Commissioner of Income Tax vs K.C. Bezbarua

B.P. Saraf, J.—At the instance of the Commissioner of Income Tax, the following question of law has been referred to us by the Income Tax Appellate Tribunal, Gauhati Bench, Guwahati, for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss determined in accordance with the provisions of the Act has to be carried forward ?"

The assessee is an individual. The assessment year is 1976-77. The assessee submitted his return of income on February 19, 1979. The assessment was completed u/s 143(3) on a net loss of Rs. 35,380. The Income Tax Officer, however, did not allow the loss to be carried forward on the ground that the return was not filed within the time prescribed u/s 139(3) of the Income Tax Act, 1961, hereinafter referred to as "the Act". The assessee filed an appeal before the Appellate Assistant Commissioner which was rejected. The assessee filed a second appeal before the Tribunal. The Tribunal decided in favour of the assessee. It held that the assessee was entitled to the benefit of carry forward of the loss sustained in view of the decision of the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., . The contention of the Revenue that this decision of the Supreme Court being a decision under the Indian Income Tax Act, 1922 ("the 1922 Act" hereinafter), will not apply to a case under the Income Tax Act, 1961 ("the 1961 Act"), was repelled by the Tribunal on the ground that there was no substantial difference between the relevant provisions of the 1922 Act and the 1961 Act in this regard. The Commissioner applied u/s 256(1) of the Act for a reference and, at his instance, the aforesaid question has been referred by the Tribunal.

Mr. S. K. Senapati, learned counsel for the Revenue, submits that the provisions of Section 139 of the 1961 Act are materially different from the provisions of Section 22 of the 1922 Act, and, as such, the decision of the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., which was given in a case under the 1922 Act, would not apply to a case under the 1961 Act.

Mr. D. N. Choudhury, learned counsel for the assessee, on the other hand, submits that there is no substantial difference in the language of the relevant provisions under the two Acts and that the ratio of the decision of Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., squarely applies to a case under the 1961 Act.

We have carefully considered the rival submissions. It is true that the decision of the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., was under the 1922 Act and that the present controversy relates to a case under the 1961 Act. But that by itself cannot affect the applicability of the decision of the Supreme Court because what is important is not the fact under which Act it was delivered but the principle underlying the same. It is the ratio of the decision that is binding. We are, therefore, to find out whether there is any substantial difference between the provisions of the two Acts on the basis of which it can be said that the ratio of Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., is not applicable to the corresponding provision of the 1961 Act.

In Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., the question for determination was whether Section 22(2A) of the 1922 Act placed any limitation on the right of an assessee to get the benefit of losses being set off and carried forward. This Sub-section provided that, in order to get the benefit of Section 24(2) of the said Act, the assessee must submit his loss return within the time specified by Section 22(1). Section 22(3) enabled the assessee who had not furnished his return within the time allowed by Sub-section (1) or (2) to furnish it at any time before the assessment was made. The assessee submitted the return within the time specified in Section 22(3). It was not accepted as a valid return for the purpose of Section 22(2A) to enable the assessee to cany forward losses. The Supreme Court did not approve this interpretation and held that Section 22(1) must be read with Section 22(3) for the purpose of determining the time within which a return has to be submitted. It was observed that it can be said that Section 22(3) was merely a proviso to Section 22(1). On the basis of the aforesaid reasoning, it was held (headnote, at page 519) :

"A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed if it is made within the time specified in Section 22(3). In other words, if Section 22(3) is complied with, Section 22(1) must also be held to have been complied with. If compliance has been made with the latter provision, the requirements of Section 22(2A) would stand satisfied."

The corresponding provisions of Section 22(1), 22(2), 22(2A) and 22(3) of the 1922 Act are Sub-sections (1), (2), (3) and (4) of Section 139 of the 1961 Act. On a careful comparison of the two sets of provisions, it is evident that there is no substantial difference between the two. The only perceptible difference was that, in the 1922 Act, u/s 22(2A), the return of loss could have been made "either within the time prescribed by Sub-section (1) or within such further time as the Income Tax Officer, in any case, might have allowed", the expression used in the corresponding provision of the 1961 Act, namely, Section 139(3) was "within the time allowed under Sub-section (1)". The expression "or the period extended by the Income Tax Officer" which appeared in Section 22(2A) of the 1922 Act was found missing in Section 139(3). However, that change too was done away with by the Taxation Laws (Amendment) Act, 1970, which inserted with effect from April 1, 1971, the expression "or within such further time which, on an application made in the prescribed manner, the Income Tax Officer may, in his discretion, allow." Thus, after the 1971 amendment, whatever little difference was there between the two Acts relevant to the submission of loss returns also did not exist on and from April 1, 1971. The assessment year involved in the instant case is 1976-77. The decision of the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., under the circumstances, will squarely govern this case. It may be pertinent to mention that Section 139(3) underwent further amendment by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1987 and, by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. We do not propose to examine the effect of the changes made by these Amendment Acts as it is not necessary to do so in view of the fact that the case before us pertains to the assessment year 197G-77.

In regard to the applicability of the decision of the Supreme Court to cases under the 1961 Act, reference may be made to the decision of the Calcutta High Court in Presidency Medical Centre (P.) Ltd. Vs. Commissioner of Income Tax, . In this case, the decision of the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., was held to be applicable to an assessment under the 1961 Act. It was held that, if a return is filed within the time specified by Sub-section (4) of Section 139 of the 1961 Act, it would be deemed to be in accordance with law and the loss has to be determined and carried forward as a matter of course u/s 72(1) read with Section 80 of the Act, even though the return was not filed within the time provided by Section 139. This decision of the Calcutta High Court was also followed by the Bombay High Court in Telster Advertising Pvt. Ltd. Vs. Commissioner of Income Tax, Bombay City I., .

We are in full agreement with the aforesaid decisions of the Calcutta and Bombay High Courts. We hold that Sub-sections (1) and (4) of Section 139 are to be read together and, on being so read, an assesses is entitled to carry forward the loss if he has filed the return after the period prescribed by Sub-section (1) but before the time allowed under Sub-section (4). Applying this proposition of law, we further hold that the assessee was entitled to carry forward the loss as he had filed the return within the time allowed under Sub-section (4) of Section 139 of the Act though after the period prescribed by Sub-section (1). Accordingly, we answer the question referred to us in the affirmative and in favour of the assessee. We make no order as to costs.