Ita/237/2012 Of The Commissioner Of Income Tax v. Kerala State Construction Corporation Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No. 237 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 518/COCH/2009 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 25-01-2012 APPELLANT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAXTHIRUVANANTHAPRUAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT/ASSESSEE: KERALA STATE CONSTRUCTION CORPORATION LTD.,THYCAUD, THIRUVANANTHAPURAM 695014 BY ADVS.SRI.JOSEPH MARKOS (SR.)SRI.V.ABRAHAM MARKOSSHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARASRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMAS OTHER PRESENT: SMT ALEENA MARIA JOSE, AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.VINOD CHANDRAN & ASHOK MENON, JJ. -------------------------------------------ITA No.237 of 2012 ------------------------------------------- Dated this the 7[th] day of February, 2019 J U D G M E N T Vinod Chandran, J. The facts in the appeal indicate that for theassessment year (AY) 2006-07 the assessee filedreturn claiming, inter alia, set off of carryforward business loss. The issue arising in thesubject year is as to carry forward of business lossas available in the AY 2002-03. In the return filedfor the subject year, the Assessing Officer (AO)has not considered the business loss carriedforward. However in appeal, the assessee took acontention that they are entitled to carry forwardof business loss for the years 2001-02 to 2005-06. ITA 237/12 The first appellate authority allowed the claim,except that of AY 2002-03. The Income Tax AppellateTribunal interfered with that order to find the lossof AY 2002-03 also eligible for carry forward. TheRevenue is in appeal from the said order of theTribunal. 2.On facts, it is to be noticed that theassessee in the AY 2002-03, originally made a returnunder Section 139(1) of the Income Tax Act, 1961("Act" for short) showing a positive income ofRs.7,79,502/-. This was filed within the timeprovided under Section 139(1). Later, within thetime provided under Section 139(5), a return of losswas filed, wherein a negative result for therelevantpreviousyearwasclaimedat Rs.1,53,81,497/-. The assessee seeks carry forward ITA 237/12 -4- of such business loss which remained after settingoff against the income returned for that year. 3.The questions of law are re-framed asfollows:- "(1)Whether the Tribunal was correct inhaving directed allowance of carry forwardof business loss for the assessment year2002-03, since the assessee had not filed areturn under Section 139(3) within the timestipulated for filing of such return ? (2)Ought not the Tribunal have foundthat Section 139(5) does not enable theassessee to revise the return filed underSection 139(1) to one under Section139(3)?" 4.The learned Standing Counsel for Revenuewould submit that the assessee having filed a return under Section 139(1) could not file a revised returnunder Section 139(5) and seek it to be treated asone filed under Section 139(3). Section 80 ofChapter VI is pointed out to contend that a carryforward of business loss as permitted under Section72 can be claimed only in a return filed underSection 139(3) and any loss which is not determinedin pursuance of a return filed under Section 139(3)will not be permitted for carry forward. 5.Since the respondent-assessee had not appeared initially, we appointed Adv.Aleena MariaJose as Amicus Curiae. The learned Amicus Curiaesubmits that Section 139(3) specifically deals withloss under two heads; (i) in respect of profits andgains of business or profession and (ii) capitalgains, whereas Section 139(1) speaks of a return byevery person having a total income exceeding the 5.Since the respondent-assessee had not appeared initially, we appointed Adv.Aleena MariaJose as Amicus Curiae. The learned Amicus Curiaesubmits that Section 139(3) specifically deals withloss under two heads; (i) in respect of profits andgains of business or profession and (ii) capitalgains, whereas Section 139(1) speaks of a return byevery person having a total income exceeding the maximum amount which is not chargeable to incometax. Hence, when a return is filed under sub-Section (1), the assessee admits to have an incomeexceeding the maximum which is not chargeable toincome tax and the same cannot be revised to claim aloss which has to be specifically claimed in areturn filed under Section 139(3). The provisionsapplicable to a return filed under Section 139(1),though equally applicable to the return filed underSection 139(3), when a return is originally filedunder Section 139(1), merely by way of a revisionunder Section 139(5), it cannot be treated as onefiled under Section 139(3). If such a view istaken, then, sub-Section (3) would be renderedredundant and the intention of the legislature torestrict carry forward of loss with respect to anyprevious year under the heads of 'profits and gains ITA 237/12 of business or profession' and 'capital gains' wouldbe defeated. The learned AmicusCuriae also placesreliance on (2005) 276 ITR 521 [Commissioner of Income Tax v. Haryana Hotels Ltd.]. 6.Sri.Joseph Markose, learned Senior Counselappears for the assessee-respondent. The learnedSenior Counsel specifically points out that Section139(3) speaks of a return to be filed within theperiod provided under Section 139(1). It also deemsa return filed under sub-Section (3) to be one undersub-Section (1). In the teeth of the aboveprovisions, when a return is filed under Section139(1) and a revised return is filed under Section139(5), then, dehors the fact whether there is aloss claimed which was not claimed in the originalreturn, the same has to be deemed to be one underSection 139(3). It is also pointed out that insofar ITA 237/12 as a Company is concerned, the third proviso toSection 139(1) specifically speaks of a return inrespect of its income or loss in every previousyear. The learned Senior Counsel for therespondent-assessee placed reliance on the decisionsin (1995) 212 ITR 433 [Shri Vallabh Glass Works Ltd.v. Income Tax Officer, Companies Circle VIII andOthers], (2010) 322 ITR 233 (Delhi) [Commissioner ofIncome Tax v. Nalwa Investment Ltd.] and (2004) 88ITD 317 (Mad) [Sujani Textiles (P) Ltd. v. AssistantCommissioner of Income Tax]. 7.Beforewelookatthespecificinterpretation of the Section, we would look at thevarious decisions placed before us. 8.Shri Vallabh Glass Works Ltd., a decisionof the Gujarat High Court,relied on by the learnedSenior Counsel is an authority for the proposition ITA 237/12 that when the statute permits filing of a revisedreturn, the same has to be considered by theassessing authority as one filed within the periodoriginally prescribed, especially when the finalassessment is not over and the limitation prescribedfor the revision has not expired. However, in thepresent case, the fact remains that originally thereturn was filed under Section 139(1) and laterwithin the limitation period a revised return wasfiled under Section 139(5). The question arises asto whether on such revised return being filed, itcan be treated as one filed under Section 139(3).The decision does not help in resolving the specificconflict arising herein. 9.Nalwa Investment Ltd. was a case in which aDivision Bench of the Delhi High Court consideredthe effect of Section 80 when a revised return is 9.Nalwa Investment Ltd. was a case in which aDivision Bench of the Delhi High Court consideredthe effect of Section 80 when a revised return is filed under Section 139(3). Therein the assesseefiled a revised return showing a loss under Section139(3). Later within the time provided under sub-Section (3), a return was filed claiming loss at anenhanced amount. The AO determined the loss asoriginally claimed and the assessee was in appeal,wherein the Tribunal directed the loss to bedetermined as claimed in the revised return. The AOwhile giving effect to the order of the Tribunal,found that Section 80 acts as a fetter insofar aspermitting carry forward. The said finding was onaccount of the determination having not been made atthe time of consideration of the original returnunder Section 139(3). The Division Bench found thatthe determination by the AO of loss while givingeffect to the order of the Tribunal has to relateback to the determination made on the return filed under Section 139(3) and permitted carry forward ofthe entire loss as allowed by the Tribunal. Whatdistinguishes this decision from the above case isinsofar as the original return being one filed underSection 139(3). 10. Going by the peculiar facts availableherein, we have also looked into the decision of anIncome Tax Appellate Tribunal, Madras in SujaniTextiles (P) Ltd. Therein, the assessee had filedreturn of loss under Section 139(3) and then filed arevised return returning enhanced loss from thatoriginally returned. The AO, however, completed theassessment on the basis of the original returnwithout taking cognizance of the higher amount ofloss reflected in the revised loss return. TheTribunal found that when originally a return wasfiled under Section 139(3), the same has to be deemed to be a return filed under Section 139(1) andthen a revised return is permissible as providedunder Section 139(5). When such a revised return isfiled within the time provided under Section 139(5), then, it has to be treated as the original returnfiled under Section 139(3). We are in perfect agreement with the above proposition. But againwhat distinguishes the case before us is the factthat here the original return was filed underSection 139(1) and not under Section 139(3). 11. Section 139(1), as pointed out by thelearned Amicus Curiae, provides for a return ofincome exceeding the maximum amount which is notchargeable to income tax. As pointed out by thelearned Senior Counsel, a Company in respect of whomthere is an income or loss in the previous yearcould file a return under Section 139(1). However, when carry forward of business loss is claimed or aloss under capital gains, then necessarily a returnhas to be filed under Section 139(3) within the timeprovided under Section 139(1). What we find is thatcarry forward of loss with respect to the two headsof income; being 'profits and gains on business orprofession' and 'capital gains' has been culled outfrom Section 139(1) and a specific provision madeunder Section 139(3). The filing of a return underSection 139(3) alone would enable such claim ofcarry forward. A loss return can definitely befiled under Section 139(1). But the same would berestricted to the set off being claimed in thatrelevant previous year without any claim for a carryforward of loss which remains after set off.12. True Section 139(3) makes applicable theprovisions of the Act as if it were a return under ITA 237/12 ITA 237/12 Section 139(1). Hence, if a return is filed underSection 139(3), necessarily, the assessee couldavail of the benefit under Section 139(5) for filinga revised return which would be treated as theoriginal return filed under Section 139(3).However, when a return is originally filed underSection 139(1), the enabling provision under Section139(5) to file a revised return only enables thesubstitution or revision of the original returnfiled. On a revised return filed, it can only be areturn under Section 139(1) and not one underSection 139(3). This compelling distinctionpersuades us to set aside the order of the Tribunal.13. Our interpretation coincides with that ofthe Punjab and Haryana High Court in Haryana HotelsLtd., para 16 of which is extracted hereunder: “An irresistible conclusion on theconjointreadingoftheaforesaid provisions would be that a business losscannot be carried forward unless it hasbeen determined in pursuance of a returnfiled under section 139 of the Act. Inorder to be entitled to carry forward abusiness loss, the assessee must submit areturn under section 139(3) of the Act andhave an assessment made for the year inwhich he has incurred the loss. TheAssessing Officer has to notify to theassessee by an order in writing the amountof the business loss as computed by himwhich the assessee is entitled to havecarried forward. Where the business lossdetermined has not been notified to theassessee by the Assessing Officer, theassessee can have it determined in asubsequent year in which the business lossis to be set off.” 14. The respondent-assessee originally filed a 'nil' return with positive income under Section139(1). When a revised return under Section 139(5)is filed, it only substitutes the original returnfiled under Section 139(1). The return hencepermits set off of the loss against the income ofthat relevant previous year. What remains after ITA 237/12 such set off can not be carried forward for reasonof the revised return not being deemed to be oneunder Section 139(3). We hence answer the questionsof law against the assessee and in favour of theRevenue. We set aside the order of the Tribunal andhold that the assessee is not entitled to carryforward the business loss for the year 2002-03. TheIncome Tax Appeal is allowed. No costs. Sd/-K.VINOD CHANDRANJUDGESd/-ASHOK MENONJUDGE ITA 237/12 APPENDIX APPELLANT'S EXHIBITS: ANNEXURE-ATRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.143(3) OF THE INCOME TAX ACTDATED 19/12/2008. ANNEXURE-BTRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.143(3) OF THE INCOME TAX ACTDATED 30/12/2004 (AY 02-03). ANNEXURE-CTRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 10/07/2009. ANNEXURE-DTRUE COPY OF THE ORDER OF THE INCOME TAXAPPELLATE TRIBUNAL DATED 25/01/2012. [True Copy] jg