T P KAPADIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) These are three references made at the instance of the Assessee under S.256(1) of the Income Tax Act, 1961, hereinafter called the 1961 Act. They relate to the assessment years 1961-62, 1962-63 and 1963-64. The Assessee is Dr. T. P. Kapadia. His assessment for 1961-62 was made under the Indian Income Tax Act, 1922, hereinafter called the 1922 Act. His assessments for 1962-63 and 1963-64 were made under the 1961 Act. The Assessee's wife Mrs. Kapadia was a partner of three firms in which the Assessee was a partner during the three assessment years. When the Income Tax Officer made the assessments, he invoked the provisions of S.16(3) of the 1922 Act for the assessment year 1961-62 and S.64 of the 1961 Act for the assessment years 1962-63 and 1963-64 and included the profits or losses arising to Mrs. Kapadia in the assessment of the Assessee. After the completion of the original assessments, the Income Tax Officer became aware of the decision of the Gujarat High Court in DayalBhai Madhavj Vadera v. Commr. of I. T., Gujarat, 60 ITR. 551 wherein it was held that 'where the share of the wife or minor child in a firm in which the assessee is a partner is a loss, such loss cannot be included in the total income of the assessee'. Therefore he reopened the assessments under Section 147 (b) of the 1961 Act and redetermined the income of the Assessee withdrawing the benefit of the loss which had been taken into account while computing the total income of the Assessee. The Assessee's appeals to the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal, Bangalore Bench were dismissed. The Tribunal, following the decision in Dayalbhai's case (1), affirmed the assessment orders of the Income Tax Officer.

(2.) The following questions of law have been referred to this Court in ITRC. 17 of 1970 and they relate to the assessment year 1961-62. (1) Whether on the facts and in the circumstances of the case and on a proper interpretation of S.16 (3) of the Indian Income-tax Act, 1922, the share of the losses of the wife of the assessee in registered firms where the assessee is also a partner could be set off against the income of the assessee while computing the total income? (2) Whether on the facts and m the circumstances of the case the net income of the wife from the various firms in which her husband is also a partner should first be computed before applying the provisions of S.16, (3) of the Indian Income-tax Act, 1922.

(3.) In ITRC. 'Nos.18 and 19 of 1970 which relate to the assessment years 1962-63 and 1963-64, the following questions have been referred. (i) Whether on the facts and in the circumstances of the case and on a proper interpretation of S.64 of the Income-tax Act, 1961, the share of the loss of the wife of the assessee in registered firms where the assessee is also a partner could be set off against the income of the assessee while computing the total income? (ii) Whether on the facts and m the circumstances of the case the net income of the wife from the various firms in which her husband is also a partner should first be computed before applying the provisions of S.64 of the Income-tax Act, 1961 ? S.64 of the 1961 Act corresponds to S.16(3) of the 1922 Act though they are not identical in terms and the later Act has made some changes. So far as the questions referred for our decision are concerned, the difference made in the two enactments is of no consequence. S.16(3) of the 1922 Act reads: