In the loss year the officer recorded that the loss could not be carried forward, and we did not appeal. The officer of the set-off year now says that finding is final against us. Is it?
No. The Supreme Court held that whether a loss may be carried forward to the following year and set off is to be determined by the Income-tax Officer dealing with the assessment of that subsequent year, and that a decision recorded in the loss year — under s.24(3) of the 1922 Act, the provision now corresponding to s.157 — that the loss cannot be set off is not binding on the assessee. Failure to appeal the loss year order therefore does not forfeit the claim.
Decided by the Supreme Court (K. Subba Rao J, J.C. Shah J and S.M. Sikri J) on 1965-11-05, reported as AIR 1966 SC 798 (Supreme Court of India). It bears on section 157, section 72, section 80, section 139 of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
This cuts across the common assumption in both directions, and practitioners should be clear which way it runs. It does not say that the set-off year officer is bound by the loss year determination. It says the opposite: the set-off year officer decides, and an adverse recital in the loss year does not conclude the assessee. That is the assessee's shield when a loss year order says 'not eligible to be carried forward' and the time to appeal has gone. The mirror image is that the Revenue can and does use the same proposition to reopen the eligibility question in the set-off year, and Tribunals have applied it in that direction as well — the s.79 line examining continuity of shareholding in the year of set-off rather than the year of loss is built on this decision. What the case does not decide is the quantum: it is about whether the loss may be set off, not about re-computing the figure the loss year assessment determined. Read alongside s.157, which requires the officer to notify the assessee by an order in writing of the amount of the loss as computed, and s.80, which bars carry forward of a loss not determined in pursuance of a timely return, the practical sequence is: get the loss determined and notified in the loss year; argue eligibility, if it has to be argued, in the set-off year.
Binding on every court and authority in India.
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Lala Manmohan Das was appointed treasurer of the Allahabad Bank Ltd. under an agreement dated 2 January 1931 and was assessed as representing his Hindu undivided family. For assessment year 1950-51 he suffered a net loss of Rs 38,027 in that capacity. In making the assessment for 1950-51 the Income-tax Officer declared that the loss so computed could not be carried forward to the next year under s.24(2) of the Indian Income-tax Act 1922, because it was not a business loss. For assessment year 1951-52 the receipts were Rs 73,815 against outgoings of Rs 39,370, which included a loss of Rs 20,000 by embezzlement at the bank, leaving a net profit of Rs 34,445. The Income-tax Officer refused to set off the earlier year's loss against that profit and the Appellate Assistant Commissioner confirmed him; the Tribunal held the loss could be set off under s.24(2). Two questions were referred: whether the treasurer's income fell under s.10 rather than s.7 or s.12, and whether the assessee could claim the set-off notwithstanding that he had not appealed the earlier year's refusal to allow the loss to be carried forward.
The appeal was dismissed with costs. Whether a loss may be carried forward to the following year and set off against the profits of the same business, profession or vocation is to be determined by the Income-tax Officer who deals with the assessment of the subsequent year, and it is for that officer to decide whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the Income-tax Officer who computed the loss in the earlier year, under s.24(3), that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. On the first question the Court held that on the terms of the agreement the assessee was not a servant of the bank but was carrying on a vocation, so that his income fell under s.10 and s.24(2) was available (paragraphs 4 and 5).
The Court treated the second question as presenting little difficulty. Section 24(3) obliges the Income-tax Officer to notify the assessee of the amount of loss as computed by him where it is established in the course of the assessment of total income that a loss has been suffered; s.24(2) separately confers a statutory right on an assessee who sustains a loss of profits in a business, profession or vocation to carry the unabsorbed loss forward to the following year and set it off against his profits from the same business, profession or vocation for that year. Reading the two together, the Court held that the question whether the loss may be carried forward and set off under s.24(2) has to be determined by the officer dealing with the assessment of the subsequent year; the earlier officer's recital under s.24(3) that the loss cannot be set off does not bind the assessee, so the failure to appeal the earlier order was not fatal. On the first question the Court examined the treasurer's agreement, found that it imposed substantial responsibilities on the treasurer with little control by the bank, and held that he was not a servant; the fact that a person holds an office and is remunerated for it does not by itself create a relationship of master and servant, and the income was therefore assessable under s.10 as income from a business, profession or vocation (paragraphs 4 and 5).
A decision recorded by the Income-tax Officer who computes the loss in the previous year under s. 24(3) that the loss cannot be set off against the income of the subsequent year is not binding on the assessee.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that whether a loss may be carried forward to the following year and set off is to be determined by the Income-tax Officer dealing with the assessment of that subsequent year, and that a decision recorded in the loss year — under s.24(3) of the 1922 Act, the provision now corresponding to s.157 — that the loss cannot be set off is not binding on the assessee. Failure to appeal the loss year order therefore does not forfeit the claim. This was decided by the Supreme Court (K. Subba Rao J, J.C. Shah J and S.M. Sikri J) and bears on section 157, section 72, section 80, section 139 of the Income Tax Act 1961. It is reported as AIR 1966 SC 798 (Supreme Court of India). This cuts across the common assumption in both directions, and practitioners should be clear which way it runs. It does not say that the set-off year officer is bound by the loss year determination. It says the opposite: the set-off year officer decides, and an adverse recital in the loss year does not conclude the assessee. That is the assessee's shield when a loss year order says 'not eligible to be carried forward' and the time to appeal has gone. The mirror image is that the Revenue can and does use the same proposition to reopen the eligibility question in the set-off year, and Tribunals have applied it in that direction as well — the s.79 line examining continuity of shareholding in the year of set-off rather than the year of loss is built on this decision. What the case does not decide is the quantum: it is about whether the loss may be set off, not about re-computing the figure the loss year assessment determined. Read alongside s.157, which requires the officer to notify the assessee by an order in writing of the amount of the loss as computed, and s.80, which bars carry forward of a loss not determined in pursuance of a timely return, the practical sequence is: get the loss determined and notified in the loss year; argue eligibility, if it has to be argued, in the set-off year. If it applies to you, the first step is this: If the loss year order carries an adverse recital about carry forward and the appeal window has closed, do not treat the claim as dead. Raise it in the set-off year and cite this decision for the proposition that the loss year recital does not bind you.
Lala Manmohan Das was appointed treasurer of the Allahabad Bank Ltd. under an agreement dated 2 January 1931 and was assessed as representing his Hindu undivided family. For assessment year 1950-51 he suffered a net loss of Rs 38,027 in that capacity. In making the assessment for 1950-51 the Income-tax Officer declared that the loss so computed could not be carried forward to the next year under s.24(2) of the Indian Income-tax Act 1922, because it was not a business loss. For assessment year 1951-52 the receipts were Rs 73,815 against outgoings of Rs 39,370, which included a loss of Rs 20,000 by embezzlement at the bank, leaving a net profit of Rs 34,445. The Income-tax Officer refused to set off the earlier year's loss against that profit and the Appellate Assistant Commissioner confirmed him; the Tribunal held the loss could be set off under s.24(2). Two questions were referred: whether the treasurer's income fell under s.10 rather than s.7 or s.12, and whether the assessee could claim the set-off notwithstanding that he had not appealed the earlier year's refusal to allow the loss to be carried forward. The matter was decided on 1965-11-05 by the Supreme Court (K. Subba Rao J, J.C. Shah J and S.M. Sikri J). On those facts the Supreme Court held as follows. The appeal was dismissed with costs. Whether a loss may be carried forward to the following year and set off against the profits of the same business, profession or vocation is to be determined by the Income-tax Officer who deals with the assessment of the subsequent year, and it is for that officer to decide whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the Income-tax Officer who computed the loss in the earlier year, under s.24(3), that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. On the first question the Court held that on the terms of the agreement the assessee was not a servant of the bank but was carrying on a vocation, so that his income fell under s.10 and s.24(2) was available (paragraphs 4 and 5).
The Court treated the second question as presenting little difficulty. Section 24(3) obliges the Income-tax Officer to notify the assessee of the amount of loss as computed by him where it is established in the course of the assessment of total income that a loss has been suffered; s.24(2) separately confers a statutory right on an assessee who sustains a loss of profits in a business, profession or vocation to carry the unabsorbed loss forward to the following year and set it off against his profits from the same business, profession or vocation for that year. Reading the two together, the Court held that the question whether the loss may be carried forward and set off under s.24(2) has to be determined by the officer dealing with the assessment of the subsequent year; the earlier officer's recital under s.24(3) that the loss cannot be set off does not bind the assessee, so the failure to appeal the earlier order was not fatal. On the first question the Court examined the treasurer's agreement, found that it imposed substantial responsibilities on the treasurer with little control by the bank, and held that he was not a servant; the fact that a person holds an office and is remunerated for it does not by itself create a relationship of master and servant, and the income was therefore assessable under s.10 as income from a business, profession or vocation (paragraphs 4 and 5). In the words reproduced by the source cited on this page: "A decision recorded by the Income-tax Officer who computes the loss in the previous year under s. 24(3) that the loss cannot be set off against the income of the subsequent year is not binding on the assessee."
It was decided by the Supreme Court on 1965-11-05 and is reported as AIR 1966 SC 798 (Supreme Court of India). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 157, section 72, section 80, section 139, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed with costs. Whether a loss may be carried forward to the following year and set off against the profits of the same business, profession or vocation is to be determined by the Income-tax Officer who deals with the assessment of the subsequent year, and it is for that officer to decide whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the Income-tax Officer who computed the loss in the earlier year, under s.24(3), that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. On the first question the Court held that on the terms of the agreement the assessee was not a servant of the bank but was carrying on a vocation, so that his income fell under s.10 and s.24(2) was available (paragraphs 4 and 5). It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 157, section 72, section 80, section 139 of the Income Tax Act 1961, and was decided by K. Subba Rao J, J.C. Shah J and S.M. Sikri J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Still ask for and preserve the s.157 intimation for the loss year: it is the document that fixes the amount of the loss as computed, and the amount is a different question from eligibility. Expect the argument to be used against you too. Where continuity of shareholding under s.79 is in doubt, or whether any business or profession at all was carried on and assessable in the set-off year under the surviving words of s.72(1)(i), the officer of the set-off year is entitled to examine it even though the loss was determined years earlier. Do not concede an identity-of-business enquiry: the proviso to s.72(1)(i), which required the business for which the loss was computed to be continued in the year of set-off, was omitted by the Finance Act, 1999 with effect from 1 April 2000, so from AY 2000-01 a brought-forward business loss is set off against the profits of any business or profession the assessee carries on. Read the holding against the current statute. The case construes ss.24(2) and 24(3) of the Indian Income-tax Act 1922; the corresponding provisions of the 1961 Act are s.72 and s.157, and the conditions on carry forward — s.80 read with s.139(3), s.72(2) and (3), s.78, s.79 — are those of the current Act, not of 1922. Where the question is whether the activity is a business at all, note the second holding: remuneration for holding an office is not necessarily employment income, and whether the receipt is from a business, profession or vocation decides whether the loss is carried forward at all.
Still good law. The proposition has been applied steadily and recently. Decisions reproducing it include ACIT v. Anant Raj Ltd. (ITAT Delhi, 11 May 2020), M/s International Fresh Farm Products v. ITO (ITAT Chandigarh, 7 August 2023), Additional CIT v. Central Bank of India (Bombay High Court, 18 February 1984), Anant Mills Ltd. v. CIT (Gujarat High Court, 2 September 1992), CIT v. Sree Valliappa Textiles Ltd. (Karnataka High Court, 8 August 1986) and CIT v. Century Flour Mills Ltd. (Madras High Court, 30 April 1998). No decision doubting or distinguishing it has been found, and none was specifically looked for. Two limits a reader must keep in view. The judgment construes ss.24(2) and 24(3) of the Indian Income-tax Act 1922; the corresponding provisions of the 1961 Act are s.72 and s.157, and the conditions attached to carry forward today, including s.80 read with s.139(3) and s.79, are not those the Court was reading. And the holding is about eligibility to set off, not about re-opening the quantum determined in the loss year; no authority on the quantum question has been examined here. A third limit is worth adding, because it cuts the other way. Since it is the set-off year officer who decides eligibility, the proposition is as available to the Revenue as to the assessee, and a taxpayer who uses it to escape an adverse recital in the loss year cannot complain when the conditions are examined afresh in the later year. The protection that actually holds is procedural: have the loss determined and notified under s.157 in the loss year, on a return filed within the time s.139 allows, so that s.80 is satisfied and only eligibility is left to argue. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Paragraphs 4 and 5 of the judgment were obtained as full verbatim transcriptions through indiankanoon's print view, and the transcription preserves an apparent misprint in the original — 'set off against the profits and against the same business, profession or vocation' — which has been reproduced here without correction in the reasoning. The quoted sentence was verified indirectly: a search on indiankanoon for the phrase 'who computes the loss in the previous year' together with 'is not binding on the assessee' returned 47 decisions reproducing the proposition, which both confirms the words and shows how widely it is relied on. The date given on the report read is 5 November 1965 while the citation on the same page is AIR 1966 SC 798; both are recorded here as they appear. The Income Tax Reports citation commonly given for this decision was not verified and has therefore been left out. No Civil Appeal number was visible on the page read. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed with costs. Whether a loss may be carried forward to the following year and set off against the profits of the same business, profession or vocation is to be determined by the Income-tax Officer who deals with the assessment of the subsequent year, and it is for that officer to decide whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the Income-tax Officer who computed the loss in the earlier year, under s.24(3), that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. On the first question the Court held that on the terms of the agreement the assessee was not a servant of the bank but was carrying on a vocation, so that his income fell under s.10 and s.24(2) was available (paragraphs 4 and 5).
TaxSphere, “CIT v Manmohan Das (Deceased)”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-manmohan-das-loss-year-determination-not-binding-on-assessee/ (validity last checked 2026-09-07)
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