Commissioner of Income Tax vs C. Still Export GmbH

On an application u/s 255(1) of the Income Tax Act, 1961, the Tribunal has referred the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the learned Tribunal is justified in law in allowing the carry forward of the losses of earlier years amounting to Rs. 11,34,420 claimed by the assessee-company ?"

The assessee is C. Still Export GmbH and the assessment year is 1981-82. The assessment was completed u/s 143(3) read with Section 144B of the Income Tax Act, 1961, on a total income of Rs. 10,44,680. In computing the income, the Assessing Officer has allowed the set off of earlier years'' losses, from the assessment years 1973-74, to 1980-81 amounting to Rs. 11,34,420.

In appeal before the Commissioner of Income Tax (Appeals), the Commissioner of Income Tax (Appeals) has enhanced the income u/s 251(1)(a) of the Act and the carry forward and set off of loss of Rs. 11,34,420 which was allowed by the Assessing Officer has been disallowed. The Income Tax Officer was directed to recompute the total income disallowing the loss of Rs. 11,34,420.

In appeal before the Tribunal, the Tribunal has taken the view that though the contract was completed in 1978, the assessee still had the office in India with a hope to get a fresh contract, therefore, it amounts to carrying on business during the earlier years.

None appeared for the assessee though the matter was listed five/six times. Heard learned counsel for the Revenue.

Learned counsel for the Revenue submits that the assessee is a NRI. The assessment was completed u/s 143(3) of the Act and a total income was assessed of Rs. 10,44,680. Against that income, the Assessing Officer allowed set off of earlier years'' losses from the assessment years 1973-74 to 1980-81 amounting to Rs. 11,34,420 in the year under consideration that is in the year 1981-82, while the assessee has closed its business in 1978. When in the preceding year the assessee has not carried on any business in India there is no question of set off of losses he suffered in the preceding years against the income in the year under consideration. The details of the loss suffered by the assessee read as under :

"1980-81 1,04,580 (under Section 144B/143(3)) 1979-80 1,62,550 1978-79 1,41,867 1977-78 1,16,960 (after 154) 1976-77 1,14,570 1975-76 1,73,267 1974-75 1,69,978 1973-74 1,51,518."

The facts are not in dispute that after enhancement notice u/s 251 of the Act, the Commissioner of Income Tax (Appeals) heard the assessee and has taken the view that when the assessee has not carried on the same business in the previous year relevant to the assessment year in hand the tosses suffered from that business in the earlier years cannot be allowed to be set off as the unabsorbed carry forward losses. In appeal before Tribunal, the Tribunal has allowed the claim of the assessee on the ground that the assessee has maintained the office after completion of the contract work in hand and has the intention to carry on that business. The losses suffered in the earlier years should be allowed to be set off from the income in the assessment years in hand.

The finding of the Tribunal appears perverse, as he has not referred to any evidence, which supports the claim of the assessee that the assessee has carried on the same business in the previous year or any business in India during the previous year relevant to this year. Mere establishment of the office does not mean that he has carried on the same business, which he had carried on in the earlier years. In fact it is brought to our notice that some arbitration proceedings, regarding the work, the assessee has executed, were pending, the office has been maintained to look after those proceedings. Now we have to see when the assessee has not carried on not only the same business but also no business in the previous year whether the loss of earlier years can be set off against the income of the current year.

When the assessee does not carry on the business in the just preceding year or previous year relevant to the assessment year under consideration, whether the earlier years'' loss relevant to the assessment year under consideration can be set off against the income of the assessment year 1981-82. The relevant provision for carry forward and set off of business loss is Section 72. A proviso to Clause (i) to Sub-section (1) of Section 72 provides that the business or profession should be continued in the previous year relevant to the assessment year for allowing the set off of earlier years'' carried forward loss. The relevant provision reads as under ;

"Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year."

When the assessee has not carried on any business in the previous year relevant to the assessment year in hand, the loss suffered in business in the earlier years cannot be set off against the income in the assessment year in hand. Therefore, the Tribunal has committed the error in directing the Assessing Officer to allow the set-off of loss suffered in the earlier years against the income in the previous year relevant to the assessment year in hand when no business is carried on by assessee in the previous year relevant to the assessment year in hand.

In the result, we answer the question in the negative, that is, in favour of the Revenue and against the assessee.