COMMISSIONER OF INCOME TAX Vs. RAM SWARUP GUPTA

JUDGEMENT

(1.) In the calendar year 1957, Ram Swarup Gupta was carrying on business both as an individual and as a partner in an unregistered firm known as M/s. Rashtarya Grab Udyog. According to him, this firm was owned by him till 1st September, 1957, when it became a partnership. He had sufferred a loss up to 31st August, 1957 in this business to the extent of Rs. 13.041.00. In his assessment for the year 1958-59, he claimed that this loss of Rs. 13,041.00 which was incurred by him before 1st September, 1957, should be deducted from his other business income. The Income Tax Officer disallowed this amount on the ground that the partnership had taken over the assets and liabilities of the business on 1st September, 1957, and the loss was not sufferred by the assessee as a proprietor of the firm.

(2.) On appeal to the Appellate Assistant Commissioner, it was held that the assessee had not been able to show that the firm came into existence on 1st September, 1957, or that he was the proprietor of the business before that date. It was observed in the order that the firm and the assessee were separate for the purposes of assessment of the loss of the firm, which besides being not quantified, could not be set off against the profits of the assessee. The assessee appealed to the Income Tax Tribunal. On the basis of the decision of the Bombay High Court in Commissioner of Income Tax, Bombay South, Poona V. Jagannafh Narsingdas Umri^) the Tribunal accepted the appeal and held that the assessee was entitled to adjust the loss claimed While computing his profits and gains from business under Section 10 of the Income Tax Act, 1922. It was also held that the second Proviso to Section 24 (1) of the Act did not apply. The Tribunal directed that the loss allowable in the assessee's hands should be verified .by the Income Tax Officer and should be allowed to the extent of the actual loss incurred after verification.

(3.) A reference was sought by the Commissioner of Income Tax, Delhi, and a direction was issued by this Court in Income Tax Case No.l4-D of 1966 calling for a statement of the case on the following question:-