, whereby he has confirmed the order of the Income-tax Officer passed under section 156 of the Income Tax Ordinance, 1979 disallowing set-off of carried forward loss.
2. The brief facts are that during the assessment year the total income of the appellant assessee was computed under section 62 of the Ordinance. Later on the assessee moved an application under section 156 for the set-off of carried forward loss which was omitted to have been dedicated from the total income. This application of the assessee was allowed and on 30-6-1986 rectified order was passed. Later on when this fact came into the knowledge of the I.T.O. that the last year's loss of Rs.1,44,670 was incurred by the assessee in the business of sale of carpets whereas this year the assessee was doing business of contract work and discontinued the carpets business, therefore, the I.T.O. issued notice under section 156 on 9-6-1987 and sought the explanation of the assessee on this point. It transpires from the record that ITO did not accept the explanation of the assessee and rectified his earlier order allowing the set-off of carried forward loss of 1983-84.
3. In support of this application the learned counsel for the appellant urged as follows:
(a) The action of the I.T.O. under section 156 of the Ordinance was incompetent as it was beyond his jurisdiction.
(b)The I.T.O. has misdirected himself by not allowing the carried forward loss by holding that the assessee was not doing the same business, therefore, he was not entitled to set-off such loss under section 35 of the Ordinance.
The learned D.R. on the other hand has submitted that since the appellant-assessee had discontinued the business of sale of carpets and started a new contract business, therefore, the order of the ITO is in accordance with law.
4.In order to understand this factual controversy it would be proper to reproduce the relevant sections which allow the set-off and carried forward of losses. The relevant sections 34 and 35 are reproduced as under:---
"34. Set-off losses:---Where an assessee sustains a loss (not being a loss to which section 36 or section 37 applies) in any assessment year under any head of income specified in section 15, he shall be entitled to have the amount of the loss set-off against his income other than income to which subsection (7) or (9)"of section 12 applies, if any, under any other head assessable for that year.
34--A ..
35. Carry-forward of business losses.--Where an assessee sustains a loss in any assessment year under the head 'income from business or profession' (not being a loss to which section 36 applies and the loss cannot be wholly set-off under section 34 so such of the loss as has not been set-off, or the whole of the loss where the assessee has no income under any other head shall be carried forward to the following assessment year and set-off against the profits and gains, if any, of such business or profession assessable for that year if such business or profession continues to be carried on by the assessee for the assessment year; and if the loss cannot be wholly set-off in this manner, the amount of forward to the following assessment year, and so on, but no loss shall be carried forward to more than six assessment years immediately succeeding the assessment year for which the loss was first computed (provided that, where the said loss relates to an assessment year commencing on or after the first day of July, 1976 and is sustained by any such assessee, being the owner of an industrial. unit which is declared sick and is being rehabilitated under a scheme approved by the Federal Government, as may be notified by the Central Board of Revenue in the official Gazette, this section shall have effect as if for the words 'six assessment years the words ten assessment years' were substituted."
5. From the careful reading of above sections it would appear that under section 34 an assessee is entitled to have set-off amount of the loss incurred under any head of income specified in section 15 against his income under any other head assessable for that year. This is the position for the current year. In section 35 it is also mentioned that any loss which cannot be set-off against the income of the assessee in that assessment year under any other head then the portion which was not set-off can be carried forward for six assessment years and can be set-off against income of such business or profession which is carried on in those years. Therefore more appropriately the position emerges from section 35 is as follows:---
(i)loss must be in a business or a profession;
(ii)carried forward loss is to be set off against the income under the same head;
(iii) the business in which loss was incurred should be carried on; and
(iv) it should be set-off against the income of the assessee who incurred the loss.
6. Now having the above proposition of law before us we would now revert to the arguments of the learned counsel for the appellant assessee. In support of his first submission, the learned counsel for the appellant has submitted the following case-law:--
(1971) 82 ITR 50.
(1978) 37 Tax 45 (H.C).
The above case: law is on the point that the ITO would have no jurisdiction under section 156 of the Ordinance if he investigates the matter, re-assesses the evidence or takes into consideration additional evidence and on that basis interprets the provisions of law and forms an opinion different from the order because it will not amount to "rectification" of the order. The Hon'ble Supreme Court in case reported as 1992 PTD 572 after taking into consideration the relevant case-law has laid down the following:
"Section 35 of the repealed Income-tax Act, 1922 hereinafter referred to as the Act confers a power to rectify any mistake in the order which is apparent from the record. Such power can be exercised sup motu or if it is brought to the notice by an assessee. Therefore, essential condition exercise of such power is that the mistake should be apparent on the face of record; mistake- which may be seen floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading, the order it may immediately strike on the face of it. Where an officer exercising power under section 35 enters into the controversy, investigates into the matter, reassesses, the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order, then it will not amount to 'rectification' of the order. Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 35 "
We are in complete agreement with the above principle laid down by the Hon'ble Supreme Court. But it would be pertinent to point out distinctive facts or rather unique facts of this case. In this case originally the assessment order was passed by the ITO without allowing the set-off of carried forward loss. But later on when the assessee himself pointed out this mistake, the order was rectified under section 156 of the Ordinance. On the one hand the assessee himself took advantage of section 156, which is now argued to be not applicable at the first place. It is very strange when on similar facts the ITO suo motu tried to rectify the mistake under the same section, then assessee has come forward with this objection. In our opinion the rule of estoppel "approbate and reprobate" would apply in this case because that is made to be applicable at one stage cannot be treated inapplicable at later stage because no one would be allowed to take advantage of misinterpretation of law. In view of this the first submission/contention of the learned counsel for the assessee has no force.
7. Elaborating his second contention the learned counsel for the assessee has submitted that the words "such business" used twice in section 35 would not mean the same business but it would refer to the income under head of "income from business and profession". In support of this contention he has relied on the following case-law:
PLD 1975 BJ 6.
1981 PTD 129.
1987 PTD (Trib). 523.
In case reported as 1981 PTD 129 the assessee was partner of two registered firms namely M/s. Shabbir Cotton Factory and M/s. Faiz Gillani & Company, both of which were engaged in cotton ginning business. The assessee claimed the set-off of loss determined in one of the registered firm M/s. Faiz Gillani & Co. and which was allowed by the Hon'ble High Court. In the said citation it was observed on page 122:
"A question, therefore, arises whether the words 'any other business...' read with the words 'such business' occurring twice in clause (ii) are to be given a restricted interpretation to mean that set off is to be allowed only against the profits and gains of the same very business, profession or vocation in which the loss had originally occurred and not of any other business, profession or vocation which the assessee has been and is carrying on. To our mind the words 'any other business ....' undoubtedly means every business other than speculative and the word 'such' occurring in clause (ii) refers to such non-speculative business, profession or vocation. The set-off, therefore, can be claimed against the income and gains derived from any non-speculative business, profession or vocation not necessarily being the same business, profession, or vocation from which the loss had arisen. "
In the said citation the case-law reported as PLD 1975 BJ 6 was also considered. It would be more advantageous to refer the observations on page 26 contained in this case-law:
" 10. On a careful consideration we are unable to subscribe to the view adopted by the Tribunal. It may be noted that section 6 of the Act classifies income under heads. The income tax is only one tax levied on the sum total of the income classified under the various heads and it is not a collection of distinct taxes levied separately on each head of income. It is, therefore, that in this connection subsection (1) of section 24 expressly lays down 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 the losses set-off against his income, profits or gains under any other head in that year. In this connection subsection (2) of this section further lays down that where any assessee sustains a loss of profits or gains in any year, under the head 'profit and gains of the business, profession or vocation'; and the loss cannot be wholly set-off under subsection (1) so much of the loss as is not set off, or the whole of the loss where the assessee has income under any other head, shall be carried forward to the following year. But in this connection clause (1) of subsection (2) of section 24 provides that where the loss was sustained by him in a business, consisting of speculative transactions, it shall be set-off only against the profits and gains, if any, of the business in speculative transaction carried on by him in that year. However, clause (ii) of subsection (2) of section 24 lays down that where the loss was sustained by him in any other business, profession or vocation, it shall be set-off against the profits and gains, if any, of such business, profession or vocation if such business, profession or vocation continued to be carried on by him in that year."
11. Reading clauses (i) and (ii) of subsection (2) of, section 24 in juxta position with each other, it is evident that the business is divided into two categories. Clause (i) deals with losses sustained by an assessee in a business consisting of speculative transaction while clause (ii) deals with losses sustained by him in any other business. In the context the terms "such business" occurring twice in clause (ii) of subsection (2) of section 24 has reference to business other than the speculative business which forms the subject-matter of clause (i) above. In this connection we have no hesitation in agreeing with the interpretation placed by the Appellate Assistant Commissioner, and we are unable to accept the interpretation by the Tribunal which is unwarranted and far-fetched". (In this citation sections 16 and 22 of the Repealed Act are equivalent to sections 15, 34 and 35 of the Income Tax Ordinance, 1979).
The case-law relied upon by the assessee 1985 PTD (Trib 523 is all fours with the facts of this case and helps the case of the assessee.
Here it would be pertinent or reproduce the relevant section 24(2) of the Repealed Income-tax Act, which is as under:---
"24-(1).--Where an assessee sustains a loss of profits or gains in any year under any of the heads mentioned in any year under, any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set-off against his income, profits or gains under any other head in that year:
Provided that where an assessee is engaged in speculative transactions, which are in the nature of business, such transactions shall, notwithstanding anything to the contrary in any law for the time being in force, be deemed to constitute a business distinct and separate from any other business carried on by the assessee, any loss sustained by him in such business shall be let off only against the income, profits and gains of that business.
(2)Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment of the year ending on the 31st March, 1940 under the head 'profits and gains of business, profession or vocation' and the loss cannot be wholly set-off under subsection (1) so much the loss as is not so set-off, or the whole of the loss where the assessee has no income under any other head, shall be carried forward to the following year; and
(i)Where the loss was sustained by him in a business consisting of speculative transactions, it shall be set-off only against the profits and gains, if any of the business in speculative transactions carried on by him in, that year;
(ii)Where the loss was sustained by him in any other business, profession or vocation, it shall be set-off against the profits and gains, if any, of such business, profession or vocation if such business, profession or vocation continued to be carried on by him in that year;
and if the loss, in either case, cannot be wholly so set-off, shall be carried forward to the next year and so on but no loss shall be carried forward for more than six years ...."
8. From the careful reading of section 24(2) it would appear that same has been reproduced in the shape of section 35 of the present Income-tax Ordinance. The words used "income from business or profession" in section 35 would mean any other business than the business mentioned in section 36. In section 36 it is clearly mentioned that losses incurred in speculation business shall be set-off against the profits or gains of another speculation business carried out by the assessee. In view of this the proper interpretation of section 35 would be that income from business or profession other than speculation business would be set-off against such business if it is carried out by the assessee.
9. Let us examine the contentions of the learned D.R. to the effect that such business would mean the same business carried on by the assessee. In this respect it would be advantageous to refer to a case decided by Indian Supreme Court reported as (1978) 113 ITR--B.R. Ltd. v. C.I.T., Bombay, wherein the context of same business have been examined. In the said citation on page 654 it is observed as under:
" .The decisive test, as held by this Court in Produce Exchange Corporation (1970)77 ITR 739 (SC) is unity of control and not the nature of the two lines of business. The Commissioner also fell into the error of supposing that, apart from the fact that the two activities must form an integral part of the entire business, the 'main consideration which has to prevail is' whether 'notwithstanding the fact that the assessee may close one activity, it does not interfere in the carrying of the other activity'. The fact that one business cannot conveniently be carried on after the closure of the other may furnish a strong indication that the two businesses constitute the same. But the decision of this Court in Prithvi Insurance Co. (1967) 63 ITR 632 (SC) shows that no decisive inference can be drawn from the fact that after the closure of one business, another may or may not conveniently be carried on .."
10. In this case the assessee was carrying on business of general insurance, brokerage and commission and import and sale of certain items, but in the next year in which carried forward loss was intended to set-off, the assessee had discontinued the business of import and sale and was carrying on business of export of cotton textile. The Honourable Indian Supreme Court allowed the carried forward loss to be set-off against the income from business and profession of that year.
In PLD 1979 Karachi 91--M/s. Sairapt & ET, Brice Karachi v. CIT (West), it is observed on page 596:
"7. Mr. Mansoor Ahmed Khan, learned counsel for the Commissioner while supporting the interpretation put by the Tribunal on the words 'such business'-in clause (ii), submitted that the word 'such' must be read as referring back to the last antecedent, namely, the business in which the loss was sustained. He referred to interpretation by the Supreme Court of the word 'such' appearing in section 13(3)(a)(ii) (b) of the West Pakistan Urban Rent Restriction Ordinance, 1959 in Abdul Aziz & another v. Muhammad Ibrahim (i) and Stroud's Judicial Dictionary, 4th Edition, Vol.5, page 262 as generally referring to last antecedent. Moreover, he submitted that the words 'such business' appearing in clause (ii) when they occur second time refer to the losing business since set-off of losses of a losing business is permissible only if the losing business is continued to be carried on in that year. Therefore, he submitted that if 'such business' accruing at the second time in clause (ii)) refers to the losing business, the words 'such business' when they occur first time must refer to the losing business as well. This argument prevailed with the Appellate Tribunal. We have considered these submissions but we are not impressed with the same. As observed earlier by us, the words 'such business' refer to non-speculative business. Of course, the words 'such business' when they occur second time must refer to the losing business, that is to the losing business as a non-speculative business. The interpretation put forward by Mr. Mansoor Ahmed, learned counsel for the Commissioner, in our opinion, must give way as they lead to violation of the clear intention of the Legislature in amending the law."
11. Now having considered the case-law and the relevant provisions of the Ordinance, it can be stated that restricted meaning of such business twice used in section 35 would not be restricted to same losing business and can neither be so widely interpreted to include any business. If business can be interpreted to include many lines of business then such lines of businesses may constitute the same business only if they are done under common management and common control. Therefore, any business activity would not definitely constitute entire business of an assessee. In our opinion the income from business of profession would mean the general activity carried on by an assessee which are permissible by Articles and Memorandum of Association in case of company and business prescribed in deed of partnership in case of firm and any other related business activities by an individual which are carried on under common management and common control.
12. It would be pertinent to refer the definition of business contained in section 2(11) of the Income Tax Ordinance:
"business" includes any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture;
From the above definition it would appear that it is a very vast meaning and includes every kind of business activities. In view of this, we think that restrictive definition of words "such business" to mean as same line of business is not the intention of the Legislature. There are cases where two different businesses of different nature can be treated same business if it is proved to the satisfaction of the assessing authority that there is common management, common heads of expenses, unity of trading organisation, common employees, common administration, common funds and common place of business.
13. In our opinion, the plausible interpretation of section 35 would be that business carried on by the assessee would be the business as a whole but not any activity or any particular line of business as in one case the Legislature is so liberal that it is permitting the assessee -to set-off his loss incurred under one hand from the income accrued to him under any other heads but for future set-off of carried forward loss the Legislature is so harsh that it would only allow it if the same losing business is carried on. Even logically an assessee would be unwise if he continues the same losing business for another six years. It is always the choice of the assessee to change the line of business or activity, which is not profitable. In case if any activity is changed to earn more profits then the department is not losing anything if the set-off loss is allowed. But in case if the losing business is carried on then if loss is again incurred then it would be carried forward and neither the department and nor the assessee would earn anything out of it.
14. In view of above, we are of the view that words "such business" used in section 35 of the Ordinance would not be restricted to mean losing business, but it would include any activity or line of business, if they are carried out under the same management and same control because income of business or profession would not mean income from losing business, but it would mean income from business or profession as a whole other than speculation business.
15. For reasons aforesaid we vacate the order of the learned CIT(A) and direct the ITO to allow the set-off of carried forward loss.
16. In terms of above this appeal is disposed of.
(Sd.)
(Syed Kabirul Hassan),
Judicial Member.
(Sd.)
(Abdul 'Malik),
Accountant Member.
17. ABDUL MALIK (ACCOUNTANTMEMBER).----My learned brother has very ably analysed the provisions of section 35. However, there is another way of looking at the whole issue. There is a long line cases decided by Courts which make it clear that in order to claim carry forward of the loss in a business in which loss was incurred should be in existence during the year under assessment. In the present case the business in which loss was incurred ceased to exist.
18. Now it is a well-settled principle that a business when closed results into one thing and that is capital. Under ordinary principles of accounting on closure all accounts are to be closed by crediting or debiting the capital account. The resultant figure will indicate position of the capital. It may have either gone down if there were losses or gone up if there were gains. The section 24(2) in 1922 Act stood as follows:--
"24(2).-- Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on-the 31st day of March, 1940 under the head 'profits and gains of the business, profession or vocation.', and the loss cannot be wholly set-off under subsection (1) so much of the loss as is not so set-off, or the whole of the loss where the assessee has no income under any other head, shall be carried forward to the following year; and
(i)Where the loss was sustained by him in a business consisting of speculative transactions, it shall be set-off any against the profits and gains, if any, of the business in speculative transaction carried on by him in that year;
(ii)where the loss was sustained by him in any other business, profession or vocation it shall be set-off against the profits and gains, if any, of such business profession or vocation if such business, profession or vocation continued to be carried on by him in that year; and if the loss, in either case, cannot be wholly set-off, the amount of the loss not so set-off shall be carried forward to the next year and so on but no loss shall be carried forward for more than six
19. In order to discover the principle reference can be made to CIT v. International Industries Ltd. (1952) 22 ITR 44. In this case the headnote reads--"held that as the business carried on by the a9sessee in the year 1945-46 was different fr6m the business carried on by it in the year 1944-45; the loss sustained in the latter could not be carried forward and set-off against the profits of the former under the terms of section 24(2)". Another decision of Supreme Court of India in the case of B.R. Ltd. v. V.P. Gupta, C.I.T. reported as (1978) 113 ITR 647 after reviewing case-law on the issue the Court reached the conclusion that the appellant was entitled to carry forward the loss in the import business and set it off against profits of export business in the subsequent year because the Court found that the two businesses were interlinked and fulfilled the test of being same business.
20. In another case reported as (1975) 100 ITR 136- J.K. Woollen Manufacturers Private Ltd v. C,I.T. a business which had ceased to exist during the assessment year was considered to have lost its right of carry forward.
21. The principles which can be discovered are:--
(1) loss may be carried forward and set-off against the profits and gains in any business and not necessarily the same business. It is subject to the condition;
(2) the business in which loss was incurred must be continued in the year in which loss is set-off;
(3) loss can be carried forward by the same assessee who incurred the loss.
22. Closing and inactivity of business has to be distinguished from each other. In closure the venture comes to an end whereas in inactivity the venture is continued but it may be dormant for some time. This principle was elaborately discussed in the case of Kamdar reported as (1946) 14 ITR 10.
23. Now before comings to the 1979 Income Tax Ordinance we find that Lordships of the Lahore High Court in the case reported as Raees Ghazi M.Khan v. CIT 1981 PTD ' 129 (High Court Lahore) interpreted the section 24(2) after replacement of the expression same "by such". Their lordship were pleased to direct that right of carry forward continues even if the losing business is closed.
24. We have to examine whether provisions of section 35 of the 1979 Ordinance are parameteria with section 24(2) of the 1922 . Act. The said provision is as follows:
35. Carry forward of business losses.---Where an assessee sustains a loss in any assessment year under the head income from business or profession' (not being a loss to which section 36 applies) and the loss cannot be wholly set-off under section 34, so much of the loss as has not been set-off, or the whole of the loss where the assessee has no income tinder any other head,, shall be carried forward to the following assessment year and set-off against the profits and gains, if any of such business or profession assessable for that year if such business or profession continues to be carried on by the assessee for that assessment year; and if the loss cannot be wholly set-off in this manner, the amount of the loss and so set-off shall be carried forward to the following assessment year, and so on, but no loss shall be carried forward to than six assessment years immediately succeeding the assessment year for which the loss was first computed:
Provided that, where the said loss relates to an assessment year commencing on or after the first day of July, 1976 and is sustained by any such assessee, being the owner of an industrial unit which is declared sick and is being rehabilitated under a scheme approved by the Federal Government as may be notified by the Central Board of Revenue in the official Gazette, this section shall have effect as if for the words; six assessment years' the words 'ten assessment years' were substituted," It can be seen that there is an interesting change in the provision in so far as the tense of the expression has been changed from past to present.
25. Making a reference to Maxwell on the Interpretation of Twelfth Edition, page 282 under the heading change of language--
"From the general presumption that the same expression is presumed to be used in the same sense throughout an Act or a series of cognate acts, there follows the further presumption that a change of wording denotes a change in meaning, Where the Legislature', said Lord Tenterden, C.J., in the same sentence uses different words, we must presume that they were used in order to express different ideas'. Now keeping the background of the principles in mind that when a business ceases to exist it ordinarily loses the right of carry forward. The change of words in the two provisions is significant and convey the intention of the Legislature to modify the finding given in the case cited above.
26. For the reasons discussed above I respectfully disagree with my learned brother on this issue only.
(Sd.)
(Abdul Malik),
Accountant Member.
The Honourable Chairman may kindly refer the difference of opinion arising in this case in terms of the following question:---
"Whether in the facts and circumstances of the case, the assessee would be entitled to claim set-off of carried forward loss under section 35 of the Income-Tax Ordinance, 1979?"
(Sd.)
(Abdul Malik),
Accountant Member
(Syed Kabirul Hassan),
Judicial Member.
27. MUHAMMAD. MUJIBULLAH SIDDIQUI (CHAIRMAN).--On difference of opinion between the learned Judicial Member and the learned Accountant Member the following question has been referred to me for resolving the difference of opinion:
"Whether in the facts and in the circumstances of the case the assessee would be entitled to claim set-off of carried forward loss under section 35 of the Income Tax Ordinance, 1979?"
28. The relevant facts and the law has been discussed elaborately by the learned Judicial Member and I need not to repeat the same.
29. Heard Mr. Mahmood A. Hashmey, learned counsel for the appellant and Mr. Muhammad lqbal Khan, learned representative for the department.
30. A perusal of the proposed orders by the learned two Members shows that in addition to the various rulings from Indian and Pakistan jurisdiction both of them have referred to the judgment of Hon'ble Lahore High Court in the case of Rais Ghazi Muhammad Khan v. C.I.T., Lahore 1981 PTD 129. The learned Accountant Member who disagreed with the opinion of learned Judicial Member in the point of set-off of carried forward loss has observed as follows:
"Now before coming to the 1939 Income Tax Ordinance we find that their lordship of the Lahore High Court in the case reported as Rais Ghazi Muhammad Khan v. C.I.T. 1981 PTD 129. (Lahore High Court) interpreted the section 24(2) after replacement of the expression ' same' ' by such'. Their lordship were pleased to direct that right of carry forward continues even if the losing business is closed."
31. The above observation of the learned Accountant Member should have laid the controversy to rest as the point issue already stands decided in favour of the assessee by the Hon'ble High Court. However, the learned Accountant Member proceeded on to compare the provisions contained in section 24(2) of the Income-tax Act, 1922 and the provisions contained in section 35 of the Income Tax Ordinance, 1979. The relevant expressions are reproduced below for the sake of convenience: .
"Section 24(2) of the Income-tax Act, 1922:
Where the loss was sustained by him in any other business, profession or vocation, it shall be set-off against the profits and gains, if any, of such business, profession or vocation if such business, profession or vocation continued to be carried on by him in that year. "
"Section 35 of the Income Tax Ordinance, 1979:
So much of the loss as has not been set-off or the whole of the loss where the assessee has no income under any other head, shall be carried forward to the following assessment year and set-off against the profits and gains, if any, of such business of profession assessable for that year for such business or profession continues to be carried on by the assessee for that assessment year."
32. The learned Accountant Member by comparing the above provisions contained in the Income-tax Act, 1922 and the Income Tax Ordinance, 1979 came to the conclusion that there is an interesting change in the expression in so far as the tense of the expression has been changed from past to present: The learned Accountant Member referred to the change in the expression "continued" in the Income-tax Act, 1922 with the expression "continues" in the Income Tax Ordinance, 1979. Placing reliance on an extract in the Interpretation of Statutes, by Maxwell to the effect that a change of wording denotes a change in meaning, the learned Accountant Member observed that, "the change of words in the two provisions is significant and convey the intention of Legislature to modify the finding given in the case cited above". Thus, on the basis of change in the expression "continued" with the expression "continues" he came to the conclusion that the judgment of Hon'ble Lahore High Court in the case of Rais Ghazi Muhammad Khan was no more attracted. I am not persuaded to agree with the view held by the learned Accountant Member for the reason that the intention of the Legislature is not to be inferred by reading of one single word but iv has to be inferred by reading the entire sentence. Now if we read subsection (2) of section 24 of the. Income-tax Act, 1922 we find the expression, "if such business, profession or vocation continued to be carried on by him in that year" while in section, 35 of the Income Tax Ordinance, 1979 the expression which has been used by the Legislature is that, "if such business or profession continues to be carried on by the assessed for the assessment year". If both the expressions contained in the above provisions arc compared it becomes abundantly clear that the intention of the Legislature by enacting both the provisions was that such business should be in existence by the assessee 'in the assessment year in which set-off of the carried forward losses is claimed. The change in the word "continued" with 'the word "continues" has not made any material change as in both the expressions these words are to be read with "that year" and "the assessment year". Thus, when the word "continued" and "continues" is read in conjunction with that year and that assessment year the intention of Legislature becomes very much clear as narrated above. The change in wording as pointed out by the learned Accountant Member is absolutely immaterial and it is not possible to agree with the view' that mere change in the tense denotes the change in the intention of Legislature as interpreted by the Hon'ble Lahore High Court.
33. For the foregoing reasons I am of the opinion that after the judgment of Lahore High Court which has the binding effect on the Income Tax Appellate Tribunal no scope is left for .any further discussion or interpretation. The order proposed by .the learned Judicial Member is in consonance with the judgment of Hon'ble Lahore High Court and, therefore, respectfully following the decision of Hon'ble Lahore High Court I agree with the conclusion and direction by the learned Judicial Member.
34. The difference of opinion is resolved in the terms that in facts and circumstances of the case the assessee/appellant is entitled to claim set-off of carried forward losses under section 35 of the Income Tax Ordinance, 1979.
(Sd.)
(Muhammad Mujibullah Siddiqui),
Chairman.
M.B.A./272/T Orders accordingly.