COMMISSIONER OF INCOME-TAX VS GUNAVATHY DHARMASY, 2001 PTD-KERALA-HIGH-COURT-INDIA 3640 (1999)

Income‑tax‑‑‑

‑‑‑‑Loss‑‑‑Return‑‑‑Carry forward of loss‑‑‑Law applicable‑‑‑Effect of amendment of S.80 by Taxation Laws (Amendment) Act, 1984 w.e.f. 1‑4‑1985‑‑‑Return of loss not submitted within time allowed under S.139(1) or extended period allowed by ITO ‑‑‑Assessee not entitled to carry forward of loss‑‑‑Indian Income Tax Act, 1961, Ss.80 [as amended by Indian Taxation Laws (Amendment) Act, 1984), 139(1)].

Section 80 of the Income Tax Act, 1961, deals with the submission of returns of losses. This provision has undergone several changes.

The Legislative history of the provision shows that from 1st April, 1985, under the Taxation Laws (Amendment) Act, 1984, a return of loss must be submitted within the period prescribed by section 139(1). For that purpose for the words "under section 139" in the section which stood earlier, the words "within the time allowed under subsection (1) of section 139 or within such further time as may be allowed by the Income‑tax Officer" have been substituted with effect from 1st April, 1985. Under section 80, no loss was allowed to be carried forward and set off under section 72(l) or section 73(2) or section 74(l) or section 74A(3) unless such loss had been determined in pursuance of a return filed by the assessee under section 139. With effect from 1st April, 1985, by the Taxation Laws (Amendment) Act, 1984, no such loss would be allowed to be carried forward or set off unless the return under section 139(1) had been filed within the time allowed under subsection (1) .of section 139 for filing the return or within such further time as might be allowed by the Income‑tax Officer.

For the assessment year 1985‑86, a return was filed by the assessee on January 13, 1986, showing a loss of Rs.3,72,212. The due date for filing the return was on or before 31st July, 1985, and in the case of loss up to 30th June, 1985. Though an application was filed initially in Form No.6 requesting for extension of time to file the return up to 30th September, 1985, further extension of time was not asked for, and the return of income was filed on January 13, 1986. The Assessing Officer refused to carry forward the loss as the return of loss was not filed within the time allowed under section 139(3). On appeal, the Commissioner of Income‑tax (Appeals) held that since the assessee had not complied with the statutory requirement of filing the return of income as envisaged in section 139(3), the Assessing Officer was justified in refusing to allow carry forward of loss. On further appeal, the Tribunal held that the question as to whether loss can be set off can arise only in the assessment of the succeeding year or years where there is positive income against which such set off is claimed. The Tribunal further held that whether the loss in any year may be carried forward to the following or subsequent years had to be determined by the Assessing Officer who dealt with the assessment of the following or subsequent years. The Assessing Officer was directed by the Tribunal to carry forward the loss. On a reference at the instance of the Revenue :

Held, that the Assessing Officer as well as the Commissioner of Income‑tax (Appeals) were justified in holding that the provision of section 80 would have application only in a case where the return as required to be filed within the time allowed under subsection (1) .of section 139 or within such further time as may be allowed by the Income‑tax Officer is so filed and that the Tribunal did not notice the provisions of section 80 as it stood at the relevant time. Since the assessee had not complied with the statutory requirement of filing the return of income as envisaged in section 139(3), the Assessing Officer was justified in refusing to allow carry forward of loss.

CIT v. Manmohan Das (1966) 59 ITR 699 (SC) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

JUDGMENT

ARIJIT PASAYAT, C.J.‑‑‑ Pursuant to the direction given by this Court by order dated July 23, 1996, on an application under section 256(2) of the Income Tax Act, 1961 (in short the "Act"), the following questions have been referred for opinion of this Court by the Income‑tax Appellate Tribunal, Cochin Bench, at the instance of the Revenue:‑‑

?"(1)???? Whether, on the facts and circumstances of the case, the provisions of section 80 of the Income Tax Act, 1961, would have application in the context of the statutory requirement that a return is required to be filed in accordance with the provisions of section 139(3) of the Income Tax Act, 1961, for the purpose of considering the question of carrying forward of the losses?

(2) Whether, on the facts and in the circumstances of the case, the question of carrying forward of the losses could be considered when it is raised, even though actual carrying forward gets postponed to the subsequent year, when it, is specifically pleaded and is a controversy raised in the assessment year in question?

(3) What would be the situation if the return is filed after the statutory date and the proceedings are initiated as a result thereof as has been done in the present proceedings?"

We feel the question can be reframed and consolidated into one. The question would be "whether, on the facts and circumstances of the case, the provision of section 80 of the Income Tax Act, 1961, would have application only in a case where‑the return as required to be filed within the time allowed under subsection (1) of section 139 of the Act or within such further time as may be allowed by the Income‑tax Officer if so filed".

The factual position may be stated in brief, as the answer to the question would not require a detailed examination of the factual position. The assessee is a partner in two firms, namely, National Spices, Koorkachery, and Spices Corporation, Cochin. For the assessment year 1985‑86, a return was filed by him on January 13, 1986 showing a loss of Rs.3,72,212. The due date for filing the return was on or before July 31, 1985, and in the case of loss up to June 30, 1985. Though an application was filed initially on Form No.6, requesting for extension of time to file the return up to September 30, 1985, further extension of time was not asked for, and the return of income was filed on January 13, 1986, as stated above. In those circumstances, the Assessing Officer refused to carry forward the 'loss as the return of loss was not filed within the time allowed under section 139(3). On appeal, the Commissioner of Income‑tax (Appeals) held that since the assessee had not complied with the statutory requirement of filing the return of income as envisaged in section 139(3), the Assessing Officer was justified in refusing to allow carry forward of loss. On further appeal by the assessee, the Tribunal held that the question as to whether the loss can be set off can arise only in the assessment of the succeeding year or years where there is positive income against which such set off is claimed. It was further held that whether the loss in any year may be carried forward to the following or subsequent years has to be determined by the Assessing Officer who deals with the assessment of the following or subsequent years. Reliance was placed on a decision of the apex Court in CIT v. Manmohan Das (1966) 59 ITR 699. Accordingly, the Assessing Officer was directed to carry forward the loss. The application under section 256(1) of the Act was rejected and thereafter as stated at the outset the Revenue moved under section 256(2) of the Act, and a direction was given for referring the question alongwith the statement of the case.

None appeared for the assessee in spite of notice. We heard learned counsel for the Revenue. At the present juncture, it is necessary to take note of the relevant statutory provisions. Section 80 deals with the submission of returns of lossess. This provision has undergone several changes. At the relevant point of time, it reads as follows:‑‑

"80. Submission of return for losses.‑‑‑ Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed within the time allowed under subsection (1) of section 139 or within such further time as may be allowed by the Income‑tax Officer, shall be carried forward and set off under subsection (1) of section 72 or subsection (2) of section 73 or subsection (1) of section 74 or subsection (3) of section 74A."

The legislative history of the provision shows that from April 1, 1985, under the Taxation Laws (Amendment) Act, 1984, return of loss must be submitted within the period prescribed by section 139(1). For that purpose, the words "under section 139" in the section which stood earlier; the words "within the time allowed under subsection (1) of section 139 or within such further time as may be allowed by the Income‑tax Officer" have been substituted with effect from April 1, 1985. 'Under section 80, no loss was allowed to be carried forward and set off under section 72(1) or section 73(2) or section 74(1) or section 74A(3) unless such loss has been determined in pursuance of a return filed by the assessee under section 139. As a result of this amendment, with effect from April 1, 1985, no such loss would be allowed to be carried forward or set off unless the return under section 139(1) has been filed within the time allowed under subsection (1) of section 139 for filing the return or within such further time as tray be allowed by the Income‑tax Officer. There has been subsequent amendment by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, and the expression "in accordance with the provisions of subsection (3) of section 139" has been substituted for the expression "within the time allowed under subsection (1) of section 139 or within such further time as may be allowed by the Income‑tax Officer". The latter was the provision governing the field for the assessment year in question that is, 1985‑86. Prior to the amendment '(effective from April 1, 1952) of section 22 of the 1922 Act, the assessee was entitled to carry forward a loss, whether in business or under the head "Capital gains", even though he had not submitted a return for the year in which the loss had been incurred. After the amendment, section 22(2A) of the Act required the assessee to file a return if (a) the loss was incurred in business, and (b) the Income‑tax Officer had not served him with a notice under section 22(2) to file a return, in order to be entitled to carry forward such loss. Under the present Act, if no return is filed. as required, the right to carry forward the loss would be lost.

The Assessing Officer as well as the appellate authority were justified in their view. Reliance placed by the Tribunal on the decision of the apex Court in Manmohan Das's case (1966) 59 ITR 699, is clearly misconceived as that was a decision rendered under the Indian Income‑tax Act, 1922, whereafter the position has substantially changed. The Tribunal did not notice the provisions of section 80 as it stood at' the relevant time. Our answer to the reframed question is in the negative in favour of the Revenue, and against the assessee.

The income‑tax reference is disposed of as above.

M.B.A./564/FC ?????????

Order accordingly.