Commissioner Of Incometax, Andhra Pradesh v. The Cocanada Bank Ltd. Kakinada

A COMMISSIONER OF INCOME·TAX, ANDHRA PRADESH THE COCANADA BANK LTD. KAKINADA April 2; 1965 [K. SUBllA RAO, J.C. SHAH ANDS. M. SIKRI, JJ.] Indian Income-tax Act, 1922 (11 of 1922), s. 24(2)-Carry-forward of loss-Loss under one head of income whether can be set-off against income under other heads in succeeding years-Heads of income whether mutually exclusive. The respondent bank had income from banking business and c interest on securities. For the assessment year 1949-50 its loss from banking business was set-off against the income from interest on securities but for the succeeding three years the income-tax officer st:. t• off the said loss which had been carried forward, only against the income from banking business and disallowed it against the income under the head 'interest on securities'. The view of the Income Tax Officer was upheld by the Appellate Assistant Commissioner and on D further appeal by the Appellate Tribunal. The Tribunal however referred to the High Court, at the instance of the assessee, the ques-tion whether the assessee was entitled to set-off business loss brought forward from the preceding assessment y-ear against the entire in-comt: including interest on securities. The High Court remitted '.:he case to the Tribunal for a finding whether the .securities in question formed part of the trading assets held by the assessee. The Tribunal E held that the receipt of interest from securities was as much the assessee's business as its other banking activities. On receipt of the supplementary statement 0f case the High Court answered the refe-rence in favour of the assessee. The Revenue appealed to this Court. It was urged for the Revenue that the income from business and securities fell under different heads, namely s. 10 and s. 8 of the Act respectively, that they were mutually exclusive and, therefore, the losses under the head ''business" could not be carried forward from the preceding year to the succeeding year and set-off under s. 24(2) of the Act against the income from securities held by the assessee. HELD: (i) While sui>-s. (1) of s. 24 provides for setting-off of the loss in a particular year untler one of the heads in s. 6 against the profit under a different head in the same year, sub-s. (2) provides for the carrying forward of the loss of one year and setting off the same against the profit or gains of the assessee from the same business in subsequent years. This cl. (2) of s. 24 in contradistinction to cl. (1) thereof· is concerned only with the business and not with its heads under s. 6 of the Act. This designed disti.nction brings out the intention of the legislature to give further relief to an assessee carrying on busi-ness and incurring loss in the business though the income therefrom falls under different heads under s. 6 of the Act. [622E; 623E-F) (ii) The scheme of the Act is that income-tax is one tax. Section 6 only classifies the income under different heads for the purpose of computation of the net income of the assessee. Though for the pur-pose of romputation of the in~ome, interest on. securities is separately classified, income by way. of interest on securities does not cease to be part of the income from business if the securities are part of the trading assets. Whether a Particular income is part of the income from a business falls to ~ d<c;ded not on the basis of the provisions of s. 6 but on commercial principles. [622G-H] (iii) In the present case the Tribunal and the High Court found that the secur'.ties were the assesseo's trading assets and the jncome therefrom was, therefore, the income of the business. If it was income of the business, s. 24(2) of the Act was immediately attracted. If the income from the securities was the income from its business, the loss could, in terms of that section, be set-off against that income. [622H-623A] (1965) 3 SUPREME COURT REPORTS 619 619 620 1965 1965_3_619_625 pBkw The Punjab Co-operative Bank Ltd. v. Commissioner of Income. tax, Punjab, (194-0) B I.T.R. 635 and C&inmissioner of Income·tax Bombay City I v. Chugandas & Co. (1965) 55 I.T.R. 17, relied on. United Commercial Bank· Vd. v. Commissioner of Income tax West Bengal, (1958) S.C.R 79, East India Housing and Land Deve-lopment Trust Ltd. v. Commissioner of Income-tax, West Bengal (1961) 42 I.T.R. 49, and Commissioner of Income-tax. Madras v. Express Newspapers Ltd. (1964) 53 I.T.R. 250, distinguished. C!v1L APPELLATE JURISDICTION: Civil Appeals Nos. 155--157 of 1964. Appeals by special leave from the judgment and order dated August 8, 1961 of the Andhra Pradesh High Court in Case Refer· red No. 25 of 1957. S. V. Gupte. Solicitor-General, N. D. Karkhanis and R. N. Sachthey, for the appellant (in all the appeals). G. S. Pathak. B. Datta and T. Satyanarayan, for the respondent (in all the appeals). The Judgment of the Court was delivered by Sobba Rao, J. These appeals by special leave raise the ques· tion of construct:on of s. 24(2) of the Indian Income-tax Act, 1922, hereinafter called the Act. The material facts may briefly be stated. The Cocanada Bank Ltd. Kakinada. hereinafter called· the assessee. is a private limited company carrying on banking business with its head office at Kaki-nada and a branch at Dayal Bagh. The assessee's sources of inctJme are banking business and interest from government sec~rities. For the assessment year 1949-50 its income was asse>sed as follows: Interest on securities Rs. 84,880 Other banking activities Rs. 64,400 Ooss) Net loss Rs. 55,912 The following tabular form shows at a glance. the factual posit~on in regard to the income of the assessee under different heads dunng the said three years : A For the three succeeding years the department showed the income under the sa 'd two separate heads but allowed the said loss to be set off against the income under the head "business" and disallow-ed it against the income under the head "interest on securit'e>''. The view of the Income-tax Officer was confirmed, on appeal, by the Appellate Assistant Commissioner and, on further appeal, by the B Income-tax Appellate Tr'bunal. The following question was refer-red by the Tribunal to the High Court for its opinion: . . . . . . 621 "Whether on the facts and in the circumstances of the case, the assessee was entitled to set off the business loss of Rs. 55.912 brought forward from the preceding year against the entire income including interest on securities a held by the assessee." ' The High Court. hav;ng regard to the decision of this Court in United Commercial Bank Ltd., Calcutta v. Ccmmissioner of In-rnme-tax. West Banga!(') rem;tted the case to the Income-tax Tribu-nal, Hyderabad Bench. for making a fuller statement of case on the D question w