Commissioner of Income Tax vs B.V.R. Glucose Products Ltd.

S. Ananda Reddy, J.—At the instance of the revenue, the Tribunal, Hyderabad Bench, referred the following questions arising out of the order of the Tribunal in IT Appeal No. 1530 of 1986, dated 16-1-1989, for the opinion of this Court u/s 256(1) of the income tax Act, 1961 (''the Act''): 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in allowing carry-forward and set-off of loss of assessment year 1983-84 to subsequent assessment years, even though the return was filed by the assessee in response to notice issued u/s 148 of the income tax Act, 1961?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the return filed by the assessee in response to notice issued u/s 148 could be treated as a return filed u/s 139(3) of the income tax Act, for the purpose of allowing carry-forward and set-off of loss to subsequent assessment years?

The brief facts of the case are as under: The assessee is a private limited company. The dispute relates to the assessment year 1983-84 for which the relevant previous year ended on 30-11-1982. The assessee filed its return of income on 27-9-1985 in response to a notice u/s 148 of the Act declaring a loss of Rs. 5,28,024. The ITO held that the assessee during the year had not carried on any manufacturing activity and there was no business activity during the year and so the loss claimed by the assessee cannot be allowed. He was also further of the view that the return having been filed in response to a notice u/s 148, the assessee will not be entitled to the benefit of the carry-forward of the loss. He, accordingly, closed the assessment as N.A. On appeal, the Commissioner (Appeals) held that the provisions of section 148 are intended only for the benefit of the revenue and not for the assessee and in the above circumstances, he held that the ITO was justified in rejecting the assessee''s claim for loss. The assessee carried the matter in further appeal to the Tribunal. Before the Tribunal, the assessee contended that for the assessment year in question the assessee is entitled to file its return within a period of two years for the end of the assessment year. Merely because the ITO had in the meantime issued notice u/s 148, the assessee would not loose the benefit of loss to be carried forward. The assessee also relied upon a decision of the Madhya Pradesh High Court in the case of Co-operative Marketing Society Ltd. Vs. Commissioner of Income Tax, and also relied upon the decision of the Supreme Court in the case of Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., The Tribunal after considering the contentions held that though the return was filed in response to a notice u/s 148, as the said return was filed within the time allowed u/s 139(4) of the Act, the assessee would be entitled to the benefit of the loss. According to the Tribunal, the decision of the Madhya Pradesh High Court as well as the decision of the Supreme Court referred to earlier would support the case of the assessee. Therefore, allowed the appeal of the assessee and the ITO was directed to make assessments and compute the loss suffered by the assessee for the assessment year in question.

The learned senior standing counsel for the department contended that the Tribunal was not justified in ignoring the restrictive provisions contained in section 139 in order to have the benefit of loss determined and carried forward to the subsequent years; that in order to get the benefit of the loss one has to file a return as provided in section 139(3) and if any assessee fails to file a return as contemplated thereunder, he would not be entitled to the benefit of the loss to be carried forward. The learned counsel also contended that a bare perusal of the provision shows that in order to have the benefit, a return has to be filed within the time provided u/s 139(1) or within the further time as may be extended by the ITO in his discretion and not beyond. The learned counsel also contended though the provisions of section 139(4) give the liberty to the assessee to file a return even after the expiry of the time prescribed u/s 139(4), but within the time specified therein and before the completion of the assessment, the same would not entitle the assessee to have the benefit of the loss carry forward. The learned counsel strongly contended that the legislative intention is very clear that though an extended period of time was provided u/s 139(4) for filing of a return beyond the time specified u/s 139(1), but, however, the Legislature has consciously restricted the time-limit insofar as the loss returns are concerned to have the loss to be carried forward. Therefore, it was contended that in section 139(3) it was specifically restricted that only those assessees who have filed their returns within the time provided u/s 139(1) are entitled for the said benefit. The learned counsel also contended that the return filed by the assessee in the present case is only a return filed in response to a notice issued u/s 148. That the provisions u/s 148 are intended only for the benefit of the revenue and not for the benefit of the assessee. Therefore, the return filed in response to a notice u/s 148 would not be counted for the benefit of the assessee. The learned counsel also contended that the decision of the Supreme Court in the case of Kulu Valley Transport Co. (P.) Ltd. (supra), would not be applicable to the present case as the said judgment was rendered under the provisions of the Indian income tax Act, 1922. The learned counsel also relied upon a decision of the Calcutta High Court in the case of Koppind Pvt. Ltd. Vs. Commissioner of Income Tax,

For the assessee none appeared.

The issue to be decided in this reference is whether the assessee is entitled to the benefit of carry-forward of the loss when a return was filed in response to a notice u/s 148 before the expiry of the time contemplated u/s 139(4).

Before going into the merits of the case, it would be convenient to extract the relevant provisions of section 139 which are applicable for assessment in question:

Return of income.-(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed-

(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later;

(b) in the case of every other person, before the 30th day of June of the assessment year:

Provided that, on an application made in the prescribed manner, the income tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8).

(2) In the case of any person who, in the income tax Officer''s opinion, is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the income tax Officer may, before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed:

Provided that on an application made in the prescribed manner, the income tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8).

(3) If any person who has not been served with a notice under sub-section (2), has sustained a loss in any previous year under the head ''Profits and gains of business or profession'' or under the head ''Capital gains'' and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72, or sub-section (2) of section 73, or sub-section (1) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) or within such further time which, on an application made in the prescribed manner, the income tax Officer may, in his discretion allow, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1).

(4) (a) Any person who has not furnished a return within the time allowed to him under sub-section (1) or sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in clause (b), and the provisions of sub-section (8) shall apply in every such case;

(b) The period referred to in clause (a) shall be-

(i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year;

(ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968, three years from the end of the assessment year;

(iii) where the return relates to a previous year relevant to any other assessment year, two years from the end of such assessment year.

Section 80 of the Act also deals with the submission of return for losses. Therefore, the same is also extracted hereunder:

Submission of return for losses. -Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed u/s 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) of section 74 or sub-section (3) of section 74A.

A perusal of the provisions of section 139 shows that under the scheme of the Act every person if his total income or the income of any other person in respect of which he is assessable under this Act during the previous year exceeded maximum amount which is not chargeable to income tax, shall furnish a return of his income or the income of such other person within the time specified under sub-section (1) of section 139. Similarly, under sub-section (2) of section 139, if the ITO is of the opinion that any person is assessable under the Act, he may issue notice requiring him to furnish a return within 30 days from the date of service of the notice or within such further time he may extend. Sub-section (3) of section 139 provides that if any person who has not been served with a notice under sub-section (2), has sustained a loss in any previous year and claimed that the loss or any part thereof should be carried forward, under the provisions specified thereunder, he may furnish within the time allowed under sub-section (1) or within such further time as the ITO may in his discretion allowed a return of loss. Sub-section (4) of section 139 further provides that any person who has not filed a return either under sub-section (1) or sub-section (2) may, before the assessment is made, furnish a return for any previous year at any time before the end of the period specified in clause (b) or that sub-section (two years from the end of the relevant assessment year). Further, section 80 also contemplates that in order to have the benefit of carry-forward of the loss, the loss has to be determined in pursuance of a return filed u/s 139.

In the present case, it is not in dispute that the assessee-company did not file its return within the time allowed under sub-section (1) of section 139. No notice was issued by the ITO u/s 139(2) calling upon the assessee-company to file a return. But a return of loss was filed in response to a notice u/s 148 on 27-9-1985. The claim of the assessee is that the assessment year in question is 1983-84 and two years if counted from the end of the assessment, the assessee-company has time to file a return u/s 139(4) up to 31-3-1986. But, however, a return was filed before the expiry of the said period in pursuance of a notice issued u/s 148. Therefore, the return filed by the assessee-company is within the time contemplated and, therefore, the assessee-company was entitled to for the determination as well as carry-forward of the loss declared in the return. This contention was accepted by the Tribunal. The contention of the revenue is that in order to have the benefit of the loss to be determined and carry forward, a return as contemplated u/s 139(3) has to be furnished. The return, as furnished by the assessee-company, is not in accordance with the return as contemplated u/s 139(3). To be precise, according to the revenue, the return ought to have been filed within the time specified u/s 139(1) or within further time extended by the ITO but not a return as provided u/s 139(4). This issue was considered by the Supreme Court in the case of Kulu Valley Transport Co. (P.) Ltd. (supra). Therefore, the contention of the revenue has to be considered in the light of the said decision. In the above said case, the Supreme Court considered an almost identical issue, but under the provisions of the 1922 Act, which are almost in pari materia with the provisions of the 1961 Act. In that case, the dispute related to the assessment years 1953-54 and 1954-55. Kulu Valley Transport Company, assessee therein, filed its loss return in January, 1956. The relevant provision under the 1922 Act is section 22. Sub-section (1) of section 22 contemplates a notification to be issued by the ITO calling for the filing of the returns within a specified period, not less than 60 days from the date of the publication of the notification. Under sub-section (2) of section 22, the ITO may serve a notice on any person, whose total income in the opinion of the ITO rendered him liable to be assessed to income tax, requiring him to furnish a return. Sub-section (2)(a) of section 22, which was added with effect from 1-4-1952, provides, if any person who was not served with a notice under sub-section (2), has sustained a loss in any previous year and such a loss or any part thereof, he shall, if he is to be entitled to the benefit of carry-forward of the loss in any subsequent year, furnish within the time specified under sub-section (1) or within such further time as the ITO may allow a return of total income. Sub-section (3) of section 22 makes the assessee to file a return voluntarily, if he has not filed any return under sub-section (1) or (2) of that section, at any time before the assessment was made. While considering the above said provisions, the Apex Court held that even though the assessee therein did not file a return within the time provided under sub-section (1) of section 22, but as the assessee has still filed a return within the time provided under sub-section (3) of section 22, is entitled to the benefit and the said return must be treated as a return u/s 22(1). It was further observed that in order to get the benefit of the carry-forward of the loss u/s 24(2), the assessee must submit his loss return within the time specified u/s 22(1). That provision must be read with section 22(3) for the purpose of determining the time within which a return has to be submitted. The Apex Court further observed that it can well be said that section 22(3) is merely a proviso to section 22(1). Thus, a return submitted at any time before the assessment is made, is a valid return. In considering whether a return made is within the time, sub-section (1) of section 22 must be read along with sub-section (3) of that section. 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) also must be held to have been complied with. Holding so, it was held in favour of the assessee while affirming the decision of the High Court.

As the present provisions of section 139 are in pari materia, the interpretation that was given by the Apex Court with reference to the above provisions is binding on this Court and, therefore, the provisions are to be interpreted in the light of the above decision of the Apex Court. It is not in dispute that u/s 139(1) a voluntary return is contemplated within a specified time. u/s 139(2), the ITO has the option to issue a notice, if according to him, any of the assessee who is liable to be assessed, has not furnished a return. Sub-section (3) of section 139 provides for determination of the loss in respect of a return filed u/s 139(1) or 139(2), to be carried forward. Sub-section (4) provides extended time for filing of the return before completion of the assessment (two years are provided for completion of the relevant assessment year). If the ratio of the Apex Court in the case of Kulu Valley Transport Co. (P.) Ltd. (supra) is applied, the return filed under sub-section (4) has to be treated as a return within the time contemplated u/s 139(1), with all its consequences. But the contention of the revenue was that there is no reference in sub-section (3) of section 139, as to the return either filed or to be filed under sub-section (4). Therefore, a return filed under sub-section (4) would not get the benefit of determination of the loss to be carried forward for the subsequent assessment years. This contention in our opinion has no merit to stand in the light of the decision of the Apex Court, referred to earlier. If the principle as laid down by the Apex Court is applied, sub-section (4) has to be read as proviso to sub-section (1), in which case a return filed under sub-section (4) has to be treated as a return under sub-section (1) and in which case the loss determined is to be allowed to be carried forward in terms of sub-section (3) of section 139.

Apart from the above, even section 80 which provides for the submission of returns of loss, contemplates determination of the loss in pursuance of a return filed u/s 139 and not under sub-sections (1) or (2) of section 139. Therefore, it can be safely inferred that the return contemplated u/s 80 includes a return filed under sub-section (4) and if so interpreted, the assessee-company is entitled to the benefit of determination of the loss and carry forward to the subsequent assessment years.

Another argument that was advanced by the learned counsel for the revenue was that, in the present case, the return was not filed voluntarily but was filed in pursuance of a notice u/s 148, therefore, the same should not be treated as a return filed under sub-section (4) of section 139. We are unable to accept the contention of the revenue. Admittedly, the assessee-company has got time till 31-3-1986 for filing of a return in terms of section 139(4). But, before the expiry of the said time, if the revenue issues a notice u/s 148 which makes the assessee to file a return, the same does not deny or deprive the statutory right under which the assessee-company can file a return within the time provided. It is not the case of the revenue that the return in response to the notice u/s 148 was filed after the expiry of the period provided u/s 139(4). If the contention of the revenue is accepted, it would lead to anomalous results and thereby discriminating the assessee''s and affecting their statutory rights that are provided. The return was admittedly filed before the expiry of the time provided u/s 139(4). Therefore, the same has to be treated as a return contemplated under the said section, even though the same was filed in response to a notice u/s 148. In fact, a similar issue was considered by the Madhya Pradesh High Court in the case of Co-operative Marketing Society Ltd. (supra) and the Madhya Pradesh High Court took the view that a return filed in pursuance of a notice u/s 148 after the period prescribed under sub-section (1) or (2) but within the time allowed under sub-section (4) of section 139 should be treated as return u/s 139(4). Hence, the loss determined by the ITO for the assessment years can be said to be loss determined in pursuance of the returns filed u/s 139.

Though the learned standing counsel relied upon a judgment of the Calcutta High Court in the case of Koppind (P.) Ltd. (supra) but in that case a loss return was filed even after the expiry of the period prescribed u/s 139(4). In fact, in the said judgment the Calcutta High Court held that the provision of section 148 is meant exclusively for the protection of the public exchequer from loss of revenue. It is a section meant to be beneficial exclusively to the revenue. Therefore, it was held that the assessment in pursuance of a return filed u/s 148, read with section 147 have distinct and separate character and purpose. Holding so, it was held that the assessee is not entitled to the benefit of carry forward of the loss declared in the return filed in pursuance of a notice u/s 148. The facts of that case are totally different vis-a-vis the facts of the present case. In the present case, the period prescribed u/s 139(4) did not expire though return was filed in pursuance of a notice u/s 148. As we have already held earlier, by issuing a notice u/s 148, the statutory rights conferred on the assessee cannot be taken away and if so, the assessee is entitled to file a return at any time before the expiry of the period prescribed under the statute. Therefore, this decision is not of any assistance to the revenue.

For the above foregoing reasons, we agree with the view taken by the Tribunal that the assessee is entitled to the benefit of the loss to be determined and carry forward for setting off against the income of the subsequent years. Accordingly, we answer the question referred for the opinion of this Court in the affirmative and against the revenue and in favour of the assessee.