SHANKARANARAYANA CONSTRUCTION CO Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) THESE appeals arise out of two different orders passed by a single Bench of this court whereby w. P. No. 11258 of 1998 (see [1999] 239 ITR 902) and W. Ps. Nos. 10415-17 of 1999 have been dismissed.

(2.) THE appellant--Shankaranarayana Construction Company is a partnership concern. It owns a coffee estate in Chickmagalur and carries on business of growing and selling of plantation crops such as coffee and pepper. In terms of a show cause notice dated February 26, 1998, the Joint commissioner of Income-tax (AIT and CV), Bangalore, called upon the appellant-firm to show cause why assessment order dated April 19, 1996, for the assessment year 1995-96 be not set aside and the Deputy Commissioner of Agricultural Income-tax, Chickmagalur, directed to re-do the assessment on the lines set out in the show cause notice. The notice set out the relevant facts which were to the extent relevant for the present as under : "for the years 1990-91 to 1993-94 assessment was concluded and the income of the firm was determined as loss. Shares of each of the partners was also determined separately which was also a loss and ordered to be carried forward for set off in subsequent years. With the omission of Sections 19a and 19c of the KAIT Act, 1957, from April 1, 1994, the income of the firm is taxable under Section 19 and the share of the loss of the firm can only be set off against the income of the firm under Section 15 of the KAIT Act, 1957. Share of loss of the partners in the firm becomes the loss in the hands of the partner liable to be carried forward as if the loss is incurred by the partner himself. In view of the above scheme of the Act, assessment order dated April 19, 1996, of the assessing authority ordering set off of loss of the partners of the previous years in the income of the firm and further ordering, that the remaining loss to be carried forward to subsequent years for set off in the income of the firm is erroneous, improper and prejudicial to the interest of the Government revenue. In view of the above, the assessment order dated April 19, 1996, for the assessment year 1995-96 passed by the then assessing authority is proposed to set aside and direct the DCAIT, chickmagalur, the present authority to re-do the assessment on the lines of the above observations. "

(3.) AGGRIEVED by the said notice, the appellants filed W. P. No. 11258 of 1998 (see [1999] 239 itr 902) in this court in which they assailed the constitutional validity of the KAIT Act, 1957, as amended by the Karnataka Taxation Laws (Amendment) Act, 1994, and a declaration that the petitioner-firm was entitled to set off the unabsorbed loss allocated to its partners during the preceding years for purposes of computing the assessable income of the firm for the assessment year 1995-96 onwards. A prayer for quashing the show cause notice was also made.