Commissioner of Agricultural Income Tax, West Bengal vs Nuddea Farms Ltd.

Bachawat, J.—This reference u/s 63(1) of the Bengal Agricultural income tax Act, 1944, has been made at the instance of the Commissioner, Agricultural income tax, West Bengal. In he proceedings for the assessment year 1949-50, it was found that in the previous year the Assessee Nuddea Farms Ltd., had sustained a loss of Rs. 29,237 under the head "agricultural income from ''agriculture" and as he had no income under the head "agricultural income from rent or revenue" the Agricultural income tax Officer computed the Assessee''s agricultural income in the previous year at a loss of Rs. 29,237 and directed that the loss be carried forward to the following year. In the proceeding''s lor the assessment year 1950-51 it was found that in the corresponding previous year the Assessee had an income of Rs. 12,842 under the head "agricultural income from agriculture" and had no income under the other head and accordingly the Assessee''s agricultural income in the corresponding previous year was computed to he Rs. 12,842. The Assessee claimed to set off against this income the loss of Rs. 29,237 which had been directed to be carried forward by the preceding order of assessment. This claim of set off was disallowed by the Agricultural income tax Officer as also on appeal by the Assistant Commissioner, Agricultural income tax, but on further appeal the Appellate Tribunal allowed the claim.

On the application of the Commissioner, Agricultural income tax, the Tribunal has referred the following question to this Court:

Whether in the facts and circumstances of the case the loss of Rs. 29,237 sustained by the Assessee in the previous year for the assessment for the year ending on the 31st March 1950, under the head ''agricultural income from agriculture'' the Assessee having no income under the other head, viz., ''agricultural income from rent or revenue'' in the sad previous year, could be deemed to be ''a loss'' sustained by the Assessee in that year within the meaning of Section 26(2) of the Bengal Agricultural income tax Act, 1944, and whether u/s 26(2) such loss could be carried forward to the following year and set off against the sum on which Agricultural income tax was computed to be payable by the Assessee for the following year.

The answer to the question referred depends upon the true construction of Section 26 of the Bengal Agricultural income tax Act. That section reads as follows:

(1) Where in any year under either head of agricultural income specified in Section 5 it is computed that the sum on which agricultural income tax is payable by the Assessee is a negative quantity the Assessee shall be deemed to have sustained a loss under that head to that extent and such loss shall be set off against the sum computed under the other head of agricultural income as that on which agricultural income tax is payable in the same year.

(2) Where the total sum computed under both heads of agricultural income as that on which agricultural income tax is payable by an Assessee in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1945, is a negative quantity, the Assessee shall be deemed to have sustained a loss to that extent in that year, and such loss shall be carred forward to the following year and set off against the sum on which agricultural income tax is computed to be payable in such year, and if such loss cannot be wholly set off in such year the amount of such loss not so set off shall be carried forward in the same manner to the next following year and so on, but no amount of such loss shall be carried forward for more than six successive years.

On behalf of the Commissioner Mr. Sen contended that Sub-section (2) of Section 26 applies only to a case where there is a loss under one head and an income under the other head against which the loss can be set off under Sub-section (1). He argued that Sub-section (2) cannot apply where the Assessee has sustained a loss or has no income under the other head so that there is nothing against which the loss under the first head can be set off. I am unable to accept this contention.

Section 3 is the charging section. The agricultural income tax is chargeable on the total agricultural income. Chapter II of the Act provides for computation of the tax. The sum on which the tax is payable is computed under the heads (1) agricultural income from rent or revenue, (2) agricultural income from agriculture. The sum computed under each head may be either (a) a positive or (b) a nil or (c) a negative sum. A positive sum indicates that the Assessee has an income. A nil sum indicates that the Assessee has no income and no loss. A negative sum indicates that the Assessee has suffered a loss. By Sub-section (1) of Section 26 a negative sum under one head of income is deemed to be a loss under that head. Section 2G provides for set off of the loss. The section forms part of Chapter v. which deals with the machinery of assessment.

Sub-section (1) of Section 2G provides that the loss sustained under one head shall be set off against the sum computed under the other head to be the sum on which the tax is payable. The sum so computed under the other head may be either a positive sum showing an income or a nil sum showing no income and no loss or a negative sum showing a loss. Now a loss sustained by the Assessee under one head of income can plainly be set off against the income of the Assessee under the other head. It is however obvious that where the Assessee has sustained a loss under one head of income and at the same time under the other head of income he has either no income or has suffered a loss the Assessee cannot get a set off under Sub-section (1) for there is nothing against which the loss can be set off. A loss under one head can only be set off against an income under the other head.

When the total of the two sums computed under both heads of income is a positive quantity the result is that the Assessee is found to have derived an income in that year to that extent and the Assessee is chargeable on that income. In order that the total of two sums is a positive sum one of the sums must be a positive sum and the other sum must be either a positive or zero or a lesser negative sum. In other words the Assessee derives an overall income when he has an income under one head and under the other head he has an income or has no income or has sustained a smaller loss. The loss under one head is set off against the income under the other head and the balance positive sum is the overall income of the Assessee.

Sub-section (2) provides that where the total of the two sums computed under each head of income in any year is a negative quantity the Assessee shall be deemed to have sustained a loss to that extent. The Assessee is not chargeable to tax on the loss, nor can he get any relief on that account in that year. But he is entitled to certain relief on account of that loss in the following years. The loss must be computed and recorded and must be carried forward and be set off in the following year and thereafter to the extent provided. Now in order that the total of two sums be a negative sum one of the sums must be a negative sum and the other sum must be a lesser positive sum or a zero or a negative sum. In other words the Assessee has sustained an overall loss when there is loss under one head or there is a smaller income or no income or a loss under the other head. In order to attract the operation of Sub-section (2) it is, therefore, not necessary that the Assessee must have an income under one of the heads. Sub-section (2) comes into play even where there is a loss under both heads or where there is loss under one head and no income under the other. The overall loss in all cases is deemed to be the loss of the Assessee in that year and must be carried forward to the following year and set off against the income of that year.

In order to attract the operation of Sub-section (2) it is not necessary to show that the case is one in which there can be a set off under Sub-section (1). In terms the operation of Sub-section (2) is not made dependent upon the operation of Sub-section (1). When there is a loss under one head and no income under the other head there is no scope for set off of the loss under Sub-section (1) for there is nothing against which loss can be set off; nonetheless there is a total loss which by Sub-section (2) the Assessee is deemed to have sustained in that year and such loss must be carried forward to the following year.

In the present case it was found that the Assessee had sustained loss under one head and had no income under the other. The total of the two heads showed an overall loss and such loss was rightly carried forward to the following year.

Much reliance was placed by Mr. Sen upon the judgment of the Supreme Court in Anglo French ANGLO-FRENCH TEXTILE COMPANY, LTD. Vs. COMMISSIONER OF Income Tax, MADRAS., . In that case their Lordships of the Supreme Court had occasion to deal with the question of construction of Section 24 of the Indian income tax Act as it then stood.

In that case the Assessee, a non-resident company in course of proceedings u/s 34 of the Indian income tax Act submitted a nil return and a statement showing that it had suffered a loss on its total world income. The income tax Officer accepted the nil return and the Assessee''s statement of the loss and the Assessee then claimed that the income tax Officer was bound to record the loss and to carry it forward under Sub-section (2) of Section 24. This claim was rejected. Their Lordships of the Supreme Court ruled that Sub-section (2) did not come into play unless there could be set off under Sub-section (1). They pointed out that in the case before them there could not be a set off under Sub-section (1) because (a) to get a set off there must be loss under one head and income under some other head (b) loss was shown in one business and no question of different heads arose at all. Now it is to be remembered that their Lordships were dealing with a section which was very differently worded from Section 26 of the Bengal Agricultural income tax Act. The language used in the two Sub-sections of Section 26 of the Bengal Agricultural income tax Act is very different from the language used in the different Sub-sections of Section 24 of the Indian income tax Act. Further, by the express words of Sub-section (2) of Section 24, that Sub-section could come into play only where the loss could not be wholly set off under Sub-section (7) and then only the portion not so set off could be carried forward to the following year. The ratio of that decision has no application to the present case.

I am, of the opinion that the Assessee having suffered a loss of Rs. 29,237 under one head and having no income under the other head in that year must by Section 26(2) of the Bengal Agricultural income tax Act, 1944, be deemed to have suffered a loss to that extent in that year. I am, therefore, also of the opinion that that loss could be and was rightly carried forward to the following year and set off against the sum of Rs. 12,684 on which agricultural income tax was computed to be payable by the Assessee for the following year.

I, therefore, propose to answer both parts of the question referred to this Court in the affirmative.

The Assessee will have the costs of the Reference.

Lahiri, C.J.

A agree.